Welcome to Anheuser-Busch InBev Second Quarter 2022 Earnings Conference Call and Webcast. Hosting the call today from AB InBev are Mr. Michel Doukeris Chief Executive Officer; and Mr. Fernando Tennenbaum, Chief Financial Officer.

To access the slides accompanying today's call, please visit AB InBev's website at www.ab-inbev.com, and click on the Investors tab and the Reports and Results Center page. Today's webcast will be available for on-demand playback later today. [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 risks and important 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 18th of March 2022.

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. Michel Doukeris. Sir, you may begin..

Thank you, Jessie, and welcome, everyone, to our second quarter 2022 earnings call. It is a pleasure to be speaking with you all today. Today, Fernando and I will take you through our second quarter operating highlights and provide you with an update on the progress we have made in the execution of our strategic pillars.

We will then be happy to answer your questions. So let's start with our operating performance. Our momentum continued this quarter, and we are very pleased with the ongoing strength of our business.

We delivered top line growth of 11.3%, with 3.4% volume and 7.5% revenue per hectoliter growth, driven by the expansion of the beer category, ongoing premiumization supported by increased investments in our brands and revenue management initiatives across our markets.

Despite the dynamic operating environment, we continue to meet the moment, growing EBITDA by 7.2%. Normalized EPS was $0.75 and the underlying EPS was $0.73. Gross debt decreased by $5.5 billion in the first half of this year, and our net debt to normalized EBITDA decreased to 3.86x.

Our performance this quarter was broad-based, and we delivered top line growth across all 5 of our regions with volume growth in over 60% of our markets. Our diverse geographic footprint and balanced EBITDA contribution provide a unique combination of growth and strong cash generation. Now I would like to share some highlights from our key markets.

In the U.S., I would like to start by highlighting the resilience of the beer industry. Even in the current dynamic operating environment, we have seen gradual improvement throughout the quarter and an increase in value from pre-pandemic levels. While our volumes underperformed the industry. our business delivered another quarter of top line growth.

We remain confident in our long-term strategy focused on rebalancing the portfolio. Our above core portfolio continues to outperform, led by Michelob ULTRA, which grew volumes by double digits.

Within the spirits-based ready-to-drink segment, our portfolio once again outperformed the industry with both water and Nütrl vodka seltzer growing in strong double digits. In Mexico, we outperformed the industry. delivering double-digit top and bottom line growth.

Our core brands delivered high single-digit volume growth and our above core portfolio once again grew by double digits, led by Modelo and Michelob ULTRA. Over 60% of our bus customers are now also this marketplace buyers.

In Colombia, we delivered double-digit top and high single-digit bottom line growth and continue to expand the beer category, again, reaching all-time hyper capital consumption. Our premium and super-premium portfolio reached a record high volume, delivering over 40% growth led by our global brands and local premium brands, include Colombia.

Our business in Brazil delivered 26.8% top line growth and a strong 34.3% increase in EBITDA. Brazil is a great example of our evolution towards becoming a tech-first FMCG. Our advanced digital transformation allows us to capture both growth and operating efficiencies.

Our beer volumes once again outperformed the industry, growing by 8.5%, led by our core brands, and over 20% volume growth of our premium and super premium brands. In a nutshell, our business in Brazil delivered across all 5 levers of our category expansion framework.

In Europe, we delivered high single-digit top and double-digit bottom line growth, driven by on-premise reopening, ongoing premiumization and implementation of revenue management initiatives. Our portfolio continues to premiumize with growth this quarter led by our global and super premium brands.

Our business in South Africa delivered high single-digit top and double-digit bottom line growth despite significant production constraints in April and May due to floods impacting our prospect um brewery. Underlying demand for our portfolio remained strong.

Our leading core brands delivered continued revenue growth and our premium and super premium deal beer portfolio outperformed this quarter. delivering a double-digit increase in revenues. In China, the implementation of COVID-19 restrictions led to a total industry decline of mid-single digits in the quarter according to our estimates.

These restrictions disproportionately impacted our key regions and channels, leading to a revenue decline of 5.1%. Underlying consumer demand for our brands remained strong. As restrictions eased in June, both our premium and super premium portfolios returned to volume growth, increasing by double digits.

I would like to now turn your attention to a few ESG highlights. In the second quarter, we made progress across our ESG priorities with select highlights including advancing circularity in our operations. We opened the first full-scale ever grain production facility in St.

Louis, towards cycle barley using our brewing process into high-quality, sustainable protein ingredients, building a resilient value chain. We brought together more than 250 supply chain partners with the launch of our global collaboration initiatives, equips to drive climate action and decarbonization. Fostering entrepreneurship and innovation.

We hosted the third annual demo date of our 100-plus accelerator program with our CPG partners. 34 start-ups showcased pilots to progress our sustainability goals as water stewardship, climate action, smart agriculture, circular packing and upcycling. Now let's move on to our strategic pillars. And let's start with Pillar 1, lead and grow the category.

Our brand and the creative work that brings them to light and connects them with our consumers is a true passion point of mind. At this year, Canyon's international fastball creativity, our marketing teams achieved their best performance ever, winning 50 awards, a record high for our company.

These 50 awards were distributed across of our key countries and 9 brands. We were especially honored for being awarded the Creative Marketer of the Year, and the creative effectiveness Grand Prix for Michelob ULTRA contract for change campaign.

Big congratulations to our teams and partners for this extraordinary achievement and recognition of the progress in our creative marketing capabilities. Now let me take you through our category expansion levers. First, we continue to focus on making the beer category more inclusive for all consumers.

This quarter, consumers' participation within our portfolio increased in the majority of our key markets, driven by brand, pack and liquid innovations. Second, we are offering superior core propositions.

Our mainstream portfolio delivered high single-digit revenue growth this quarter, led by strong performances of our core brands in Brazil, Mexico and Colombia. Third, occasions development. Our global brand Stella Artois grew revenues by 7.7% outside of its home market, led by the focus on the new occasion in key markets such as Brazil and Colombia.

Fourth, we are advancing premiumization. This quarter, our above core portfolio grew revenue by approximately 12%, led by continued double-digit growth of Michelob ULTRA in the U.S. and Mexico and the expansion of Spartan in Brazil. Our global brands continue to drive premiumization across all markets.

The combined revenues of Budweiser, Stella Artois and Corona grew by 9.7% outside of the brand's home market, led by Corona with 18.2% and Stella Artois with 7.7% growth. Budweiser grew by 6.1% despite the impact of COVID-19 restrictions in China, the brand's largest market. Finally, we continue to expand the category with our beyond beer offerings.

Our global bind beer business contributed over USD 425 million of revenue in this quarter. In the U.S., our spirits base is ready-to-drink portfolio continued to grow ahead of the industry, led by Cutwater and Nütrl vodka seltzer. And in South Africa, Brutal Fruit and Flying Fish delivered continued double-digit growth.

Innovation this quarter supported the expansion across each of the 5 levers of our framework, contributing approximately 8% of our total revenue this year. Now let's turn to our second strategic pillar, digitize and monetize our ecosystem.

As we invest to become a tech first FMCG company, this continues to see a remarkable acceleration in usage and reach, capturing USD 7.4 billion in GMV this quarter, a 64% increase year-over-year. We have now 2.9 million monthly active users, generating over 1.9 million orders per week.

In 12 of the 18 countries, our customers are also able to purchase third-party products through this marketplace. This marketplace offers a consolidated order and deliver management platform, solving pain points and empowering our customers to grow.

We continue to increase adoption and expansion of product availability as 40% of these customers in these markets are also buyers from this marketplace. To date, we have over 100 partners providing more than 500 brands through the platform, generating annualized revenues of USD 800 million.

is winning partnership empowers our customers to grow via the benefits of digital inclusion and enables our partners to benefit from our world-class platform. in highly engaged this user base. Now let's talk about direct-to-consumer business. This quarter, our DTC products generated USD 385 million in revenues.

The number of online orders surpassed 16 million transactions this quarter, driven by the delivery in Brazil and the continued expansion of our on-demand platform in 10 additional markets in Latin America. With that, I would like to hand it over to Fernando to discuss the third pillar of our strategy, optimizing our business..

optimizing resource allocation; robust risk management; and efficient capital structure. With respect to capital allocation, we're going to maximize long-term value creation by dynamically balancing our priorities. We continue to invest in organic growth and support our strategy to lead and grow the category and digitize and monetize our ecosystem.

The excess cash generated by our business is then dynamically allocated to our other capital allocation priorities, deleveraging, selective M&A and return of capital to shareholders. In line with our capital allocation priorities, we continue to make progress on deleveraging.

Our gross debt reduced by USD 5.5 billion in the first half of 2022, and our net debt-to-EBITDA ratio decreased to 3.86x. As you can see on the next slide, our debt maturity profile remains well distributed with no near- and medium-term refinancing needs.

We had USD 3.2 billion of bonds maturing through 2025 and more than sufficient cash on hand today to redeem all of these bonds. Our bond portfolio has an average pretax coupon of 4% and a weighted average maturity greater than 16 years.

Moreover, our debt portfolio does not have any financial covenants and is comprised of a right of currencies diversifying our FX risk. In addition, 94% of our bonds have a fixed rate, insulated from interest rate volatility and inflation. Now let me walk you through the drivers of our underlying EPS for the quarter.

Underlying EPS was $0.73 per share, $0.02 lower than the second quarter last year. This was driven by an increase in net finance costs and higher income tax expenses. Net finance costs increased largely due to foreign exchange losses, which accounted for $0.04. These losses were a result of FX translation of cash held in foreign subsidiaries.

I'll now hand it back to Michel for some final comments.

Michel?.

Thanks, Fernando. I would like to take a few minutes to recap our reflections and learnings and how we continue meeting the moment in 2022. The beer category continues to demonstrate the strength. We are operating in a big, profitable and growing category.

Beer continues to gain share of throat globally, and we are well positioned to capture this growth as we hold the #1 position in 7 of the top 10 global beer craft posts.

Our business has momentum, driven by relentless execution of our strategy, the strength of our brands and our accelerated digital transformation, our business delivered sustained profitable growth. On top of that, this year presents unique opportunities to activate demand.

such as continued on-premise reopening and return of marquee events such as the World Cup in the second half of this year. In conclusion, we are confident in our business fundamentals and our team's ability to continue to meet the moment and create a future of more shares. I would now like to hand it over to Jesse to begin the Q&A session..

[Operator Instructions]. Our first question is coming from the line of Simon Hales with Citi..

Good morning, Michel. Good Morning, Fernando.. Two questions for me, please.

I mean could you talk a little bit, Michel, about sort of what is the strong revenue per hectoliter increase you continue to see in Q2? And whether that robust pricing that continues to go through in your markets around the world is having any real underlying effect on consumer offtake trends.

I wonder specifically in the U.S., whether some of the recent pickup we've seen in sort of the lower priced beer brands like Busch as a reflection of some of the pricing and inflationary moves in the market.

Just interested in your color there? And secondly, maybe 1 for Fernando around the tax credits in Brazil, which were clearly positive in the quarter. Is that a one-off really in Q2, Fernando. I mean, obviously, you had something last year as well.

But should we expect any more tax create to support the numbers into Q3 and beyond?.

Simon, thank you for the question. I'll take the first one on revenue and then hand it over to Fernando. But when we think about revenue, we discussed at the beginning of this year, as we announced the year-end results that majority of our price increase and revenue actions were in place.

So we had this incoming revenue momentum and the price in place in majority of the markets. And as we look at that, we continue to very carefully analyze and access the situation market by market, given the current environment and trying to assertively balance the consumer demand and the value proposition of our brands.

Up to date, let's say, based on what we saw in the first half of the year and our own volume performance, you don't see any deceleration on the trend. So beer continues to grow globally and gain share of growth in most of the relevant markets. So good performance good incoming momentum.

And as we go deeper market by market, I think that you had this question, there is always 2 tails of the stories in the U.S. and globally, you see premiumization as a big trend that's not slowing down. And of course, there are brands performing differently market to market. The Busch Light point that you asked here is not new.

Busch Light is in a big run for several quarters already, growing as 1 of the top growth brands in the U.S., very healthy, expanding from the inner parts of the country are growing now to more regions, and it continues to accelerate.

But I don't think that has any relation to short-term pressure on consumers or trade down is much more brand momentum behind Busch Light that's working very well. So I would say that on a consolidated view and even specifically in the U.S. we don't see now signals of trading down or slow down. Historically, though, we know that beer is very resilient.

That consumers trade out of some categories, but not really beer because of its affordability. And we often see more expensive beverage trading now towards spring beer. So often, what we see is an acceleration of premium beer growth when you have some inflationary scenarios and consumers under pressure. But up to date, things moving quite well.

And the biggest evidence of that is the growth of beer globally according to Aero monitor and IWSR and our own volume growth of 3.4%..

And Simon, on your second question, so the tax credits in Brazil were more of a one-off this quarter. There is always kind of a tax decisions out there, but it's not a recurring item that we should be expecting. And the only highlight that I would say is that even though it has a benefit in the total EBITDA and EPS is excluded from our organic growth.

So the organic growth number doesn't take into consideration any tax credit benefits..

Our next question is coming from the line of Tristan Van Strien with Redburn Partners..

Just a few questions for me. Just 1 just quick follow-up on that last one from Simon. So just for the avoidance on the current Supreme Court decision on the tax credit, there's nothing coming in future years. Just to clarify that..

As far as we know today, no..

Okay. Great. Then just a few questions for me. One for Fernando, just on your working capital, quite a big outflow this first half from the largest I've ever seen.

Can you just maybe take us through that and how we should think about it for the full year? I mean, are you going to get back to positive territory in very normally do? And then the second question, again, also go back on pricing. In the past, you said you want to get the CPI type level of pricing. When I look at the U.S.

in particular, is that something you're still aiming for, for this year? Or is -- or is it just really about covering your costs rather than recovering CPI? And then, Michel, the third question on Colombia, it's really going well.

I'm just trying to figure out what exactly has been that inflection point? I mean why are you guys gaining the share from alcohol, which seems to have escaped actually Colombia for many years.

What are you doing very differently does happen in the past?.

Tristan, Fernando, once again. So let me take the first one and then I'll let Michel answer the other 2 questions. So for us to better understand 2022 working capital, we need to look at what happened in the opening balance in 2021.

So if you look at CapEx, back in 2020, we made some proactive decisions to reduce CapEx during the peak of the COVID uncertainty in a meaningful way, and that led to lower payables balance in our opening balance sheet for 2021. The income tax payables were also lower as the business was impacted in 2020, so less income taxes to pay in 2021.

And third, you need to remember that there was no bonus for the year. And as always, this bonus is actually paid in 2021. So again, lower payables balance. So with this context, 2022 looks more like a normal year. And if you look all those anticipated impacts are fully embedded into our plan.

And with this in mind, we go back to this trend that seasonally, we generate lower cash flow in the first half of the year. And then you should have a strong generation in the second half of the year. So no changes in our normal business operation.

And Michel?.

Yes. Thank you for the questions. I'll take the first one on pricing CPI. I think that generally, the idea does not change much.

I think that what really changed big time this year and a little bit last year is that the CPI is much bigger than one would expect and even accelerated throughout the year, right? And because of that, we had our plans in place.

we look globally to date, I would say that it's clear that beer prices are lagging inflation while I just said before that we are carefully balancing consumer demand, value proposition of our brands and input costs as we build our revenue management strategy. But globally, prices that is likely below inflation.

And if you think a company of our size and scale, of course, we have many levers to pull in how we offset the input costs. And that's the reason why today, we are growing both top line with strong volumes and the EBITDA. So I think that we continue to monitor.

We continue to carefully balance well the consumer demand with our revenue management initiatives. On the second point, maybe just linking straight Colombia to that, I think that Colombia is a very interesting example as well. I mentioned Brazil on the webcast. But in Colombia, we have this very good combination of us activating the category levers.

So the 5 levers of expansion that we talk with innovation with strong per capita consumption growth in a very well-defined digital environment for us now where we can both activate the demand with retailers, but also start engaging much more consumers in a 360 type of digital activation that helps us to position our brands activate well the demand and continue to develop the category.

So I think that is another good example of a market where everything is coming together and working very well for us as we continue to gain share of throat there..

And Tristan, just if I could add some color on colon as well because Colombia is a market that we had double-digit top line growth, but we had single-digit EBITDA growth, and the single-digit EBITDA growth was actually a function of this the disposal of noncore assets. This quarter is actually, we sold the land.

If it wasn't for the sale of land, we would have also double-digit EBITDA growth in Colombia..

Our next question is coming from the line of James Edward Jones with RBC Capital Markets..

Just give us any indication what's happening to your marketing spend as a percentage of sales. For example, [indiscernible] this morning, was interesting on its determination to continue investing in marketing to take share in the total beverage alcohol market. I guess I'm wondering what your reaction to that is..

James, thank you for the question. So we have discussed this before as well in the annual release. We continue to invest behind our brands as we premiumize, create more alternatives to grow and expand the category, and there is no change in this plan.

I think that what has been changing and is always a good opportunity to highlight that is that we are becoming more efficient, so the campaigns have been working better. And the more we become more digital, the more we connect with both points of sales and consumers digitally. We see growing on the investments that we are making.

So we will continue to invest, and we are very glad with the performance that we are having both in creative because we continue to strike very well on the power of the brands, but also in the other of these investments that continue to grow as we digitalize..

Our next question is coming from Edward Mundy with Jefferies..

Two questions from me, please. The first is on your guidance of 4% to 8% organic EBITDA year, you've delivered 7.5% in the first half and to deliver off is quite a wide range. the second half. I appreciate there's still scope for a lot of volatility, but the China exit rate looks quite encouraging in June.

You mentioned the marquee events and the flooding in South Africa should be in the past. Is there anything that you're seeing so far would suggest that H2 will be materially worse than the first half? And then the second question is on Cutwater and Nütrl that are doing pretty well in the U.S.

Does that give you confidence to push those 2 brands as spirit-based RTDs globally?.

Ed, Fernando here. So on the 4% to 8%, we are reiterating the outlook. And when we said format, there is no -- nothing you could read about the different performance in each quarter rather than full year 4% to 8%. I don't know if Michel wants to add any to that..

Yes. I can add on that and take on the second question, Edward, thanks for the question. I think that the opportunity here to answer that would be just to remind ourselves and to clarify once again why we provided an outlook as we were coming from last year to this year.

I think that at the moment that we announced our new strategy and the transition from inorganic growth strategy to a more organic growth strategy. We discussed and shared with you the main things that we have to evolve and what would be required for us to really land this organic strategy.

And 3 points that I stressed and discussed with you, was investing to lead and grow the category, invest to advance and accelerate our digital transformation while dynamically allocating our resources to first grow the business organically, and then deliver the other 3 priorities.

And we work at the midst of this pandemic and all this very dynamic operating environment, and we thought that would be very important to provide clarity on the growth algorithm. That was the reason why we gave the 4% to 8%.

And all of that remains true today, right? So we are accelerating organic growth investing in the category and in the digital transformation, and we continue to support this growth. Therefore, the 4% to 8% works for us, not for a quarter only, but it's more a midterm algorithm and outlook that we are giving and sharing with you.

So providing the certainty of the financial discipline that we'll do the end. We do all the investments that we need to do and deliver the EBITDA growth. And Nütrl is a very interesting question. I'm sure that for a lot of people, it's a new brand, but Nütrl is leading Vodka Soda in Canada.

It's growing very fast in the last 3, 4 years in Canada, and we decided to launch at the end of last year in the U.S., performed very well in 2 states. We are rolling it out now nationally. Very accelerated growth, very good news coming from quarter 2, but also from 4th of July, where the brand stroke like high volumes and very good performance.

The key focus now is on the U.S. where you have this dual strategy in the ready-to-drink Cutwater, which is a more complex huge variety of cocktails, and Nütrl is more on the vodka soda, which is the seltzer space, let's say, that is -- and the spirits based are ready-to-drink vodka soda. They take a lot of share from the mouth based sales force.

And the brand is great, performing very well. Once we get this well established in the U.S. Yes, there will be very good opportunities for both Cutwater and Nütrl to continue to expand globally..

And just to come back to the first question, I appreciate that the 48% is a very medium-term framework, and you need to have the flexibility to reinvest.

But just to be clear, without guiding for the second half, you haven't seen anything that sort of puts an inflection on the downside since the first half that we need to know about?.

So year-to-date, no change. You see the volume in the second quarter, I think that is the best indication of the momentum and we remain confident on the fundamentals and the strategy implementation and execution..

Our next question is coming from the line of Olivier Nicolai with Goldman Sachs..

Michel and Fernando. I got 2 questions, please.

First of all, do you see or do you expect any impact on volumes from your price increase in some emerging markets, particularly in Africa and Latin America, considering that affordability for beer could be an issue and that the food inflation is definitely going up quite a lot in those countries? That's the first question.

And then second question, you've made some really good progress on deleveraging in H1. And you usually generate much more cash in H2. Would it be fair to assume that you could end the year closer to 3.5x net debt to EBITDA.

And from a cash flow perspective, would you be willing to reinstate the interim dividend as you've done in the past on top of the final dividend?.

Olivier, thank you for the question. I'll take the first 1 and leave Fernando with the second, third question. Our incoming volume trends remain very strong. This growth is across all regions. So we see good trends across regions.

And maybe the most important point here is the underlying demand because even in some of the regions today, we have some constraints in supply availability. We could be selling a little bit more. But we don't see to date any slowdown on that. And once again, historically we see that beer is very resilient.

Data from [indiscernible] monitor, IWSR that we saw now at the end of quarter 1, April, continue to show the same trends, be it growing globally and gaining share of growth. So we will know more once we get through quarter three and quarter four. But to date, trends remain with good momentum..

And Olivier, on your second question, for member here, you are right. We continue to make progress on deleveraging. And it is true that the leverage seems to -- normally is stronger on the second half because the cash flow component is far stronger in the second half. So we are not providing any specific guidance on the number.

But as part of our strategy, and we've been very vocal about it, we continue to focus on the leveraging and we should be making further progress on the second half. On your dividend question, I see the right way to do is going back to our dynamic allocation of our capital.

We continue to invest behind our business, and there are a lot of opportunities in there. And the excess cash, I feel at every given moment in time, we will look at what creates more value, whether it's the leveraging return of cash to shareholders or selective M&A, and this decision that we're going to be taking at different moments in time.

So once we get to October, then we can have a discussion. But what I can tell you is that right now, we can create more value from the leveraging than anything else. So that should be more of the leveraging to come..

Our next question is coming from the line of Sanjeet Aujla with Credit Suisse..

Michel, Fernando, given your earlier comments that beer pricing is lagging CPI is likely looking like another year of input cost headwinds into 2023.

As you think about and budget over the next few quarters, is it reasonable to assume that your pricing will be considered to catch up to where CPI is now? Or should we expect you to price below CPI and place a little bit more emphasis on the volume momentum we have..

Sanjit, this is Fernando here. Let me start tackling the cost and then Michael can talk about the top line. So if you look, for 2022, the majority of our spend is covered, and this is embedded into our full year EBITDA growth outlook of 4% to 8%, which we rate to rate today. And of course, revenue is growing ahead of EBITDA.

For 2023, we are seeing the process of hedging our exposure, so it's too early to make any comments. But it's also fair to say that commodity price continues to be under pressure, but the recent movements have been positive. And the commodity escalation is not even spread throughout the world.

If you look at based on market price today, the highest year-on-year impact is in Europe, which happens to be where we have the lowest exposure as a business. And maybe Michel can comment on the top line..

Yes. Sanjit, thanks for the question. Good afternoon. I think that on the cost for sales offer on that as we look at the situation today, the impact if the year would finish today for next year is smaller than what was an impact from last year to this year.

But we will need to get through quarter three, quarter four, again, to understand that all the moving parts. And in price, Sanjit, I think that we are thinking alike, right? So there is no big change in the way that we think about our prices and inflation globally.

I think that the biggest change this year was that inflation moved much faster and move it beyond what was the original expectation of everybody, and we continue to monitor and access the situation.

At the same time, it's not like abnormal that throughout the year, all the prices that we have are not replacing us because in several markets, we have more than 1 price increase per year. So we continue to execute our plans as we always do.

And the caveat here that I would put forward is this idea of we need to be carefully assessing the consumer environment country by country, brand by brand, segment by segment. So we keep our #1 priority, which is grow the category in mind, right? And we need to grow for the long term, not only for the short term.

So penetration is very important, transactions and frequency is something that we are looking at all the time. So we don't disconnect the category from consumers.

But at this point, inflation is common across categories, prices are moving in the right direction, beer is likely before inflation and catching up and consumers are responding well, even though we need to carefully watch the next quarters.

And I think and I feel that we will know more as we get through quarter three and quarter four, and we only know the full picture as I gather, right? So now it's directionally, we are clear on what we are doing and it's working, and we need to continue to monitor the consumer environment. It's what I can tell you..

Our next question is coming from Trevor Stirling with Bernstein..

Fernando, Michel. Two questions from my side, please. First one, 127 bps of margin compression in the quarter Fernando.

Could you estimate, what's the impact of the marketplace? It's clearly very accretive for EBITDA growth, but what order of magnitude of dilution is coming from these marketplace?.

Trevor, Fernando here. So what I can tell about this is that marketplace is still at early stage. We are rolling it out and growing customer and partner base at a very accelerated rate. The revenues coming from this marketplace are entirely incremental to have a very different margin profile, but very accretive ROI given our existing asset base.

Therefore, there is an impact in the margins, which means the base business margin is better than the consolidated one as marketplace becomes more material, we'll probably disclose it separately. Wrapping up we have $800 million annualized GMV.

And if you use a similar business as a proxy, one can reverse engineer the impact on margins that we're having..

Great. And second question it's clearly very early days to be looking forward to 2023. And I'm sure you still have -- 1 of your hedging has to be completed yet.

But if you took today's spot rates and gas forward, are we looking at input cost inflation that's going to be worse than 2022 or better or more or less the same?.

Michel just mentioned, if we were to look at today, and that is still a lot of quarters to have an our hedging policies 12 months, so we are not fully hedged for next year, as one would expect. But if we look at the spot prices today and comparing to last year, you do have some pressures, but to a lesser extent than the one we have in 2022.

The only case is probably the 1 region where we have more of an impact is Europe. On average, as a company, would have less of an impact, an impact but less of an impact, but the region or has more of an impact than the one we had this year is Europe..

The next question is coming from Brett Cooper with Consumer Edge Research..

A question on improving returns. In April, Ambev spoke to focus on improving ROIC improvement in asset turnover and NOPAT margin.

Can you offer your view on where you are today, the potential to deploy or export a similar effort and any details on that deployment in non-med markets like U.S., Mexico, China and Colombia?.

So that's -- thanks for the question, Brett. I feel there is an opportunity for the Board, we always look into that. We talk always about resource allocation. we'll continue to work on that. And I feel that as long as we continue to deliver. We continue to deliver growth on EBITDA, we continue to be more efficient on resource allocation.

That's an ABI worldwide focus. It's not only on a specific country or a specific region, but it's how we optimize our business..

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

In the U.S., your performance has been a little lighter than the market trends. Is there anything ABI can do other than portfolio rebalancing towards the growth segments to improve its U.S.

performance against the market?.

Michel here. Thanks for the question. I will just repeat to make sure that I got this right. You're talking about the U.S.

market, right?.

I'm talking about ABI's performance relative to the U.S. market. It appears that your performance has been a little lighter or you've been underperforming the market.

Can you do anything other than rebalancing your portfolio towards the growth segments to improve your performance?.

Got you. Thank you. I think that we talked about 3 main highlights in the U.S. this quarter, and 1 was the results of the industry improving while our volumes underperformed in the industry. And this is not like a new component. We've been with this story for a while. And of course, each quarter is different.

This one, I think that's more highlighted because the industry was very low at the beginning, improved throughout. And when the industry is not moving well, the core segments, mainstream brands, they tend to perform less than the overall industry.

And of course, the portfolio rebalance, I would look at this more like the outcome of everything that we are doing. It's not the only thing that we're doing. This is the outcome that we are trying to achieve. And just to give you some examples and highlights. So 1 of the key areas that we've been improving the U.S.

over the years, was category management. We made several investments in category management, and we evolved from being beverage the #20 supplier to be the a partner for the retailers in the U.S. according to the Advantage survey, which is the one that they use, and that was based on all the improvements that we have made.

With our wholesalers, we enhanced a big time of our partnership, we measure the NPS, the engagement with our wholesalers every year, and we are at all-time high.

Look at the marketing capabilities, innovation, so we've been leading innovation in the last 3 years and being 1 of the most awarded companies for the creative, including several prices that can.

And we've been now even we all the difficulties in the 3-tier system, advancing the digital transformation as well with this growing more wholesalers, more states in the U.S. that combining this with LOLA, which is our locally optimized learning algorithm. We are getting much better data and improving the quality of the activations that we do.

So as we do all of that and invest behind the right brands, the outcome is the portfolio rebalancing, and that's why we are now 7 quarters in a row growing top line in the U.S. And this growth is coming with all this cost input inflation with a flat EBITDA, which is an improvement for our business in US. More to do.

I think that we underperformed in volumes, and this is the second biggest step that we have to have, but we are confident in the long-term strategy. Yet each quarter will be different in each year is going to be different as well, but confident in the long term..

Our next question is coming from the line of Priya Ohri-Gupta with Barclays..

Fernando, I was wondering if we could just dig into the further deleveraging over the latter half of the year.

How are you thinking about sort of where you could look to pay down some of that debt? And how are you considering opportunities to potentially utilize some of the lower dollar prices that your bonds are trading at to help accelerate deleveraging?.

Priya, thanks for the question. So actually, we generate -- our cash flow is much more skewed towards the second half of the year. So as we move into the second half of the year, with this additional cash flow, the idea is that we look for further opportunities for liability management. And you're right.

If you look at the evolution of interest rates and everything that is going on around the world, you can see that our market-to-market of our debt portfolio, move it from being 120% of of fair value in the beginning of the year to being close to 100.

And if you look at the different spots, the different maturities that you have, you have some others trading below 90%, closer to 80%. So probably that's another boost. When you look for our deleveraging efforts in the second half, being able to buy chunks of our debt at both parties is also a great opportunity.

And it's also reinforce kind of the opportunities of having kind of a fixed rate debt in an inflationary environment and in a rising rate environment. So we need to make sure we make the most out of it..

Below par, right?.

And then just one quick follow-up on how we should think about the timing of some of the cash coming in over the course of the second half as you sort of sweep in from your various markets globally?.

Priya, that will be too much details too much specific a few kind of -- we don't go into the detail month by month or day by day, how we generate cash. But the notion that second half of the year is much stronger of cash flow is true, has been true for several years in a row. This year, it's likely to be no different.

And then once we get the cash, we'll find the moderate way to deploy to the liability management..

Our final question is coming from the line of Rob Ottenstein with Evercore..

I want to kind of scope out a little bit bigger picture type questions. So Michel, it's -- you're coming up on about a year now as CEO. Presumably, you came into the role of certain preconceptions.

Love to -- if you take a moment to reflect on kind of any surprises, disappointments, any need to kind of pivot based on what you've learned over the last 12 months and kind of just kind of assess how things have gone and what you need to do going forward..

Robert, good morning. Thanks for the question, and thank you for reminding us that time goes by very fast. So it's good to be talking to you here and have the opportunity. Let me maybe start answering the question, saying something that I have said before, I shared with you, this is really the opportunity of a lifetime.

It's a lot of things coming together, and I'm very excited each and every day to come to work, to think about the possibilities sharing with the team, what we've been learning and what we've been doing. At the same time, that we all need to agree that it's been like an incredibly dynamic environment. So a lot of things happening at the same time.

And I'm very glad with the way that the team is engaging and billing with everything that's happening in building each and every day this future with more cheers that we define it as our purpose. And maybe like putting together the key points on your question. I think that first great industry to be a great moment to be working with beer.

Beer is inclusive, natural local and big profitable and growing, right? So those are the big learnings and things that we've been sharing with the team and people everywhere. Great industry to be growing gain of share of trough globally.

Second point is great foundation as we shared when I arrived here on the Investor Day, great company, great foundation, global platform, unbelievable opportunities to unlock value.

And the more we get our strategy moving, the more we advance our digital transformation and work better with our scale of data, more opportunities we uncover to grow the company to digitize and monetize the assets that we have.

I think that the key core things that we are moving is this idea of reimagining what a beer company can be, much more effectiveness reason, leading and growing the category, digitizing the assets that we have and finding ways to monetize everything that we built over the years and continue to optimize the business.

So a fantastic opportunity, a lot of learnings getting a lot of things done within the 1 year, right? So you think about purples, strategy, execution of this strategy change in the organization and deleveraging at the same time.

So it's being very dynamic but I'm still very excited, we up every day and coming to work with a lot of opportunities for us to continue to deliver..

We have reached the end of our question-and-answer session. I would like to turn the floor back over to Mr. Doukeris cares for any additional closing remarks..

So thank you all for being here. Thanks for the partnership, and thank you for all the questions and support for the business. Have a great day and looking forward to meet you. Thank you..

Thank you. Ladies and gentlemen, this does conclude today's conference call and webcast. We thank you for your participation, and you may disconnect your lines at this time..