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Companhia de Bebidas das Americas (ABEV -0.47%)
Q2 2021 Earnings Call
Jul 29, 2021, 11:30 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good morning, and thank you for waiting. We would like to welcome everyone to Ambev's second-quarter 2021 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 slide presentation is available for downloading on our website, ri.ambev.com.br, as well as through the webcast link for this call. We would like to inform you that this event is being recorded. [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 and 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 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 second quarter of 2021 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 disclosed the consolidated profit, EPS, EBIT, and EBITDA on a fully reported basis in the earnings release. Now I'll turn the conference over to Jean Jereissati, CEO for Ambev. Mr.

Jereissati, you may begin your conference.

Jean Jereissati -- Chief Executive Officer

Good morning. Good afternoon. Thank you very much for joining our second-quarter earnings call. I hope you and your families are well and safe.

This quarter, we completed one year since the negative impact of the first wave of COVID-19 pandemic. And I'm happy to see that the choices we made in the past 12 months continue to deliver results. We achieved the highest consolidated volumes in a second quarter on record, which led to an all-time high rolling 12 months volumes, 5 million hectoliters above the peak back in 2015. We have previously mentioned that we were better prepared to navigate challenges brought by the pandemic.

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But at the same time, we also got ready for the economic reopening as vaccination rates increased. Our commercial strategy, innovations, tech platforms, and operational excellence supported once again our performance as mobility restrictions were partially lifted in many of our markets. Nine of our top 10 markets delivered volume growth versus last year, and seven of them grew volumes ahead of 2019. Net revenue per hectoliter continued with solid growth driven by flexible and agile approach on pricing and premiumization efforts.

Our above-core brands continue to gain relevance within our portfolio. Our international operations continued the recovery path in the quarter, growing top-line ahead of 2019 and helping to offset transactional FX impacts on a consolidated level. In CAC, top-line growth was led by Dominican Republic, followed closely by Guatemala, which continues to show good momentum. Panama is bouncing back from tighter restrictions.

In LAS, we grew volume ahead of 2019 levels. In Argentina and Chile, our global brands showed again a great volume performance, driving premium mix, which supported margin recovery versus last year in both countries. Bolivia, on the other hand, remains impacted by the pandemic, where we continue focusing on preparing the company for the recovery. Canada still suffered from mobility restrictions.

However, delivering growth in top line and EBITDA. In July, we saw restrictions being partially lifted as vaccination rate reached more than 50% of the population. Brazil beer continued to show great commercial momentum with double-digit volume growth versus 2019. This was also the fourth quarter in a row that we gained market share according to our estimates and that innovation continued to represent more than 20% of our revenues.

We grew volume in all segments with highlights to our premium portfolio that grew volumes by approximately 35%. BEES comes with more than 70% of our active customer base, helping Ambev to reach all-time high customers for both beer and NAB as well as all-time high customer satisfaction measured by NPS rating in June, while reaching BRL 9 billion of GMV this quarter. Ze Delivery fulfilled more than 15 million orders, continuing to grow significantly versus last year. Talking about brands.

We continued to invest in our portfolio, and I'm glad to see the growth of our brand power metrics. In the recognition of our marketing team at Cannes Lion Awards in France, Ambev received seven prizes: two gold, three silver, and two bronzes from campaigns in Brazil and Argentina. In the first half of the year, on a consolidated basis, EBITDA grew 25% versus 2020 but was still 7% behind 2019, impacted by FX, commodities headwinds, and SG&A expenses. For the second half, our outlook remains unchanged.

We are on track with our V-shaped top-line recovery despite all challenges. We will continue to pursue volume performance at this new rolling 12-month levels reached in last quarters. Cost pressures will continue, especially in Brazil. And as for bottom line, normalized consolidated EBITDA performance for the full year should improve as we work to get back to 2019 levels.

On a longer-term perspective, we are building an ambidextrous organization focusing on delivering the short term, while at the same time, transforming our business for the future. As we continue this journey, our business vision is to transform Ambev into a platform with inspiring brands that connect people in the ecosystem, creating shared value. As part of our transformation, today, I would like to talk about our fintech, Donus. We believe that our customers can increase their chances of success if they become more digitalized and have access to more insights, to more adequate financial resources, lower bank and financial transaction fees and even more convenience.

Today, more than 80,000 customers registered on Donus can enjoy solutions such as POS terminals, digital wallet, and credit lines. On the credit lines, we believe our long history with customers makes our credit scoring assessment very reliable. So far, default rates are within expectations, and we are now fundraising to expand this operation. In 2021, our focus is to roll out Donus in all distribution centers in Brazil as we did for BEES starting last year.

To close, our top-line momentum is real and will be put to test in H2 given the excellent results we had last year. And I'm confident in our ability to keep taking our business to new levels. And I would like once again to thank the Ambev team for their dedication during these tough times. Thank you very much for your time and attention, and I will hand this over to you, Lucas.

Lucas Lira -- Chief Financial and Investor Relations Officer

Thank you, Jean, and hi, everyone. As you will remember, Q2 2020 was very tough because of the impact of COVID-19. Volumes collapsed in many markets and the mix shift was severe. However, despite these short-term headwinds, we didn't panic.

We did what we had to do to adapt quickly, getting even closer to our ecosystem. And most importantly, we did not lose sight of the long term and decided to seize the opportunities brought by the crisis and placed some big bets to set us up for a sustainable recovery. Fast forward 12 months, our Q2 2021 financial performance brings more evidence of the continuous and consistent improvement that I've been talking about so much. And the good news is that our team's disciplined execution behind these bets is continuing to pay off big time.

And here's why. Net revenue grew a little over 36%. EBITDA grew 24%. Normalized profit grew nearly 116%, while operational cash flow remains unabated and grew about 2%.

In addition, our financial performance in the quarter was boosted by BRL 1.6 billion in tax credits, of which BRL 1.2 billion in other operating income and BRL 0.4 billion in our financial results. Just to recap, these tax credits resulted from a favorable Brazilian Supreme Court decision last May that confirmed its 2017 ruling that the inclusion of the ICMS state tax in the taxable basis of the PIS and the COFINS federal taxes was unconstitutional. Given the nature of this dispute, these tax credits are technically part of our normalized results from an accounting standpoint. But as was the case in our Q4 2020 financials, we disregarded these tax credits for purposes of calculating our organic performance, treating them as a scope change.

We still have some pending litigation in this matter going forward, and we will keep the market updated as things progress. However, as disclosed in the notes to our financial statements, the amounts that remain under dispute are not as material. While I'm on the subject of taxes, I also wanted to briefly comment on the proposed income tax reform in Brazil, which has generated a lot of questions from investors lately. The draft legislation is currently being discussed in Congress, and we are monitoring the proposed changes under public debate very closely.

It is too early to speculate what will unfold. So we cannot comment on what impact, if any, this part of the broader tax reform will have on us and/or our shareholders. Should there be any material developments, we will, of course, keep everyone informed. Now back to Q2.

As expected, the quarter presented meaningful headwinds in terms of costs and expenses. COGS per hectoliter grew nearly 16% on a consolidated basis. These headwinds were mostly felt in Brazil, where our cost of goods sold was negatively impacted by adverse FX and commodity costs. On the other hand, better-than-expected mix, thanks to our commercial initiatives and on-trade reopening witnessed toward the end of the quarter, drove our returnable glass bottle volumes up, which reached nearly 40% of our total volumes, which is up from 30% in Q2 2020.

Also, cash SG&A was higher, growing about 42% on a consolidated basis, where sales and marketing grew 35%, pretty much in line with our net revenue growth of 36% as we implemented our commercial plans for the quarter. Distribution expenses grew 28%, also below our net revenue growth, mainly because of higher volumes, growing innovation, returnable glass bottle mix, and expansion of DTC platforms in countries like Brazil. And administrative expenses doubled with most of the increase coming from provisions for variable compensation since our performance for the year continues to be better than expected. And remember, 2020 was a no bonus year.

Should our performance remain on track during the second half of the year, variable compensation should continue to impact our year-over-year SG&A performance. Having said all that, the most important message is that despite all these headwinds, we remain on track toward our main ambitions for the year. Strong and balanced top line-led recovery across our markets with better net revenue per hectoliter performance versus 2020. We continue to expect Brazil beer cash COGS per hectoliter to grow in the low 20s for the full year, with better-than-expected mix pretty much offsetting increasing nonhedged commodities exposure.

And normalized consolidated EBITDA performance for the full year should improve as we work to get back to 2019 levels. Let me now turn to our financial priorities of protecting liquidity and improving our return on invested capital. Liquidity remains under control. Thanks to the strong cash generation during our recovery, we decided to pay down in Q2 the remainder of the debt we raised at the height of the COVID-19 crisis to create an additional liquidity cushion.

Having said that, going forward, we still believe it is warranted to maintain a prudent approach toward liquidity given the uncertainty and volatility that persists across our markets. As for the journey of improving our return on invested capital, we remain laser-focused on operating as efficiently as possible, but we are also more and more focused on improving our resource allocation across the company. Think of it this way. We have great people, we have great assets, and we have very strong cash generation.

So the better we get at resource allocation, the greater the chance of consistently creating value. This value creation mindset is becoming a big focus of ours. And a good example of this approach is how we are looking at our technology platforms. Platform business models like BEES, Ze, and Donus in Brazil not only make total business sense from a customer and consumer standpoint, but they also make sense from a return on investment perspective.

Of course, we are still scaling them up, but we believe that once at scale, these platforms can drive important value creation for the company. And the reason why I say this is twofold. First, connecting these tech platforms to Ambev's base of customers, consumers and brands will broaden our total addressable market with potential for further growing both top line and bottom line in absolute terms. And second, over the last decades, we developed this amazing asset base in terms of distribution, capabilities, and reach as well as trusted relationships with millions of points of sale across Latin America that provide our technological platforms with a very solid foundation to build on and scale in terms of speed, autonomy, and leverage.

The more we are able to use the core business as a springboard, the less capital we will require to grow these businesses. In terms of use of cash, after taking into consideration the appropriate liquidity levels for a more unpredictable and changing environment, after allocating resources efficiently toward organic growth, and after keeping some M&A dry powder, we intend to continue returning excess cash to shareholders over time. To wrap up, a quick word on ESG. On June 28, we held our ESG day when we shared our thinking in terms of how we are approaching sustainability, which, after all, is our business.

Thanks to everyone who joined. And for those of you who are unable to make it, the materials can be found on our IR website. And we look forward to continuing this dialogue with the investment community because there's still a lot much more to share, to learn, and to do. Thank you.

And with that, let's move to Q&A.

Questions & Answers:


Thank you. [Operator instructions] Our first question comes from Marcella Recchia with Credit Suisse. Please, Marcella, go ahead. [Foreign language]

Marcella Recchia

Hi, Jean. Hi, Lucas. Thank you for taking my questions. I have two questions here.

First on Brazil beer. Could you explore a little bit more about the strong top-line growth we have seen now for a few quarters in a row and your expectations to sustain this momentum going forward? I'll wait that before going to my second question.

Jean Jereissati -- Chief Executive Officer

So, yes, Brazil beer has been with good momentum for a while right now. We know that last year, in the pandemic, the comps are all over the place. But if you look at a cleaner reference that is 2019, you can see clear how Brazil is still with gaining momentum quarter after quarter. Ambev is accelerating, too.

And I think this is based on many decisions that we took all over the past year, that it was really a mindset of being the leader in expanding the industries. And the industry had this opportunity to develop the in-home occasion, increasing -- helping to increase frequency. A lot of the mindset on innovation where 20% of our revenues are really coming from India, Brazil, from products that did not exist three years ago. And this is a pipeline of brands that they are coming quarter by quarter, and they are maintaining their performance.

So I'm very excited about that. There is one information, too, that we have here in Brazil about the brand equity, the brand power of our portfolio. And when we compare H2 2021 with H2 2020, we gained 3 million new fans of our brands. So that's a KPI that we focus and we follow very close.

So consumers that they really elect one of our brands as their preferred brand. So this number is really increasing. Our portfolio is really stronger. And moving forward, I think somehow the good news will come as the vaccination come back.

With the reopening, we come back to our stronghold. There is really this socializing out-of-home occasion. So somehow I feel very confident that we are with a structural moment on our top line, with momentum. That, I'm very confident of.

Marcella Recchia

Perfect, Jean. My second question now is more sort of an update about your vendor initiative, Menu.com. Could you share with us more about the recent developments on this business line?

Jean Jereissati -- Chief Executive Officer


Marcella Recchia


Jean Jereissati -- Chief Executive Officer

The marketplace. Right?

Marcella Recchia


Jean Jereissati -- Chief Executive Officer

So that was a start-up that we accelerated two years ago. We grew 60 times their GMV with us. And then we make a decision to -- when we accelerate Menu, we didn't have this developed. And then now we decided to combine these initiatives.

And then the marketplace and the new assortment will be leveraged by the audience of BEES. So we are migrating these platforms. We have this view of customer community. And then we are adding technologies for this customer community.

And BEES will lead that. And so Menu now is inside BEES. The founders are leading the way with that, and we are really putting all together. So mentioned -- and then going to BEES.

So now we have 70% of our active buyers already purchasing through the platform. That was like 20% like one year ago. The GMV, when we put our beers, is really accelerating, so BRL 9 billion now. And the NPS that we measure about the usage of the app, the delivery is really all-time high.

And we are, with all the team of Menu, using this platform to develop the partnerships, the relation with the different industry, the knowledge about everything together. So BEES and Menu, they were integrated.

Marcella Recchia

Perfect, Jean. Thank you so much.


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

Carlos Laboy -- HSBC -- Analyst

Yes, everyone. Good morning. Lucas or Jean, can you please share with us how your digital capability and your upgraded approach to the business, your upgraded values are changing the way that you impose price discipline across the marketplace? In other words, how you resist maybe the impulse or temptation for discounting. And I'm speaking about both the will and the capabilities for achieving superior pricing discipline and how you link that then to both your brand development and your market development.

Jean Jereissati -- Chief Executive Officer

OK. I'll take that one. Laboy, thank you very much for the question. So if you look back on this -- on our journey of becoming more digital and in our vision of moving from a beverage company into a platform where we have two big communities, there is a consumer community that Ze leads and the customer community that now BEES leads.

We are in a long journey of building this capability and this muscle. We acquired back two years ago [Inaudible]. That was really the company that helped us in the beginning, and then we internalized. And then we invested on BEES and now in Ze Delivery.

Now we have something around 2,000 coders working with us, really with this mindset of being able to get digital products and not just beverage products in the market. And BEES and Ze, both, they give us a lot of visibility, a lot of granularity for us to increase big time our revenue management capabilities. So I'll talk first about BEES. Now 70% of our customers, they are there.

And so we know when they buy, we are really learning that they prefer to use the app during weekends and do not wait for the sales rep, and then the sales rep gets there. And there is the learning that something that we didn't figure out before that they buy. B2B business is made of impulse, too. So they buy in different days if you have good promotions.

And we can add different products to a basket if you really have the insight about the basket of our customers when we add different information. So BEES is a completely different muscle animal that will help us have a lot of insights on our pricing strategy, much better that we had before. And BEES helped us already. If you see our discount optimization big time this year where we are much more linear, much more in terms of acquiring new customers.

So we are with 10% more customers that we had before the pandemic. And this type of granularity and artificial intelligence is really helping us really to be efficient with discounts and to do a smarter pricing and smarter revenue management. And Ze is another thing. So Ze, we have a 5 million consumers community that they use the app.

And we are just targeting now 1 occasion that is this thing about ultra convenience, 20 minutes, 30 minutes beer at home with supermarket prices. But then there is a lot of room for us really to follow all the consumer journey, think about when our consumers, they have a party to anticipate that and have a different type of revenue management for that occasion. And we are -- and we have the opportunity to increase big-time signatures, too, where we have another app. And Ze Delivery came at some point in time decide if it goes for this new mission.

And all these missions, we can go very granular. You can really decide in a smart way what's the revenue strategy for it. So we are in a completely new moment in terms of capabilities of using data to decide our revenue initiatives.

Carlos Laboy -- HSBC -- Analyst

So you have more tools and capabilities for protecting the value of your brands by offering a point of sale on array of other areas and services where you don't have to give away value in your brands, essentially. Right?

Jean Jereissati -- Chief Executive Officer

That's it. Because we are -- we add convenience. We think about missions. We understand our consumers.

And with a broader portfolio, we can -- when we put all these four levers together, we can really go to a different level of revenue management with the technology that we just added.

Carlos Laboy -- HSBC -- Analyst

That's -- this is excellent. Thank you very much. I appreciate your insights.


Our next question comes from Thiago Duarte with BTG Pactual. Please, Thiago, go ahead.

Thiago Duarte -- BTG Pactual -- Analyst

Hello, Lucas. Hello, Jean. Hello, everybody. Thanks for the opportunity.

I'd like to ask three questions, actually. The first one is, if you can help us navigate through the SG&A, particularly in Beer Brazil, but I think it goes for the rest of the -- of geographies. But particularly in Brazil, I mean, it's clear the year-over-year pressure on G&A coming from bonus accruals. But it also feels like that there is more to it.

And I was wondering how much that's coming from the digital initiatives and the last mile logistics that is arguably impacting your cost there, particularly coming from BEES and Ze. So if you can help us through -- navigating through it in terms of how we should think of it in percentage of revenues going forward for SG&A, that would be nice. The second question is on BEES. And you mentioned the BRL 9 billion GMV in Brazil and how 70% of your clients are already active in the platform.

But can you help us or can you detail a little bit more on how that GMV breaks down between Ambev's products and third-party products? Or in other words, how much your clients -- of those 70%, how much of their purchases they are doing effectively from the platform? And that will be nice to hear as well. And the third question, can you talk a little bit, I think, more to industry? Can you talk a little bit more about the resilience of the beer industry? You already discussed in a previous question about the momentum that you guys have built over the last four quarters -- four or five quarters. But can you talk about the industry itself? Because it really looks like the industry -- Ambev is stronger than the industry now, but it looks like the industry is strong on itself. So can you talk about BEES in terms of the demand and in terms of how the occasions have built during the pandemic and how you expect this normalization to affect your mix in particular? Because it also looks like premium has gained more ground on the back of these changes provoked by the pandemic.

So if you could elaborate on that, that would be nice.

Jean Jereissati -- Chief Executive Officer

OK. Good questions, Thiago. Thank you for the questions. I will start backwards.

We start with the industry, then BEES and then we'll go for SG&A. OK? So industry, first of all, yes, we are seeing a resilient industry. We always mentioned that our industry is a resilient one. And the point there is that it's like we really made this decision a little bit before the pandemic to -- as a leader company to really bet on that.

We studied a lot the difference of industries and performance of Brazil and Mexico to get our approach down in here in Brazil. And then when the pandemic came, we really decided to really accelerate toward the future, toward what's going on in a market that's maturity two and goes for maturity three and what's our approach for channel and innovation and occasions. So we really went bold on that. A big part of the industry expansion, probably all of the industry expansion, is really coming from our volumes.

And what we have seen, it is that I think -- is that beer in Brazil, it is something that is very healthy in terms of consumer approach. So it's not losing share of growth. It's very healthy. It's a category that we see as very healthy.

The interest, the concept about new liquids and the meaning of the brand. So everybody is still very important in the culture and the people's lives. So this is one thing. The second thing is that we always knew that moving forward to a more mature market, new occasions would come, and then we have this view of a big part of the increase in the industry in Brazil coming.

It's coming from frequency. It's coming from in-home. It's really coming from Mondays and Tuesdays relaxation mindset. So that's what we see.

And we believe this is something that we see coming in all the markets, and it was just accelerated by the pandemic. And we believe that the residual of that will maintain. And then with the vaccination and the restrictions really being lifted, we will go back to the other occasion that are really our stronghold, the bars and the socializing out of home. So in the end, I believe that the combination of like Ambev really putting industry as a priority in the learnings of Mexico and the innovation that address occasions and address new consumers who, for example, Stella Sem Gluten is really -- so it really add consumers for the industry.

I really believe that the industry will keep strong. So that's my view on that. I believe that with vaccination and with all the things that we did, I think we want to have -- I'm optimistic in terms of industry about H2. In reality, a surprise for us, it was more than the high end what we saw.

It was really innovation in core and the resilience of the core, really making a big part of this growth of the industry that we navigated very well. High end is something there is more structure, is more long term. So this is -- we know that's the one coming. The difference that we really saw in this last year, it was really innovation in core that drove a lot of the changes in the industry.

OK? So this is one thing. So second thing about BEES. So first of all, we -- the vision is to digitalize our customers and then to have beer as their backbone. So they have to download the app, the BEES.

They have to -- the usage has to be good. The NPS has to be high. And we should be able to do it by ourselves, like beer, thinking about the new role of the sales representative, how they will be in part of that, how we're going to bring all this e-commerce experience for our B2B. And this is where we are.

So we are guaranteeing that this is -- so we are aggregating now our wholesalers. So BEES is now a platform that we're going to be in 100% of direct distribution centers and wholesalers. So we will be all over Brazil. And then with that, we begin to aggregate partners.

OK? So this BRL 9 billion is pretty much our beer GMV. When we put at Ambev today, information that I can give you is that we are close to BRL 100 million of products that didn't -- are part of our portfolio. This is growing very fast as we continue to expand our e-commerce portfolio. Now we are with around 300 SKUs that -- they are not from our portfolio.

They are now, but they are not produced by us. Thirty-one partners, and we are in 380 cities offering this new portfolio. And so this is the type of numbers that we have. So BRL 100 million Ambev, not just Beer Brazil that -- with products that are not from our portfolio and growing very fast.

When we go for SG&A, I think we have to break it down. It's hard for us to talk about SG&A combined because they have very different dynamics. Sales and marketing is pretty much what we've seen this quarter, maybe a little bit of phasing from things that we didn't do in Q1 because of Carnival that we invested more in the premium now. But overall, in the long term, they should be like in line a little bit below our top line.

When we go for distribution, what came above our volumes, performance, and normal inflation? There is a half-half performance on this innovation that we just launched, and then the supply capabilities, they are coming. So we launched it, for example, now a brand called Spaten. So it is starting through breweries, and then we move it a lot, and then we catch up to producing more breweries. So there is a piece of it.

And a piece of it is really the transformation, the last mile, the Ze. So when we look at these numbers in the past, what goes beyond the volume and the inflation, there is a half-half. There is a lot of efficiency for us to do on these two fronts. The supply capabilities of innovation, they are accelerating.

And Ze, the last mile, there is a lot of opportunity for us. And bonus is really that we didn't have last year. And once we decided that the role of this year was to have a V-shaped recovery on the top line, so in the end, this is something that we are delivering, and we are accruing the bonus for that. There is above last year and above a normal average that we had in the past.

But I will ask Lucas to give a little bit more insights on the SG&A, please?

Lucas Lira -- Chief Financial and Investor Relations Officer

OK. Thank you, Jean. Thanks for the question, Thiago. So I think on sales and marketing, right, I think the way to think of it, OK, is really around sales and marketing, which is what we saw in H1.

Right? We saw net revenue growth ahead of sales and marketing. OK? So I think it's -- we're not targeting specifically any sort of trend going forward. But if you look at the performance over the last few quarters, that's what you've seen. OK? In terms of distribution, I think the way Jean broke it down makes sense.

OK? So I would look at it on the variable side really linked to volume growth and also mix of returnable glass bottles on the one hand. OK? And so as volumes continue to grow, it's reasonable to expect distribution expenses to also grow. And as returnable glass bottles recover, likewise, some increase in distribution per hectoliter as a result. And then on the other side of distribution expenses, we have the innovation, and we have initiatives like DTC.

Innovation, there's opportunity for improvement as we bring online more production capacity spread out around the country to really avoid the need to ship product long distance as the footprint improves for innovation. And as Jean mentioned, regarding DTC, the reality is that Ze is still not at scale. And so as it continues to scale up, we do see more opportunity for efficiencies on the distribution side of the DTC platform. OK? And then finally, on admin, the bulk of the organic variance year over year is indeed coming from variable compensation that explains more than half of the increase.

And that's a function of the fact that recovery is better than expected, right, as we went into the year. So if we continue to deliver better-than-expected results for the remainder of the year, we should continue to accrue for bonus going forward. OK?

Thiago Duarte -- BTG Pactual -- Analyst

Great answers. Thank you so much, guys.


Our next question comes from Isabella Simonato with Bank of America. Please, Isabella, go ahead.

Isabella Simonato -- Bank of America Merrill Lynch -- Analyst

Hi. Good afternoon, everyone. Jean, Lucas, thank you for the call. My question is on the cost side, right? I remember, Lucas, you mentioned last quarter that Q2 was likely going to be the peak when we think about cost per hectoliter.

And in reality, it was better than Q1. Right? And at the end of the day, you're keeping the guidance for the year. So I was wondering, what exactly changed this quarter, right, and how you're facing this for the second half of the year?

Lucas Lira -- Chief Financial and Investor Relations Officer

OK. Hi, Isabella. Thanks for the question. You're right, we had a positive surprise in Q2 on the COGS per hectoliter -- on the cash COGS per hectoliter performance.

That improvement came mainly from mix. OK? And the reason for that improvement is really better-than-expected returnable glass bottle volumes, which recovered much faster than we anticipated. OK? And so -- and that's good news for the remainder of the year as we continue to work behind having returnable glass bottles, continue to gain weight as part of our mix. OK? And the reason why we are maintaining the full guidance for the year is because you may remember that in Q1, I referred to the fact that part of our commodity costs are not hedged.

Right? And given the way that commodities have continued to trend since then, the commodity cost pressure, the unhedged portion, right, is actually continuing to become more of a headwind. OK? Net-net, we think it's going to be pretty much awash, meaning the higher unhedged commodity costs are going to be pretty much offset by better mix, right, which allows us to reiterate the guidance of cash COGS per hectoliter in the low 20s for the full year. OK? But that's the dynamic, better mix, offsetting higher unhedged commodity costs.

Isabella Simonato -- Bank of America Merrill Lynch -- Analyst

That's clear. Thank you very much.


Our next question comes from Ben Theurer with Barclays. Please, Ben, go ahead.

Ben Theurer -- Barclays Capital -- Analyst

Thank you very much, Jean, Lucas. Congrats on the results. Just wanted to follow up a little bit on the strategic initiatives around the DTC and the B2B business and how that is aligned with your more flexible pricing strategy, and how you think of the back half of the year and then into 2022 in regards to potential price initiatives, and how you think you can leverage what you've established on the DTC and B2B business. Thank you.

Jean Jereissati -- Chief Executive Officer

Yes. So let me try to give you a broader answer on that. So, yes, we are reviewing upgrading our strategy moving forward. We have this business vision that we are much more than a beverage company.

We want to transform into a platform with inspiring brands that really connect people in the ecosystem so that we can all grow together. And so there is a big bet on the tech piece on really upgrading the company into a platform where we have two communities that we really have to serve perfectly the customers community and the consumer communities. And then Ze is addressing consumers. And then we're going to think about how to add more technology to that, more missions, more occasions, more -- Ze should be more omnichannel.

And then BEES is really about customers. And then we should like integrate it more with Donus and really upgrade BEES to a technology that serves Ambev customers, but should move into a broader portfolio that we already talked in the scope. But then moving then into a fintech that has this opportunity to really solve financial problems, financial services of our customers with credit and with POS machines and everything. So we are really going in these two directions.

And the possibilities that we have in revenue management, they are transformational. So if you think we are, long term-wise, piloting discounts more as cash backs in the financial deck, in the financial -- in the fintech combined with BEES, so we are really thinking about -- so we are learning a lot with this granular, big assortment. A lot of customers' information that we have, that we are using artificial intelligence. And the algorithms, they are upgrading.

And we are getting better and better on adding more portfolio to the same clients, on adding portfolio that is not from our breweries that -- but they are very essential to our customers. And so there is a lot of this new muscle of revenue management that we have on the customer side and on the consumer side. And at some point in time, these things will be really fully connected. So we give the discount to a consumer that goes in a customer that has BEES.

And these things connect and they match each other at this rapidly. So it's going to be a new muscle that we want to -- that we are working very hard to be a competitive advantage for us. And we believe the things that we are learning this year, they will really help us in 2022 because they are really a transformation. And they are really good, not just from our perspective, but in the way we settle the things with customers, in the way we target consumers and get more discounts for consumers on a occasion based on missions.

So I really believe this muscle will be very important for us for 2022. It will help us on the top line. And other thing, it is that the best thing that we have, so we are living on an inflationary scenario here in Brazil still. And in the end, so we have to make the decision on the price increases that usually comes on September, in the middle of September.

And the good thing is that we are seeing momentum, and it will be September, October in our business. We see momentum in our business, and this is very important to make these decisions because we feel comfortable to take risks. And we are seeing the vaccination numbers where Brazil can be with like 80% of the population fully vaccinated by October, November. So it looks like we want to have a good end of the year with good momentum and with new tools and capabilities for us to really live in this inflationary scenario that we've been living in the last couple of quarters.

Ben Theurer -- Barclays Capital -- Analyst

OK. Which in turn then should also help you to offset some of the incremental raw material COGS pressure you most likely have locked in for, what, at least the first-half '22. Correct?

Lucas Lira -- Chief Financial and Investor Relations Officer

Yes. Hi, Ben. Yes. This is Lucas.

I can take this one. I think the answer is yes. It should help partially offset that. And remember that given our hedging policy, right, of course, we still have pretty much half of the year to go in terms of hedging.

But what we're seeing now is that looking into 2022, the pressures that we face for 2022 are far lower than the headwinds that we are facing in 2021. Right? Remember that given how the BRL and the Argentinian peso trended in the last 12 months, right, the bigger portion of our cost headwind this year is coming from FX. Right? And looking into 2022, that's not the case so far this year. Right? There's still half of the year to go.

But so far, we're at a much better place on the FX head side going into 2022 as opposed to where we are today. OK? And on the commodity side, yes, we do face higher commodity headwinds going into 2022. But the net-net combination of FX hedges and commodity hedges are at a much lower level than the type of headwinds we're facing in 2021.

Ben Theurer -- Barclays Capital -- Analyst

OK. Perfect. Well, fingers crossed for the second half, and thank you very much.


Our next question comes from Joao Soares with Citibank. Please, Joao, go ahead.

Joao Soares -- Citibank -- Analyst

Thanks. Yes. Good morning, everybody, Jean, and Lucas. I just have two quick ones on my side.

The first one, I just wanted to understand -- with the vaccination accelerating in key cities here in Brazil and the on-trade recovering, I just wanted to understand -- I mean of course, you're developing very well on BEES. And of course, we're very close to that client throughout the most critical moment of the pandemic. So I wanted to understand how your share, how should we imagine Ambev's overall market share in the on-trade once things recover fully? So that's my first question. The second question, yes, I know BEES is developing very well, and thanks for sharing that information on the GMV and the color on the 3P.

But I wanted to understand about competition, looking more into the long term. Do you identify any potential competitive pressure coming from potentially wholesalers developing their own online businesses that compete with the B2B clients and BEES? So just wanted to understand more of the long-term outlook for BEES.

Jean Jereissati -- Chief Executive Officer

So first, let's talk about the market share reopening in the on-trade. I think our -- so based on our information, so our market share, it's very strong. And so we have -- if you think about the last quarters, so I -- this Q2, it is something that we are with very good market share, that something that we begin to build. And we really are on -- as I mentioned in the beginning, it looks like Brazil is in a new level of volumes and market share on this Q2, and I believe this.

If you think about channel mix, if we really can maintain the market share that we have channel by channel, and if their on-trade recovers this occasion of socializing out of home, so usually, this should be positive for us because it's the occasion that we really over-index. So somehow, I'm optimistic about the market share. And so let's see how it goes in H2. But theoretically, the trend should be in our favor.

And on top of that, so there is a lot of thing that is really structural. So the Brahma brand is much healthier than before. Brahma Duplo Malte helped the whole category, so the whole family. So all the Brahmas helped big time on there and growing a lot on equity there.

So this is an important point on the consumer side. So my RTM is really structurally better than before. I'm reaching more customers. My service level is all-time high.

So the digitalization is bringing a completely new features and opportunities that we have, that they are liking so much, the adoption was so high. So somehow, I'm very confident on that matter. When you think about -- when we talk about wholesalers and BEES, I believe somehow we are ahead of the game. So we were really -- we started this in the right moment.

If you are talking about my wholesalers, my wholesalers, they are really inside my ecosystem, very excited and aligned with the BEES platform. So my wholesalers, that they are -- so my RTM is really 100% with BEES. When we look about other beverage companies and other FMCGs, looks like we are pretty much ahead in the game. I know some competitors, they are trying here and there.

But I don't see that much coordination on that matter. So I think we are ahead in the game. And I think the marketplace, I think the competition is more on attack alone on these things. But in the end, there's a lot of opportunity.

So this market is so fragmented. So the leader in this industry has 3%, 4% of market share. So it's really a place where competition is very fragmented. And somehow, we bring a service level and a capability of delivering and reaching that unparallel.

So somehow, I think this is the things that I could mention about your question.

Joao Soares -- Citibank -- Analyst

Thank you, Jean. Just to be clear, I was referring to the players [Inaudible]. But I think you had answered the question. Thanks.

Lucas Lira -- Chief Financial and Investor Relations Officer

Yes. We think the total addressable market is huge, and this industry is very fragmented. So we see plenty of opportunity. That's the bottom line.

Jean Jereissati -- Chief Executive Officer

And I think it's less about competition in -- because it's very fragmented. It's really about underserved customers, that they are really in need in this moment, that all the small retailer need productivity to go over this pandemic in the future. They are in need of some company or some app that really solve their problems. And I think they are really underserved today.

So that's the view.

Joao Soares -- Citibank -- Analyst

Understood. Thanks.


Our next question comes from Alan Alanis with Santander. Please, Alan, go ahead.

Alan Alanis -- Banco Santander -- Analyst

Thank you so much. Hey, Lucas and Jean. Congratulations on the results and then the innovation and the strategic direction of the company, particularly in the [Inaudible]. Just a couple of quick questions.

One of them tactical, the other more strategic. The tactical one, could you help us understand the 4% sequential decline in pricing in beer in Brazil from the first to the second quarter? How much of that is product mix, brand mix, channel mix, and so forth? And the strategic question has to do with Chile, if you can give us an update in terms of your relationship with the Coca-Cola system over there. I understand that it's working very well. What are the lessons that you have learned? And what are the opportunities for those partnerships in other parts of Latin America?

Jean Jereissati -- Chief Executive Officer

Thank you, Alan. Let me get this one. So the price reduction quarter over quarter, if you look back in the past, so it usually occurs mainly because of region mix and a little bit of channel mix. So it's something that is a little bit more structural than decision.

It's -- most of the years, it's there. It's around seasonality and mix, in general, of regions and channels. OK? So there is no big deal on that. It's not something that was a decision.

It's something that is more normal. OK? When we go to Chile, so -- yes. So the good part of that is -- looks like -- and [Inaudible], as they mentioned to us, it's very happy. We are very happy.

It looks like Coke company is happy, too. So it's a deal that like it's -- there were a lot of value that we are properly sharing, and everybody is in a more nurture is -- looks like is happy. And it's a platform where one plus one is more than two, isn't it? Because -- so we have the leading brand in terms of equity in Chile. There is Corona.

They have the leading platform of distribution. And we were trying to put these things in parallel when we decided to go together. The governance is working. And it just makes us confident to have more alliances in general, wasn't it? So BEES all over the place is a technology where we are building a lot of alliances and partnerships.

And so I think this concept of alliances, they will be on the next level. In the past, it was just alliance on exclusive distribution. Now -- and we are very happy with Chile. But then we have to think alliance on a broader perspective, on using the technology, on Ze Delivery, on BEES here and there.

Sometimes you have distribution. Sometimes you don't have the distribution, just get the take rate. So this concept, so we are going to be much more open to different types of alliances for us to do than we were before. Chile was -- is one type that made us really confident that alliances are good and possible.

Alan Alanis -- Banco Santander -- Analyst

Yes. That makes a lot of sense. And, yes, they're very happy. So, again, congratulations, and thanks for taking my questions.



Our next question comes from Rob Ottenstein with Evercore. Please, Rob, go ahead.

Rob Ottenstein -- Evercore ISI -- Analyst

Great. Thank you very much. A few questions that may be related. First, can you talk a little bit about how your high-end business in Brazil Beer is developing? Obviously, a tremendous portfolio.

But what percentage of your business now? Is it the high end? Is that part of the business gaining share? And are you seeing any changes in the consumer base between kind of the craft beers that you have, the imports? Any nuances around Corona, Beck's? So that would be the first question. And then the second question is, can you talk about innovation this year, kind of revisit what are the most important innovations in 2021? And anything that you're doing that's notable on the -- beyond beer or returnable -- not returnable bottle, returnable drink side -- ready-to-drink side, I'm sorry, ready-to-drink side in your region? So high end, '21 innovation, and ready-to-drink beyond beer projects in '21. Thank you.

Jean Jereissati -- Chief Executive Officer

OK. So thank you for the question, Robert. Let me get the premium first. So this was a quarter that we grew with our portfolio of something around 35%.

So it was a good growth. So what we saw during the pandemic is that -- so we saw, in terms of portfolio, this thing about the resilience of the core. The high-end growth in this segment is something more structural, that it's like a more long term. And we see it coming back again.

And this is a structural. It's something that is our priority. And we put, as a KPI for us, brand equity, so investment in branding ahead of any type of market share gains. OK? So that was our decision.

We put the portfolio in place. We position the brands, find the consumers. And then we are really investing marketing dollars, over-indexing big time on the high end. And we really want to drive brand equity ahead of any type of penetration in consumption to really have a sustainable long-term business.

And we are very excited about it because we are growing equity very fast in a very consistent and sustainable way with our portfolio. And then our portfolio has to grow volumes accordingly. So it was a good quarter, but I'm more excited with even though -- with the brand equity on how Corona is really performing in Brazil, on how Beck's, it really came with this vision of a product that follows the [Inaudible] and has the edge in flavor as [Inaudible]. So I'm really excited about brand equity moving very fast, sustainable for our portfolio, and then volume will follow.

OK? So this is one thing. Second thing, it is that when we talk about innovation and adjacencies, so talking about beverage here, so the pipeline of innovation, the most relevant things that we have in place are -- so a bet on health and wellness. OK? So this is the avenue that we're going to populate, and we're going to have more products on that. So we are in the Olympics now launching Michelob Ultra in Brazil with the Olympics -- in the Olympics moment.

Usain Bolt is our -- is in our advertising. So it was a good moment for us to launch Ultra. We just rolled it out after the pilot Stella without gluten that we are very excited about. So we're bringing new consumers to the beer industry.

So these are -- this is an avenue, Ultra, and Gluten. We launched it in terms of renovation of the core, a brand called Spaten. There is one brand that from our portfolio, German first dated from 1397 that we are rolling out in Brazil, that it will have entry, premium, core-plus prices that is important bet that we have. We just started to roll it out.

And in terms of adjacencies. So the Beats brand is doing very well. We are rolling out Mike's Hard Lemonade with the flavors and with the lemon, tangerine, and pitaya flavors. And we are piloting Hard Seltzer.

So that's where we are. And these are the three most important avenues of pipeline, of innovation that we have for the H2.

Rob Ottenstein -- Evercore ISI -- Analyst

Great. And if I could just follow up. And I was very interested in your comments on growing brand equity ahead of volumes essentially and making a KPI brand equity. Is that approach somewhat different than what you've had over the past history? I mean, not maybe the last couple of years, but historically, over the last 10 years, would that be a very different approach?

Jean Jereissati -- Chief Executive Officer

So this -- specifically, this KPI that we are following, brand power -- or brand equity and power are going faster than the market share. It was something that, for now, we are 18 months consistent with this specific strategy, and we begin to see it paying off.

Rob Ottenstein -- Evercore ISI -- Analyst

Terrific. Thank you very much.


Ladies and gentlemen, that concludes our question-and-answer session for today. Now I would like to turn the conference over to Mr. Jean Jereissati, CEO for Ambev, for his final remarks.

Jean Jereissati -- Chief Executive Officer

So I would like to thank again my team, Ambev, for their dedication during these tough times. I also want to thank analysts and everyone who joined this call for time and attention. And to wrap up, I'm really confident about the future. I have this feeling that we -- our company is really structurally better in a tough cycle of commodities and currencies.

But when you look at the underlying trends, we are really structurally better. Commercial strategy, innovations, tech platforms, and operational excellence is really delivering results. We seized the opportunities brought by the crisis. We placed big bets of accelerating toward the future in a sustainable recovery.

Transformation is here in our business. So we have this vision of platform, customers, and consumers, two big digital products that we have, BEES, and Ze. And our portfolio is really stronger than before. Brand equity, brand power is really showing that.

We have 3 million consumers in Brazil that claimed -- that mentioned to us that one of -- in the past, one of our brands were not their preferred one. And now one of our brands are their preferred one. So I'm very excited about my portfolio. And cash generation is strong, remains strong.

So thank you very much for all your time and attention, and have a great day.


[Operator signoff]

Duration: 55 minutes

Call participants:

Jean Jereissati -- Chief Executive Officer

Lucas Lira -- Chief Financial and Investor Relations Officer

Marcella Recchia

Carlos Laboy -- HSBC -- Analyst

Thiago Duarte -- BTG Pactual -- Analyst

Isabella Simonato -- Bank of America Merrill Lynch -- Analyst

Ben Theurer -- Barclays Capital -- Analyst

Joao Soares -- Citibank -- Analyst

Alan Alanis -- Banco Santander -- Analyst

Rob Ottenstein -- Evercore ISI -- Analyst

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