Ambev SA
BOVESPA:ABEV3
Earnings Call Analysis
Q3-2023 Analysis
Ambev SA
The company displayed a commendable performance by achieving double-digit net revenue growth consecutively since the beginning of 2021, supported by a consistent execution of their commercial strategies. They reported ten quarters of EBITDA growth, with seven quarters performing above inflation, despite countering foreign exchange and commodity headwinds and making strategic investments in SG&A for short-term and long-term gains. Moreover, EBITDA margins have been expanding for four consecutive quarters, indicating robust financial management and an optimistic outlook for the upcoming peak season in Q4 of 2023, laying the foundation for a solid 2024.
The company's operational efficiency has paid dividends, leading to a cash flow from operating activities totaling nearly R$8 billion for the quarter, approximately R$1.8 billion above Q3 2022. This performance was buoyed by improvements across all regions, especially Brazil and Central America and Caribbean (CAC), and a strategic reduction in inventory levels. Although Q4 poses historical significance for cash flow generation, the company acknowledges the need for continued efforts to ensure financial robustness.
The company is closely monitoring the legislative process of the tax reform on consumption which aims to streamline taxation without increasing the total tax burden. With the approval pending in the Senate, management believes the focus should be on simplifying Brazil's complex tax system. In other tax matters, changes to income taxes could involve adjustments or substitution of the current framework, impacting the deductibility of the IOC. Furthermore, the company expects a disbursement of approximately R$8 billion in January 2024 to acquire a stake in their business in the Dominican Republic from Empresa León Jimenes.
The company maintains a stable medium and long-term pricing strategy, focusing on consumer income rather than competitor movements. This approach allows the company to enhance brand mix and innovation. Despite a deflating CPI, they remain nimble in tailoring their offerings to consumer affordability, which is fundamentally supported by an industry landscape that has become more rational overall.
The business has experienced equal growth across core, core plus, and premium segments, with each accounting for one-third of their growth. This diversified growth indicates a sound strategy in renovating the portfolio and occupying the white space of future market segments. Their focus remains balanced across all segments, with particular success noted in premium brands such as Corona and the core plus segment, where they hold unique market positioning.
The strategic approach towards SG&A emphasizes a disciplined and diligent focus, particularly in reducing distribution and administrative expenses across all business units. This approach unlocks resources for vital investments in brand development, sales, and marketing. Notable achievements include reduced distribution expenses year-over-year in CAC, demonstrating the company's agility in navigating through previous supply chain constraints.
The company has reported positive performance in regions like Chile, Bolivia, and Paraguay. In Canada, despite a volume decline largely due to industry-wide factors such as weather and trade destocking, the company remains committed to its premiumization strategy. Capital deployment discussions relate to organic and inorganic growth opportunities, with anticipation of a cash disbursement related to an M&A deal. Cash return to shareholders continues as a year-end conversation, with the current focus on IOC due to its tax deductibility; however, other options like dividends and share buybacks remain in consideration.
The company has shifted its focus from value brands to strengthen its core segment brands, demonstrating adaptability to market shifts and consumer affordability needs. This strategic move is expected to enhance brand resilience and sustainability over the coming years.
In light of facing substantial challenges since the pandemic, the company has shown resilience and consistency in delivering solid results. With a well-articulated commercial strategy, the company projects continued growth and improved EBITDA growth in 2023 compared to the 17.1% achieved in 2022.
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Good morning, good afternoon, and thank you for waiting. We would like to welcome everyone to Ambev's Third Quarter 2023 Results Conference Call. Today with us, we have Mr. Jean Jereissati, CEO for Ambev; and Mr. Lucas Lira, CFO and Investor Relations Officer. As a reminder, a live presentation is available for downloading on our website, ri.ambev.com.br as well as through the webcast link of this call. We would like to inform you that this event is being recorded, and all participants will be in a listen-only mode during the company's presentation. [Operator Instructions] Before proceeding, let me mention that forward-looking statements are being made under the safe harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of Ambev's management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events and, therefore, depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Ambev and could cause results to differ materially from those expressed in such forward-looking statements. I would also like to remind everyone that, as usual, the percentage changes that will be discussed during today's call are both organic and normalized in nature, and unless otherwise stated, percentage changes refer to comparisons with third quarter 2022 results. Normalized figures refer to performance measures before exceptional items, which are either income or expenses that do not occur regularly as part of Ambev's normal activities. As normalized figures are non-GAAP measures, the company discloses the consolidated profit, EPS, operating profit and EBITDA on a fully reported basis in the earnings release. Now I'll turn the conference over to Mr. Jean Jereissati. Mr. Jereissati, you may begin your conference.
Hello, everyone, and thank you for joining our Q3 earnings call. In our last call, I left you with 2 final messages. We were confident in terms of our ability to deliver operational leverage, thanks to sustained commercial momentum and an improved cost and expenses outlook, but that we had less visibility in terms of industry volumes in Brazil and on the overall operating environment in Argentina. Looking at our Q3 results, it's great to see that the team delivered operational leverage once again while industry volumes in Brazil and our business in Argentina were both resilient. In fact, our performance really came together in Q3. Net revenues grew roughly 19%. EBITDA grew nearly 44% and grew over 30% ex Argentina, with 560 basis points of EBITDA margin expansion. Normalized profit grew about 25%, thanks to better EBITDA and better finance results and cash flow from operating activities increased almost 30%, totaling close to R$8 billion, which is about R$1.8 billion ahead of 2022. What's more? It was great to see that our focus on the things we can control has continued to pay off. Let's look by geography, starting with Brazil beer. Industry was slightly positive, while our volumes declined by about 1% as we cycle the record levels set in Q3 2022. Premium volumes outperformed once again, while our core brands grew pretty much in line with the industry, and our value brands declined more than 40% versus last year. Our commercial strategy remains in good shape. Our premium and super premium brands grew low teens led by Corona, Original and Spaten. We estimate we gained market share in the premium and super premium segment once again this quarter. Also, the continued investments in our brands led to another quarter of focused brand health improvement with our premium and super premium brands improving in health metrics ahead of competition. Net revenue per hectoliter, excluding non-Ambev marketplace products continued to grow ahead of inflation and grew 6.4%, thanks to revenue management initiatives, price increase carryover and positive brand mix. This is the fifth consecutive quarter of net revenue per hectoliter growth outperforming inflation as we remain nimble regarding pricing decisions. EBITDA grew 35% with margin expansion of 720 basis points. Cash COGS per hectoliter, excluding non-Ambev marketplace products actually decreased 2%, driven by expected effects and aluminum tailwinds as well as more efficient supply chain, given a better production and distribution footprint, contributing to a gross margin expansion of 340 basis points. And cash SG&A also decreased by 4% as continued investments in sales and marketing were more than offset by savings in distribution and administrative expenses. Turning to Brazil NAB, Volume grew almost 3% with market share pretty much flat according to our estimates. The momentum of our health and wellness brands continued as our diet/light/zero brands grew volumes in the mid-20s, resulting in market share gains for this category, where we over-indexed compared to nonalcoholic beverages overall. Pepsi Black continues to be the highlight, with growth above 90% versus last year and already representing over 20% of our diet/light/zero volumes. Net revenue per hectoliter grew 2.3% as our revenue management initiatives and price carryovers were partially offset by an increase in state VAT taxable base in certain states across Brazil and also package and channel mix. EBITDA grew 1% in the quarter with cash COGS per hectoliter growing 4.5% and cash SG&A up 5%. International operations also had a consistent performance overall, starting with CAC, where we remain steady on the recovery track. This quarter, we lapped the toughest quarter of last year. As a recap, by Q3 last year, we had solved most of our bottle supply constraints. However, we faced a tougher-than-expected demand and inefficient supply chain, given logistics and import needs. This time, volume grew more than 13% with Presidente in the Dominican Republic, improving health and reaching volumes above Q3 '19 levels. Revenue grew 22% on the back of the continued recovery in the Dominican Republic as we see improved commercial execution in the country with overall client NPS above 75%. EBITDA grew by over 62% with EBITDA margin expanding to over 37%. In last, the highlight is that preparation pays off. On one hand, top line performance was primarily impacted by volumes declining in Argentina, where the highly inflationary environment continued to impact consumer purchasing power. On the other hand, cash flow generation in dollars, which has been a particular focus of ours in Argentina was ahead of last year despite the 22% currency devaluation that took place in the mid-August. This shows that all the work that started back in Q3 2022 is being rewarded. The combination of reducing our financial hedge while also lowering dollars exposure in supplier agreements and readiness in terms of revenue management as well as cost and expenses management are making the difference. Outside Argentina, performance was driven by core plus and premium brands in Chile and Paraguay. All in all, LAS EBITDA grew 94% with gross margins expanding 200 basis points and EBITDA margins expanding 360 basis points. Lastly, Canada delivered stable EBITDA growth of 3.5%, in line with H1 2023 and 310 basis points of margin expansion, where a challenging industry was more than offset by revenue management initiatives and cost and expenses management. Commercially, our core plus and premium brands improved health and gained market share with a highlight to Corona that is the leading brand in the premium segment in the country. Before wrapping up, I would like to spend some time on our digital platforms. At this time last year, I mentioned that we were excited about the prospects of having BEES and Ze delivery doing a memorable FIFA World Cup for our clients and consumers. And since then, both platforms have continued to grow in the right way. Starting with BEES, this quarter, BEES marketplace products totaled an annualized GMV of R$1.8 billion, 32% above last year. Over 80% of BEES customers also benefited from the marketplace. The top 3 categories: food, nonalcoholic beverages and spirits had roughly similar weight in terms of GMV, as we've previously mentioned, we see that SKU per POC as one of the major growth opportunities for the marketplace. And we've seen another quarter of evolution with 21% growth year-over-year as we continue to improve the user experience. As for Ze delivery, this quarter, awareness increased 25% versus last year. We reached 4.7 million monthly active users and GMV grew by 8% year-over-year. We more than doubled our coverage versus last year with Ze now available in more than 640 cities across Brazil. We continue to develop and expand our marketplace by increasing the assortment of products and brands available in the platform, thus enhancing the consumer experience. This also represents a great opportunity to monetize the beer deliver network we built through a marketplace with accretive returns on invested capital to the company similarly to this marketplace and results have been promising. Year-to-date, we sold over 3,000 non-Ambev SKUs on the marketplace and about 20% of the orders contained at least 1 non-Ambev marketplace product, representing low teens of ZE's GMV. Given that this is our last call for the year, I would like to put our performance into perspective before wrapping up. You know I talk about our transformation journey since 2020 and how consistency is a priority for us. So I believe it's important to highlight how things are coming together quarter after quarter, despite all the challenges that have been thrown our way. Since the beginning of 2021, we grew net revenue double digits in all quarters, thanks to our consistent commercial strategy execution. We delivered 10 quarters of EBITDA growth, out of which 7 were above inflation despite FX and commodities headwinds and continued SG&A investments in the short and long term and the EBITDA margins have expanded for the last 4 consecutive quarters. In closing, Q4 is always an exciting time for us, and I'm looking forward to what my team has in store for the peak season with the arrival of summer in South America. As usual, we want to deliver a strong finish for 2023 and position ourselves well for 2024. So thank you very much. Thank you for your time. And now let me hand it over to Lucas.
Thanks, John. Hello, everyone. Our financial performance in the quarter illustrates well how our renewed focus around value creation is translating into results. I'd like to say to our team that there is life beyond EBITDA and that the way forward is to keep embedding into our decision-making process, greater focus around cash flow generation and invested capital. The changes we implemented in Argentina that Jean alluded to are a great example of this approach working well. But let me focus on our consolidated performance. We delivered in the quarter about R$4 billion of normalized profit, a 25% increase versus last year. In addition to our EBITDA growth, what made a big difference were our net finance results, which improved a little over R$400 million year-over-year. And within our net finance results, the biggest factor was the reduction in losses on derivative instruments, thanks to our decisions relating to hedging in Argentina, namely structural reduction of our USD exposure and the shorter hedging time horizon as well as lower carry costs in Brazil. We should continue to see a benefit for the remainder of the year, albeit to a lesser extent. Cash flow from operating activities totaled nearly R$8 billion in the quarter, which is about R$1.8 billion above Q3 2022. Year-to-date, we've delivered almost R$2 billion more than 2022. Performance improved across the board with better cash flow from operating activities in all regions led by Brazil and CAC. And in terms of working capital, the highlight was around reduced inventory levels, particularly in terms of packaging and raw materials, which continued to improve year-over-year, given our team's focus and how much input cost pressures and supply chain disruptions in recent years adversely impacted our inventory cost going into 2023. Despite the stronger performance through September 30, Q4 is historically the most relevant quarter in terms of cash flow generation. So we still have a lot of work to do. Now I want to turn to a couple of other relevant topics, taxes and the exercise of the put option related to the Dominican Republic. Let me start with tax reforms in Brazil. As you may recall, the tax reform on consumption is intended to simplify the different federal, state and municipal indirect taxes, while not increasing the overall tax burden. The text approved by the House of Representatives is currently being reviewed in the Senate, and the amended text is expected to go to a vote in the Senate floor in November. We will be better positioned to comment further upon the final approval by Congress, which is still expected before year-end. In our view, the focus of any tax reform should be on reducing the complexity of the Brazilian tax system and not increasing the total tax burden, which is already among the highest in the world. As for income taxes, there are 2 important updates. First, during Q3, draft legislation was finally submitted to Congress by the federal government regarding the deductibility of the IOC. The text is currently in the house of representatives, and timing going forward remains unclear. However, it's worth noting that instead of the complete elimination of the IOC deductibility, the potential changes to the existing framework may also include either adjustments to the legal parameters for purposes of the calculation and deductibility of the IOC or substitution of the IOC with an allowance for corporate equity mechanism. We will keep the market informed should the legislative process for -- and the second important update is that the federal government also submits, [Break] of state VAT tax incentives. The potential implications to our business will ultimately depend on the nature and the extent of potential changes to the existing framework, which are still rather unclear and therefore, may or may not have a relevant impact to the company. And regarding the put option in the Dominican Republic, last week, we received notice that Empresa León Jimenes decided to exercise its put option that was set to expire next December with respect to part of their stake in our business in the Dominican Republic and certain other CAC markets. We expect the disbursement to acquire such stake to take place in January 2024 and should total approximately R$8 billion, subject to the terms of the existing agreements with Empresa León Jimenes. For further details, please refer to Note 27 to our financial statements. Finally, I would like to invite everyone to join our sustainability update, which will take place on November 23. In addition to providing an update on our progress in terms of sustainability initiatives, the idea for this year's broadcast is to also cover how, for us, sustainability is about ensuring a solid governance and ethics framework for creating long-term value. The program includes the participation of our senior management as well as representatives of our Board of Directors and fiscal counsel. That's it for me. Thank you, and we can move to Q&A.
Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] The first question comes with Isabella Simonato with Bank of America.
Thank you. I have a couple of questions. Jean, you mentioned in the remarks, right, that the cost performance for beer in Brazil was not only driven by FX and raw materials, but also by efficiencies right across the supply chain. So I was wondering if we could get a little bit more color on the contribution of each factor on, in another way, right out of this 2% decline? How -- what is the proportion that you attribute to lower raw materials versus the efficiencies you are getting. So that would be the first one. And the second one is still on Ze Brazil, but I think we saw a lower-than-expected SG&A pretty much across the board. How can we think about this line going forward, right? Can we still think SG&A going up in line with inflation for 2024? Or is there anything different that we should take into consideration.
Thank you, Isabella. So yes, our VIC per hectoliter was pretty good in this quarter. Everybody was anticipating FX and commodities. But we have a lot of initiatives in place for us to really be structurally more efficient on overall costs on our company. We have -- since the pandemic, we lost a little bit of efficiencies in general. The supply chain was confused. The volumes were growing very fast. So we have a part of the past that we grew in a way that we were not that efficient, that we are getting at the grid back. So a part of it is really efficiencies. Our pure price outside of FX and commodities is really below inflation with the deals and the contracts that we are doing with our suppliers. And overall, the footprint that we have been working in distribution and in the supply, it is getting much better once that since 2020, we have been innovating a lot and now we have time to catch up to really prepare all the breweries, the national footprint of production of innovation that when we put all the things together, they are really leading to this performance that goes beyond the FX and commodities impact. So there is a piece people the price is better than inflation. There is a really piece that it is capabilities that we are driving and other piece is really overall efficiency in the supply chain in the distribution footprint, okay? So this is one thing. When we talk about SG&A, and talks in the end, we are really tied doing very disciplined across the board. But then when we look particularly into Brazil, one thing that we really change and we don't talk that much about it, it is that we have been growing and organizing in a company that was designed to be very siloed, and we have been transitioning this company to be more of a platform ready to work with excellent centers to work more in a way that we would really protect customer and consumer experience with BEES and Ze delivery with logistics, but we really reorganized the company back door in a way that we could be much more efficient in terms of administrative costs in terms of structure in the company. So this was -- had a big impact overall on our SG&A. This is very structural, and it will continue moving forward.
The next question comes with Robert Ottenstein with Evercore.
Great. Wondering if you could give us some details on the competitive environment in Brazil and particularly the timing of your price increases, which usually come in kind of August, September, October, which -- how much price are you taking and which price pack brands and what the competitive reaction is.
Thank you, Robert. So we are really -- it's really important for us. We are very focused on having a sustainable balance between volumes and net revenue per hectoliter really protecting the industry, really organizing ourselves to drive the trade up with our brands, and our medium and long-term pricing strategy is unchanged, that we are really looking into disposable income, looking into the consumer more than the competitors to really decide on the pricing and then try to over-deliver with brand mix and with innovation. So this did change did not change pretty much. So -- but we have been -- we are in a scenario where CPI is going down, and we are understanding how this affects disposable income. And we are being more nimble, more flexible to really guarantee that we maximize the top line, looking at our consumer pocket. So having said that, the industry is structurally better, the competitive scenario, competitive landscape, it is more rational in general. And we feel that this will continue. Of course, the Brazilian market was always very competitive, always has been very competitive, and we are more discounted or not at some point in time or not when you look at competitors. But somehow, we see more rationality in general in the competitive landscape.
The next question comes with Thiago Callegari Duarte with BTG Pactual.
Hello, Lucas, everybody. Yes, I would like to circle back to your Brazil business and Jean, if you may talk a little bit about the moving parts within the brand portfolio in Brazil, right? I mean, many years ago, it was really about the core. And then in the last few years, there's been this push towards the core plus and a lot of innovation happened there. But in the last few quarters, it really feels that the premium and the way you call it, premium and super premium brands are the ones that are really pushing the growth and gaining space, right? So just if you could comment a little bit, Jean, on how -- if you agree with that, if that's how we should be thinking about the portfolio going forward and more towards, I would say, the premium spectrum of it because it does seem at this point that core plus is the one that is along with value, as you guys mentioned before, the ones that are suffering a little bit more. And still on this topic, you mentioned one more time this quarter about the brand power improving, right, for the portfolio. So also, if you could add a little bit on which segments, premium core plus, core, where you see that brand power improving and whether you feel it's improving relative to your market share, right, whether you are in that point where your brand preference is really starting to overcome your overall market share. So that would be the first question the topic. And if I may, a follow-up on the SG&A discussion. I appreciate your comments on the efforts you guys are making and so on. But if I could, specifically talking about SG&A in the CAC division. So along with Brazil and Brazil being in particular, this was a strong positive surprise. So if you could help us understanding a little bit more where you are there and the elements behind the efficiency gains there, that would be great as well.
Okay, Thiago. So thank you for the question. Let's talk a little bit about brand portfolio. So when you look on a more long-term basis from 2000 -- from pre-pandemic levels to today. And we added up the new volume that we grew compared with 2019. So pretty much we grew 1/3 in the core, 1/3 in the core plus and 1/3 in the high end in the premium, okay? So when you understand this 15 million hectoliters that we grew, we break it down. It is pretty much growth in all these 3 segments, okay? So this is an important information. So having said that, we had this view of renovating, re-accessing our portfolio. A piece of our strategy was to occupy, innovate a white space in spaces of the future. And we have been doing this since 2019. And we are very excited, and we are very proud about what we accomplished so far, okay? So I foresee the future that this will continue like that, the growth should continue like that, 1/3, 1/3, 1/3. That is not that we're going to be towards one segment or the other. I believe on that. And what really changed a little bit this equation in a way that we mentioned. It is that Spaten was designed to be core plus plus like entry premium over there. And because it's really selling more than we expected, we are really being very disciplined on discounts and then it went to the basket of the high end. And then we are reporting its volumes on the high end. But it's really in the entry premium over there. So this is really what changed in our -- in the conversation. But for the future, Core plus is a relevant segment. We are playing alone in the core plus today. There is no other brand in Brazil in the core plus. So the other brands are premium or they went down all the way to core. So that space is still there. We are pretty much over there, and we want to continue to bet on that. But we had material success in the high end. We are super excited about the success that we have been having in the high-end Corona is really doing well. So we had a shortage of capacity for a while, and now we are unlocking it in Corona, like the brand equity is really, really going up in Spaten is a reality is really doing very well those both in the high end. Budweiser now that is in the entry premium going into the core-plus [Indiscernible] itself in terms of brand equity is doing okay. And in terms of volume, mainly because of the new packs that we launched, that they are more in better price points. So it's really doing well and it's in this core plus plus into premium now because of the new packs -- and then when we go beyond the mega brands that we talk, the core is really performing in line with the overall industry. So that's good in the long term. So we should really accelerate this a little bit, but overall, it's doing okay. And overall, talking about a broader portfolio in the innovation strategy that we have match. There is adjacencies that's doing very well. We are leading the segment of zero beer doing very well, leading the segment too. So overall, the portfolio is very well established. And I foresee the growth really coming from the 3 segments from premium, from the core plus and from the core too, okay? So this is one thing. In terms of brand equity, we are really doing well with our focused brands.Brahma overall is a brand that's very solid. And then we have Spaten Corona really doing well, really on fire. We see Original, that is a brand that we have been expanding from outside the Southeast is doing very well in terms of brand equity. Stella Artois doing very well too. Budweiser, it's really recognized the volumes. We have a brand that is really the leading brand in specialties in Brazil that is Patagonia that we don't talk about that much, doing very well, too. So brands overall, the focused ones are really performing very well.
Thiago, this is Lucas. I'll take the second one on SG&A and cash. I think the first point to mention, Thiago, is that the approach towards SG&A for CAC follows the approach for SG&A that Jean mentioned for Brazil in his first answer. What I mean by this is the idea continues to be very disciplined and diligent particularly around distribution and administrative expenses in order to free up resources to continue to invest behind our brands in sales and marketing, okay? So that continues to be the prevailing logic across our different business units. With respect to Q3, in particular, the highlight in CAC was really lower distribution expenses year-over-year. And that's mainly because last year, we suffered a lot in the region given all the supply chain constraints that the region kind of went through. Let's not forget that CAC is comprised of several islands and where logistics are extremely complicated. And so as the supply chain constraints were removed, we began to benefit from kind of a meaningful reduction in our distribution expenses for the region, okay? And that more than offset the administrative expenses that we -- that grew year-over-year, while also allowed us to keep investing behind our brands as part of our plan for the year. And then my last comment here, Thiago think it's important just to take a step back and look at the year-to-date for SG&A as opposed to the quarter itself. And when we look at full year SG&A, right, for CAC, the logic that I mentioned from the outset, I think is what we're going to continue to pursue, meaning a strong focus in distribution and administrative expenses to free up resources and continue to invest in our brands behind us, sales and marketing expenses, okay?
The next question comes with Ben Theurer with Barclays.
Congrats on the results. I wanted to switch a little further south into Argentina, Latin America self in general. Obviously, the trends here during the quarter have been much more pressured and kind of in line with what you anyway expected, but I wanted to get your sense about how you feel about the region going forward, where you see opportunities to maybe reignite volume growth, particularly in Argentina. Are there any strategies you're thinking of? Or is it an implementation? Or do you just think you have to go through the challenges right now and time will heal some of the issues you have right now? Any update you have on that would be much appreciated. So thank you very much.
I will start, Ben. First with ex Argentina, last ex Argentina, okay? And the truth is that we cannot -- we do not disclose exactly the numbers, but we have been doing very well in this region and Chile, Bolivia and Paraguay, they are doing very well. We have a great performance overall. Chile, we have been working for a while to really get critical mass. We invested in supply chain capabilities, local production, we gained the market share according to our estimates, and the efficiencies are really kicking materially. So our business is really getting much stronger over there. Bolivia, we have a renewal rate in our portfolio. They are launching new packs and new presentations and innovations, new products that are really igniting the country overall with our leading brand, Paceña over there and Corona doing very well, too. And Paraguay has been a place where we have been for like 4, 5 years right now, really compounding growth over there. So doing very well. So this is inside LAS. The performance is really solid in these 3 countries. When we go to Argentina, Argentina, we knew that the winter was coming right over there that the scenario of currencies control and everything was something that at some point in time, would change. And we were really trying to overprotect ourselves with financial instruments that was really consuming cash. So we really changed the way we operated over there. So we are really for 1 year preparing for the volatility for the changes on the macro scenario. And in the end, during like this year and the next, more important for us is really to go through this correction in a way that we can protect the business for the future, but really go through the turbulence -- so we are pretty much looking more in terms of -- on the commercial side, on market share and brand equity. So these are the 2 things that we -- is a must for us. But overall volumes this year and probably the next, it will be depending on the equation of how we should protect ourselves from a devaluation from a cost increase. And this is a more -- is a variable that is more free to move up and down in a way that we could protect ourselves from the macro scenario. So having said that, we are happy with our performance because we have been able to protect cash flow generation in reality to increase cash flow generation to change the way we're operating over there, thinking more how to protect the business operationally and not just financially. So we changed the relation with suppliers. We change our price conduct depending on the forecast that we have. So we are happy, and we feel strong to go over the volatility that looks already came a bit and it will come more. So volume is the equation that can fluctuate that are more free. Market share is a must equity is a must and cash is a must for us over there, and that's how we are operating moving forward.
Just to add one point here, Jean. Ben, for illustration purposes, we included in our release, if you go to Page 17, a simulation that we did regarding the impact on our year-to-date consolidated profit, right, of a potential devaluation of the peso, the Argentinian peso that took place in mid-August, right, exclusively in terms of FX translation effects and the transactional effects caused by the FX exposure. And as per that simulation, right, the net impact, negative impact would be approximately of 2%, okay? Just to give a sense and put kind of the performance in perspective, okay?
The next question comes with Felipe Ucros with Scotiabank.
Thanks, operator, and Jean Lucas and Tina. So 2 questions that are really sort of related to the same issue around the value segment of the portfolio. So the first one that I wanted to ask is, how do you think about the core situation and how that relates to the value segment? Is the value segment essentially going to disappear in Brazil? Would you guys sort of decreasing the focus on that and core suffering. Is that forcing the consumers into mainstream? And then I guess the related question is, how do you think about the importance of value. So you have delivered many quarters of very successful premiumization. And I understand the value obviously hasn't performed nearly as nicely. So how do you think about the value segment of its importance if we were to go into an economic slowdown?
So Felipe, so we have -- we always had a very tactical play on the value segment. It was usually through line extensions like Antarctica Sub Zero or like regional brands that we have for one state and for the other. So it was always a place that it was more tactical than strategic for us in general. And what will it -- because we know that there is a piece of the market that price points and so the affordability is really necessary. But our bet and our commitment is really with the core brands in the long term. okay? So having said that, I think what changed it, it is that we had our eyes marked for a while now, we had our eyes marked on the pack side, on the core segment. So we really reignited this strategy of returnable glass bottles, 300 ml and really gave the spec for the core brands more than to the value brand. The value brands, they are usually on cans, and then we brought this affordability to the core with the returnable strategy. And this is really paying off, okay? And together with this strategy, we really unplugged discounts overall that makes this segment really diminish in our volumes, okay? But having said that, we see like Antarctica, a brand that is much stronger right now with this strategy. In the past, we had Antarctica and Antarctica Sub-Zero. Now we see nationally Antarctica occupying this role and be more -- and be stronger on that. We see Brahma that is like our leading brand is really with a piece of affordability on display. At some point in time, we had Brahma Fresh in the north. So we don't have it anymore. Now Brahma has to really occupy this space in the mind of consumers, and we have to have some packs that deliver the affordability. So yes, so we moved from a technical play on the value to a more bold and strategic moves on the core. And I think this will make the core much more resilient and sustainable for the next 3 years.
The next question comes with Alan Alanis with Santander.
Thank you so much, Jean and Lucas, congratulations on the results. I'm going to achieve gears completely with my 2 questions. The first one the first one is to do with Canada. I mean, it's the first time that we see a double-digit volume decline in 12 years. Could you speak a little bit more of what happened in Canada and what's the outlook? And the second and most important question, I think, is trying to understand your capital deployment, particularly cash back to shareholders thinking for Ambev. I mean -- and let me contextualize this. Your parent company, ABI, announces a $1 billion share buyback program today when they are at about 3x net debt to EBITDA and their stock is trading at a 50% higher multiple than Ambev. Ambev is receiving more than $2.5 billion of net cash. You have no debt and the stock is trading at a steep discount to ABI. So I guess the point-line question is, why isn't Ambev also announcing share buyback program if the multiple is at such a discount versus ABI and in your with over $2.5 billion of net cash.
Hello Alan, Lucas here. Regarding Canada, you're right, it was indeed a very tough quarter from a volume perspective. When we break that volume performance down by driver, more than half of that was really the industry, okay? And within the industry, it was a combination of less household penetration, very poor weather throughout the quarter, not only in terms of precipitation, but you had fires in Ontario, you had floods in Nova Scotia in Quebec. So weather, for sure, did not help, number one. Number two, less household penetration also did not help. Number three, there was also some kind of destocking in the trade over the course of the third quarter, okay? And all this kind of impacted the industry as a whole. In addition to that, we underperformed the industry. And one of the main impacts there was the fact that we cycled a very strong performance, market share-wise, during the summer of last year. So in Q2 and Q3 of last year, we managed to gain market share during the summer season. There were some disruptions in the market in terms of strikes and so on and so forth, and we managed to perform better from a market share perspective. And as we lapped that tough comp, it was a record market share performance for us in Canada in the last year. And so as we lap that, obviously, we had a high watermark. But when you break share performance down by segment, what we think is important to stress, right, because you talked about going forward how to think of things, is that Canada is a premiumization strategy. And when you double-click into our not only market share but also brand health performance, what we're finding in the numbers is that both core plus premium and super premium brands continue to trend consistently extremely well. In case of premium, super premium, Corona is the highlight. In case of core plus, Michelob Ultra is the highlight. So yes, short term, a very tough industry, different drivers, but market share, where our strategy is kind of focused, which is premium Super premium or above core, better said, we're confident in the strategy and how the team has been executing the strategy, okay? That's Canada, the Canada question. Regarding capital deployment, Alan, we have this conversation, right, from time to time. The thought process on our end remains the same. This is a regular conversation that we have internally that we have with our Board of Directors. Historically, discussions around capital structure discussions around returning excess to cash to shareholders is kind of a year-end conversation that we have with our Board. So this is one point to keep in mind. The -- as I mentioned, the thought process continues to be the same despite all the cash that we carry today. as we see opportunities for good returns on investment behind organic opportunities, we will continue to deploy cash towards that. Part of the cash also, right, can be deployed for growth opportunities inorganically. I mentioned in my prepared remarks that we anticipate, right, that at the beginning of next year, we will have a cash disbursement of approximately R$1.8 billion in connection with an M&A deal, right, that we struck many, many years ago, and the time has come, right, to acquire an additional piece of the stake held by the – by Empresa León Jimenes -- so capital is going to be deployed to fulfill our obligations under that agreement. And we continue to have dry powder, right, for kind of selective M&A with good return on investment going forward. And number three, return excess cash to shareholders after we've kind of looked at the organic and inorganic strategy that we have. So that thinking hasn't changed. One of the lessons that we learned over around COVID was around the importance of protecting liquidity. I think one of the reasons that we managed to come out stronger of the pandemic was really around the liquidity cushion that we enjoyed or we built before, during and after the pandemic. So we continue to be very conscious of the need to be perhaps conservative around liquidity. But for us, in the type of markets that we operate in and in the current environment that we -- the world that we live in today, we continue to see value in having a good amount of liquidity. And then finally, when we think about returning excess cash to shareholders, it's -- we consider, right, dividends. We consider IOC. We consider buybacks from time to time as part of our equation. And to date, given the tax deductibility of the IOC, the view has been to continue to prioritize returning excess cash to shareholders in the form of IOC to the extent the IOC is no longer deductible, then we will have to take into consideration what's the balance between dividends and share buybacks, but for so long as the IOC remains deductible, our thinking is to continue to maximize the IOC. Thank you.
Thank you all, ladies and gentlemen. This concludes today's question-and-answer session. I would like to invite Mr. Jean Jereissati to proceed with his closing statements. Please go ahead, sir.
Thank you all who joined the call for your time and attention. Since the pandemic, we have been able to deliver consistent results despite challenges we faced, Brazil is really solid, continues leading the way with a sound commercial strategy. CAC, it was a very strong quarter and remains on its recovery path. We have been doing our homework to go through what's going on in Argentina, and it has been paying off. Ex-Argentina, the business is very solid with momentum. And finally, we will continue to work towards delivering growth and profitability in H2 as well as better organic EBITDA growth in 2023 than the 17.1% that we delivered in 2022. So thank you very much, and I see you in our sustainability update in November. Have a great day.
Thank you. That does conclude Ambev's audio conference for today. Thank you very much for your participation. Have a good day, and thank you for using Chorus Call.