Business Context and Reporting Period
Company: AMBEV S.A.
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: First Quarter ended March 31, 2019
Accounting Standards: International Financial Reporting Standards (IFRS) and Brazilian Accounting Standards (CPC).
Key Accounting Change: Effective January 1, 2019, the company adopted IFRS 16/CPC 06 (R2) regarding leases, resulting in a restatement of 2018 comparative figures. Additionally, operations in Argentina are reported using Hyperinflation Accounting (IAS 29) starting in 3Q18.
Key Financial Metrics
| Metric | 1Q19 (R$ Million) | 1Q18 (R$ Million) | Change (As Reported) | Change (Organic) |
|---|---|---|---|---|
| Net Revenue | 12,640.1 | 11,640.2 | +8.6% | +13.7% |
| Volume ('000 hl) | 41,296.4 | 38,915.5 | +6.1% | +5.7% |
| Normalized EBITDA | 5,120.7 | 4,786.9 | +7.0% | +16.4% |
| Normalized EBITDA Margin | 40.5% | 41.1% | -60 bps | +100 bps |
| Gross Margin | 59.6% | 61.7% | -210 bps | -90 bps |
| Normalized Profit | 2,762.4 | 2,600.8 | +6.2% | N/A |
| Normalized EPS (R$) | 0.17 | 0.16 | +6.1% | N/A |
| Cash Flow from Operations | 2,080.1 | 940.5 | +121.2% | N/A |
| CAPEX | 546.1 | 472.7 | +15.5% | N/A |
| Net Cash Position | 7,751.1 | 7,373.2 (Dec 2018) | N/A | N/A |
Material Changes vs. Prior Period
- Revenue Growth: Consolidated net revenue grew 13.7% organically, driven by volume growth of 5.7% and Net Revenue per hectoliter (NR/hl) growth of 7.5%.
- Brazil: Revenue +16.7% (Volume +12.4%, NR/hl +3.9%).
- Central America & Caribbean (CAC): Revenue +12.7% (Volume +9.1%, NR/hl +3.3%).
- Latin America South (LAS): Revenue +14.5% (Volume -10.6%, NR/hl +27.1%). Volume decline driven by Argentina.
- Canada: Revenue -3.1% (Volume -4.3%, NR/hl +1.2%).
- Cost Pressures: Cost of Goods Sold (COGS) increased 16.1% organically. Cash COGS/hl grew 8.6% due to inflation in Argentina, foreign exchange (FX) impacts, and higher commodity prices (aluminum, barley), partially offset by lower sugar prices.
- EBITDA Performance: Normalized EBITDA grew 16.4% organically. Margins expanded 100 basis points organically despite gross margin compression, driven by SG&A discipline (expenses grew 5.8%, below weighted average inflation of ~9%).
- Argentina Impact: The adoption of Hyperinflation Accounting (IAS 29) for Argentine operations resulted in a negative currency impact of R$ 74.9 million on Normalized EBITDA in 1Q19, though organic EBITDA growth in LAS remained strong at 36.5%.
Guidance, Outlook, and Risks
- Guidance: Management reiterated guidance for cash COGS per hectoliter growth in Brazil to be in the "mid-teens" for the full year, noting pressure will be higher in the first three quarters before easing.
- Strategic Focus: Continued investment in "Premiumize at Scale" (Global Brands like Budweiser, Corona, Stella Artois grew >50% in the quarter) and "Differentiate the Core" (Brahma, Skol). Technology investments include the acquisition of a main IT solutions supplier to internalize capabilities.
- Regional Outlook:
- Brazil: Transformational investments are yielding results; however, disposable income growth has not yet resumed.
- LAS: Cautious regarding the Argentine macroeconomic environment (currency devaluation, inflation) but confident in brand strength and financial discipline.
- Canada: Focused on trade-up strategy; premium import brands growing double digits despite industry slowdown.
- Risks: Macroeconomic volatility in Argentina, commodity price fluctuations (aluminum, barley), and foreign exchange rate movements.
Investor Verification Checklist
- Argentina Hyperinflation Accounting: Verify the specific impact of IAS 29 on reported revenue and EBITDA, as the filing distinguishes between "As Reported" and "Pro Forma" figures to isolate inflation effects.
- IFRS 16 Adoption: Confirm how the retroactive adoption of lease accounting standards affects debt levels (R$ 1,979.8 million in lease liabilities included in 2019 debt) and comparability with prior periods.
- Commodity Exposure: Monitor aluminum and barley price trends, which significantly impacted COGS in Brazil and Canada.
- Volume vs. Price Mix: Analyze the divergence in LAS where revenue grew despite a 10.6% volume decline, driven by a 27.1% increase in NR/hl.
- Cash Flow Quality: Note the 121.2% increase in operating cash flow, driven by working capital management and tax payments timing.