Ambev S A : Reports 2023 Second Quarter Results

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AMBEV REPORTS 2023 SECOND QUARTER RESULTS1

"We delivered another quarter of margin expansion driven by consistent net revenue growth and lowering cost pressures." - Jean Jereissati, CEO

Total Volume (organic)

-2.2% vs LY

Volume performance in Brazil (Beer -2.5% and NAB -2.2%) was mostly impacted by a soft industry and lapping 2Q22 comps. Within international operations, positive volumes (+0.6%) in Latin America South ("LAS") - despite a continued challenging macroeconomic environment in Argentina - were more than offset by Central

America and the Caribbean ("CAC") (-2.8%) and

Canada (-6.2%).

Net Revenue (organic)

+20.0% vs LY

Top line performance was driven by net revenue

per hectoliter ("NR/hl") growth of 22.8%. Net

revenue grew in most of our business units: LAS2 +82.1%, Brazil Beer +10.1%, Brazil NAB +7.5% and CAC +4.8%, while in Canada it was flat (0.0%).

Normalized EBITDA (organic)

+34.2% vs LY

Normalized EBITDA grew in all our business units: LAS +109.8%, Brazil Beer +29.7%, Brazil NAB +24.9%, CAC +7.9% and Canada +4.1%. Growth was driven by top line performance coupled with lower Cash COGS/hl and Cash SG&A growth (given lower FX and commodities prices, and overall efficiencies), leading to 300 bps EBITDA margin expansion.

Normalized Profit

R$ 2,681.0 million

Normalized Profit decreased by 13.1% compared to R$ 3,085.8 million in 2Q22. Last year's Normalized Profit was positively impacted by tax credits one-off in Brazil of R$ 1,233.7 million. Absent such tax credits one-off, Normalized Profit would have grown by 18.0%.

Cash flow from operating activities

R$ 3,415.7 million

Cash flow from operating activities increased by 55.1% compared to R$ 2,202.2 million in 2Q22 due to better working capital cycle driven mostly by inventories reduction (mainly in packaging and raw materials) and receivables improvement (given lower tax credits recognition in Brazil and lower volumes in CAC and Canada).

Sustainability

As part of our productive inclusion program "Bora", we started to offer free initiation training in the service market for bars and restaurants enabling more people to enter the job market. We also launched Fundo Bora Cultura Preta aiming at support black entrepreneurship.

1. The following operating and financial information, unless otherwise indicated, is presented in nominal Reais and prepared according to the International
   Financial Reporting Standards ("IFRS") issued by the International Accounting Standards Board ("IASB") and to the accounting practices issued by the Brazilian Accounting Standards Committee ("CPC") and approved by the Brazilian Securities and Exchange Commission ("CVM"). The information herein should be read together with our financial information for the twelve-month period ended June 30, 2023, filed with the CVM and submitted to the U.S. Securities and Exchange Commission ("SEC").
2. The impacts resulting from applying Hyperinflation Accounting for our Argentinean subsidiaries, in accordance with IAS 29, are detailed in the section Financial Reporting in Hyperinflationary Economies - Argentina (page 16).

ambev.com.br		Press Release - August 3, 2023

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MANAGEMENT COMMENTS

Another quarter of double-digittop-line and bottom-line growth, with EBITDA margin expanding in all our reporting business units

Our top line performance remained resilient and cost pressures continued to decelerate leading to bottom-line growth and Normalized EBITDA margin expansion in all our reporting business units this quarter. Although volumes were impacted by softer industries in some of our main markets, net revenue increased by 20.0% driven by a solid NR/hl performance (+22.8%) coupled with operational leverage, resulting in Normalized EBITDA growth of 34.2%. Gross margin expanded 170 bps and Normalized EBITDA margin expanded 300 bps.

Commercial momentum continued to be led by Brazil. Several of our brands were awarded with 13 Lions at Cannes Festival of Creativity (Brahma, Budweiser, Stella Artois, Guaraná Antarctica, and Zé Delivery), and the health of our focus super premium and premium beer brands and of our NAB brands improved once again. In Beer, our super premium and premium brands grew volumes in the mid-thirties, with market share gains in the segment, according to our estimates. Overall volumes, however, dropped by 2.5% (-2.5% in Beer and -2.2% in NAB) in the context of declining beer and soft drinks industries and lapping a strong 2Q22 performance that was fueled by the relaxation of COVID-19 restrictions.

As for our international operations, volume growth (+0.6%) in LAS was driven by a positive performance in Chile, Paraguay, Bolivia and Argentina Beer more than offsetting a decline in Argentina NAB volumes. Our brands in Argentina were also awarded at Cannes with Lions for Quilmes and Stella Artois. In CAC, sequential recovery continued despite the 2.8% volume decline as we see main operational indicators consistent improvement. And in Canada volumes declined by 6.2% due to a soft industry.

NR/hl performance was driven by disciplined execution of our revenue management strategy across markets. In Brazil, NR/hl increased by 12.4% (+12.9% in Beer and +10.0% in NAB) given 2022 pricing carry over, revenue management initiatives, and a positive brand mix contribution. In our international operations, NR/hl grew by 81.1% in LAS (driven mostly by revenue management initiatives in Argentina), 7.7% in CAC (mainly due to revenue management initiatives and a positive mix driven by the recovery of the Dominican Republic), and 6.6% in Canada (also helped by positive brand and pack mix).

Cash COGS/hl continued to decelerate in many of our markets since aluminum and BRL became greater tailwinds given the timing of our hedges, resulting in a 14.1% Cash COGS consolidated growth. Brazil Beer Cash COGS/hl (excluding non-Ambev marketplace products) increased by 4.6% this quarter. Given lower inflation and unhedged commodities prices (such as barley and energy) coupled with additional efficiencies across our operations, we currently expect Brazil Beer Cash COGS/hl (excluding non-Ambev marketplace products) to increase between 2.5-5.5% in the full year. In Brazil NAB Cash COGS/hl (excluding non-Ambev marketplace products) increased by 5.1%, in LAS +66.2%, in CAC +6.7%, and in Canada +8.8%.

Consolidated Cash SG&A also grew at a lower pace (+18.6%) as the continued investments in our brands were partially offset by less pressure in distribution expenses (given diesel prices) and efficiencies in administrative expenses. In Brazil Cash SG&A increased by 8.4% (+7.0% in Beer and +16.3% in NAB), in LAS +81.8%, in CAC +5.9%, and in Canada -6.2%.

As a result, all our reporting business units delivered Normalized EBITDA growth, with Normalized EBITDA margin expansion in the quarter: +29.0% in Brazil (+29.7% in Beer and +24.9% in NAB), with a 380 bps expansion (400 bps in Beer and 310 bps in NAB); +109.8% in LAS, with a 380 bps expansion; +7.9% in CAC, with a 100 bps expansion; and +4.1% in Canada, with a 120 bps expansion. Furthermore, gross margin also expanded in all regions (290 bps in Brasil - 250 bps in Beer and 490 bps in NAB -, 160 bps in LAS and 100 bps in CAC) except for Canada, which contracted by 70 bps.

As we move into the second half of the year, we remain focused on delivering consistent and continuous improvement in terms of growth and profitability despite the short-term volatility in many of our markets. In addition, we will continue to pursue our ambition of delivering in 2023 better organic Normalized EBITDA growth than the 17.1% growth we delivered in 2022, while also going back to gross margin and Normalized EBITDA margin expansion.

ambev.com.br		Press Release - August 3, 2023

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Financial highlights - Ambev consolidated			% As	%			% As	%
R$ million	2Q22	2Q23	Reported	Organic	YTD22	YTD23	Reported	Organic
Volume ('000 hl)	42,241.8	41,302.1	-2.2%	-2.2%	87,324.1	86,223.3	-1.3%	-1.3%
Net revenue	17,989.0	18,898.1	5.1%	20.0%	36,428.1	39,429.9	8.2%	23.3%
Gross profit	8,614.7	9,262.5	7.5%	24.5%	17,639.4	19,662.6	11.5%	29.3%
% Gross margin	47.9%	49.0%	110 bps	170 bps	48.4%	49.9%	150 bps	230 bps
Normalized EBITDA	5,538.1	5,275.2	-4.7%	34.2%	11,061.0	11,719.6	6.0%	37.4%
% Normalized EBITDA margin	30.8%	27.9%	-290 bps	300 bps	30.4%	29.7%	-70 bps	310 bps
Profit	3,064.0		-15.2%		6,592.9		-2.7%
2,597.8		6,417.0
Normalized profit	3,085.8	2,681.0	-13.1%		6,637.4	6,520.7	-1.8%
EPS (R$/shares)	0.19	0.16	-15.8%		0.41	0.39	-2.8%
Normalized EPS (R$/shares)	0.19	0.16	-13.6%		0.41	0.40	-1.9%

Ambev as a platform

During the quarter we remained focused on executing and delivering consistent results in each of the five pillars of our strategy:

1. In Brazil, our brands added 4 million fans since pre-pandemic period, according to our estimates. For the second consecutive year, we were the most awarded Brazilian company in Cannes Festival of Creativity, totaling 13 Lions for Brahma, Budweiser, Stella Artois, Guaraná Antarctica, and Zé Delivery. Budweiser was awarded with our first ever Titanium Lion, which recognizes the most powerful ideas of the festival, with "Bring home the Bud" campaign, launched at the FIFA World Cup™. Argentina also took home eight Lions for Quilmes and StellaArtois.

5. We were ranked #1 in the top 100 Brazilian companies with the highest ESG reputation as per the ESG Integrity Yearbook prepared by Insight Comunicação, in partnership with the Fundação Getúlio Vargas (FGV).

4. In Brazil, Zé Delivery remained improving both awareness and coverage sequentially and versus 2Q22, reaching 4.6 million Monthly Active Users ("MAU") in the quarter.

2. We added three new malt combinations to Brahma Duplo Malte - Wheat, Toasted and Black -, democratizing such new styles in an uncomplicated way for consumers.

We also launched Stella Pure Gold, an innovation that maintains Stella Artois' sophisticated flavor, with 17% less calories and gluten-free, offering a unique solution for consumers seeking a more balanced life.

3. In Brazil, BEES Marketplace Gross Merchandise Volume (GMV) grew sequentially and by 64% versus 2Q22, delivering an annualized amount of R$ 1.7 billion.

In LAS, BEES Marketplace continued to develop: in HY23 over 59% of BEES customers were buying non-Ambev products at the marketplace in Argentina and over 50% in Paraguay. In the latter, BEES reached its all-time high Net Promoter Score (NPS).

Sustainability

Our CEO was appointed as spokesman for the Sustainable Development Goal (SDG) 8 (decent work and economic growth) within the Brazilian Network of the United Nations Global Compact (UNGC), aiming to inspire other leaders in favor of inclusive and sustainable economic growth, full and productive employment, and decent work for all.

On the climate action journey, while we are working on validating new carbon neutral breweries, we have also developed other initiatives aiming at reducing carbon emissions throughout our supply chain. In this sense, in order to reduce the footprint of coolers in our POCs, we have been refurbishing the current equipment into more ecological coolers, or even replacing such equipment by new ecological coolers. This initiative already impacted over 46 thousand POCs, reducing over 3.7 thousand tons of CO2 emission through material reuse.

As part of "Bora", our productive inclusion program, we started to offer free initiation training in the service market of bars and restaurant through an initiative of Beer Academy together with Superior School of Beer and Malt (ESCM) and the Ceres Instituto, aiming at enabling more people to enter the job market.

Also, we launched Fundo Bora Cultura Preta aiming at boosting black entrepreneurs and their projects in culture and entertainment with financial assistance and mentoring. The total amount of R$ 7.0 million will be allocated this initiative, either through financial incentive or through corporate sponsorship.

ambev.com.br		Press Release - August 3, 2023

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In May, we held "Learn for Endeavoring", an entrepreneurship themed month for POCs owners via our B2B digital platform BEES, in partnership with Brazilian Association of Bars and Restaurants (Abrasel) and the Brazilian Service of Support for Micro and Small Enterprises (Sebrae), to foster and boost the entrepreneurial knowledge of our small and medium-sized customers by offering exclusive and special contents on financial and managing tools and solutions for their businesses. This program is now broadly available to all our customers and has already impacted over 13 thousand people.

As for our smart drinking initiatives, we launched Flow Voice, an artificial intelligence solution that enables alcohol consumption identification through voice, which will support our moderation efforts, potentially increasing road safety and also in public spaces. The innovation was developed by our Smart Drinking Lab, in partnership with the Metatimbre AI startup, accelerated in 2021 through Ambev's Social Lab program and launched in May during the Brazilian Web Summit.

ambev.com.br		Press Release - August 3, 2023

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KEY MARKETS PERFORMANCES

Brazil Beer: super premium and premium brands outperformed once again, delivering market share gains, according to our estimates

• Operating performance: volumes were down 2.5% led by a declining industry and in the face of a challenging comparable given 2Q22 strong performance that benefited from post-COVID recovery (+8.5% versus 2Q21). The disciplined execution of our revenue management strategy coupled with a positive brand mix continued to drive NR/hl up (+12.9%), resulting in a net revenue growth of 10.1%. Cash COGS/hl increased by 6.1% (+4.6% excluding the sale of non-Ambev products on the marketplace), mostly driven by overall non-commodity price inflation, partially offset by FX and commodities tailwinds. Normalized EBITDA was up 29.7%, with Normalized EBITDA margin expansion of 400 bps, helped by efficiencies on Cash SG&A expenses. In HY23, net revenue was up 12.3% (volumes -0.9% and NR/hl +13.3%), and Normalized EBITDA rose by 26.7%, with Normalized EBITDA margin expansion of 320 bps.
• Commercial highlights: despite industry performance, our market share improved sequentially according to our estimates. Consistent investment behind our brands continued to deliver significant results to our super premium and premium segment: health of focus brands improved sequentially and versus last year, and volume grew in the mid-thirties once again, led by Original, Spaten, Corona and Stella Artois, with market share growth year-over-year and on a sequential basis, according to our estimates. Compared to 2019, our premium and above volumes grew 180% in HY23. In the core plus segment, Budweiser increased volumes in the mid-teens and Budweiser Zero continued expanding its distribution. As to our B2B digital platform, BEES Marketplace GMV grew sequentially and by 64% versus 2Q22, while we continued to expand number of SKUs per POC. Zé Delivery reached 4.6 million MAU this quarter (+12% versus 2Q22), and its Average Order Value (AOV) was up 14%.

Brazil Beer3			Currency	Organic		% As
R$ million	2Q22	Scope	Translation	Growth	2Q23	Reported	% Organic
Volume ('000 hl)	21,944.0	-		(557.2)	21,386.8	-2.5%	-2.5%
Net revenue	7,912.9	-	-	797.8	8,710.7	10.1%	10.1%
Net revenue/hl (R$)	360.6	-	-	46.7	407.3	12.9%	12.9%
COGS	(4,319.5)	-	-	(221.9)	(4,541.4)	5.1%	5.1%
COGS/hl (R$)	(196.8)	-	-	(15.5)	(212.3)	7.9%	7.9%
COGS excl. deprec. & amort.	(3,910.8)	-	-	(134.1)	(4,044.8)	3.4%	3.4%
COGS/hl excl. deprec. & amort. (R$)	(178.2)	-	-	(10.9)	(189.1)	6.1%	6.1%
Gross profit	3,593.4	-	-	575.8	4,169.3	16.0%	16.0%
% Gross margin	45.4%				47.9%	250 bps	250 bps
SG&A excl. deprec. & amort.	(2,446.4)	-	-	(171.5)	(2,618.0)	7.0%	7.0%
SG&A deprec. & amort.	(301.1)	-	-	(134.5)	(435.5)	44.7%	44.7%
SG&A total	(2,747.5)	-	-	(306.0)	(3,053.5)	11.1%	11.1%
Other operating income/(expenses)	1,018.3	(798.0)	-	34.5	254.7	-75.0%	15.7%
Normalized Operating Profit	1,864.2	(798.0)	-	304.3	1,370.5	-26.5%	28.5%
% Normalized Operating margin	23.6%	0.0%	0.0%	0.0%	15.7%	-790 bps	220 bps
Normalized EBITDA	2,574.0	(798.0)	-	526.6	2,302.6	-10.5%	29.7%
% Normalized EBITDA margin	32.5%				26.4%	-610 bps	400 bps
Brazil Beer			Currency	Organic		% As
R$ million	YTD22	Scope	Translation	Growth	YTD23	Reported	% Organic
Volume ('000 hl)	43,955.4	-		(377.2)	43,578.2	-0.9%	-0.9%
Net revenue	16,013.1	-	-	1,967.7	17,980.8	12.3%	12.3%
Net revenue/hl (R$)	364.3	-	-	48.3	412.6	13.3%	13.3%
COGS	(8,511.6)	-	-	(821.2)	(9,332.9)	9.6%	9.6%
COGS/hl (R$)	(193.6)	-	-	(20.5)	(214.2)	10.6%	10.6%
COGS excl. deprec. & amort.	(7,709.1)	-	-	(684.2)	(8,393.3)	8.9%	8.9%
COGS/hl excl. deprec. & amort. (R$)	(175.4)	-	-	(17.2)	(192.6)	9.8%	9.8%
Gross profit	7,501.5	-	-	1,146.5	8,647.9	15.3%	15.3%
% Gross margin	46.8%				48.1%	130 bps	130 bps
SG&A excl. deprec. & amort.	(4,665.7)	-	-	(378.7)	(5,044.3)	8.1%	8.1%
SG&A deprec. & amort.	(593.2)	-	-	(214.6)	(807.7)	36.2%	36.2%
SG&A total	(5,258.8)	-	-	(593.2)	(5,852.1)	11.3%	11.3%
Other operating income/(expenses)	1,300.4	(875.8)	-	179.0	603.5	-53.6%	42.2%
Normalized Operating Profit	3,543.0	(875.8)	-	732.2	3,399.4	-4.1%	27.5%
% Normalized Operating margin	22.1%	0.0%	0.0%	0.0%	18.9%	-320 bps	220 bps
Normalized EBITDA	4,938.7	(875.8)	-	1,083.8	5,146.7	4.2%	26.7%
% Normalized EBITDA margin	30.8%				28.6%	-220 bps	320 bps

3 In 2Q23, net revenue per hectoliter and Cash COGS per hectoliter, excluding the sale of non-Ambev products on the marketplace, were R$ 395.4 (12.4% organic growth) and R$ (178.1) (4.6% organic growth), respectively. In HY23, net revenue per hectoliter and Cash COGS per hectoliter, excluding the sale of non-Ambev products on the marketplace, were R$ 401.0 (13.3% organic growth) and R$ (182.1) (9.9% organic growth), respectively. The scope change in Brazil Beer refers to tax credits and related effects.

ambev.com.br		Press Release - August 3, 2023