Business Context and Reporting Period
Company: AMBEV S.A.
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Fourth Quarter and Full Year ended December 31, 2013
Release Date: February 26, 2014
Currency: Brazilian Reais (R$) unless otherwise noted.
Context: Ambev reported results under IFRS for a challenging year marked by negative industry volumes in key markets, particularly Brazil, due to poor weather, high inflation, and tax increases. Despite volume declines, the company achieved top-line growth through price/mix strategies and revenue management.
Key Financial Metrics
| Metric | 4Q 2013 | 4Q 2012 | Change (YoY) | FY 2013 | FY 2012 | Change (YoY) |
|---|---|---|---|---|---|---|
| Net Revenues | R$ 11,052.8 M | R$ 10,133.9 M | +10.0% | R$ 34,791.4 M | R$ 32,231.0 M | +6.4% |
| Total Volumes (000 hl) | 48,988.6 | 49,700.3 | -1.4% | 165,169.2 | 169,839.4 | -3.2% |
| Net Revenue/hl | R$ 225.6 | R$ 203.9 | +11.6% | R$ 210.6 | R$ 189.8 | +9.9% |
| Normalized EBITDA | R$ 6,453.7 M | R$ 5,496.9 M | +18.0% | R$ 17,485.1 M | R$ 15,620.1 M | +10.5% |
| Normalized EBITDA Margin | 58.4% | 54.2% | +420 bps | 50.3% | 48.5% | +180 bps |
| Normalized Profit | R$ 4,766.6 M | R$ 3,747.5 M | +27.2% | R$ 11,383.3 M | R$ 10,470.9 M | +8.7% |
| Normalized EPS | R$ 0.30 | R$ 0.23 | +27.3% | R$ 0.75 | R$ 0.66 | +15.0% |
| Operating Cash Flow | R$ 8,386.3 M | R$ 7,417.4 M | +13.1% | R$ 17,377.3 M | R$ 15,779.2 M | +10.1% |
| Net Cash Position | R$ 8,680.4 M | R$ 6,307.1 M | + | R$ 8,680.4 M | R$ 6,307.1 M | + |
| Consolidated Debt | R$ 2,894.1 M | R$ 3,143.7 M | -7.9% | R$ 2,894.1 M | R$ 3,143.7 M | -7.9% |
Material Changes vs. Prior Period
- Revenue vs. Volume Divergence: While consolidated volumes declined 1.4% in 4Q 2013 and 3.2% for the full year, net revenues grew 10.0% and 6.4% respectively. This was driven by a significant increase in Net Revenue per hectoliter (NR/hl) of 11.6% in the quarter and 9.9% for the year.
- Margin Expansion: Normalized EBITDA margin expanded 400 basis points in 4Q 2013 to 58.4% and 180 basis points for the full year to 50.3%. This improvement was aided by a one-time gain of R$ 300 million related to the recovery of restricted funds in Brazil.
- Cost Pressures: Cost of Goods Sold (COGS) per hectoliter increased 8.4% in 4Q 2013 and 10.5% for the full year. Currency hedges were a headwind, though commodity hedges (aluminum, barley, sugar, corn) mitigated some pressure.
- Segment Performance:
- Brazil: Beer volumes declined 3.4% in 4Q, but NR/hl grew 11.7%. CSD & NANC market share reached an all-time high of 18.4% for the year.
- Latin America South (LAS): Volumes turned positive (+0.3%) in 4Q after three quarters of decline. NR/hl grew 16.2%.
- HILA-ex: Strong performance with volume growth of 14.5% and NR/hl growth of 5.5% in 4Q.
- Canada: Volumes declined slightly (-0.4%), but NR/hl grew 2.5% due to premiumization.
Guidance, Outlook, and Risks
- 2014 Outlook: Management expects an improved scenario in 2014, particularly in Brazil, driven by the FIFA World Cup, decelerating food inflation, and a return to normal weather.
- Brazil Revenue: Expected to grow high single to low double-digits.
- Brazil COGS/hl: Expected to grow mid single-digits, impacted by Real devaluation (hedge rate 2.19 BRL/USD vs 1.93 in 2013).
- SG&A: Expected to grow high single to low double-digits due to World Cup marketing investments and increased direct distribution costs.
- Strategic Priorities: Continued focus on premium volumes, innovation (e.g., Brahma 0.0%, Skol Beats Extreme), and expansion of returnable glass bottles. In Canada, the company will take over Corona distribution starting March 2014.
- Risks and Contingencies:
- Macroeconomic: Inflation, currency devaluation, and tax increases in Brazil.
- Operational: Weather impacts on volumes and industry-wide volume declines.
- Financial: Currency hedge effectiveness and commodity price volatility.
- Unusual Items: A one-time gain of R$ 300 million in other operating income related to the recovery of restricted funds in Brazil contributed to the 4Q 2013 results.
Investor Verification Checklist
- Volume vs. Price Mix: Verify the sustainability of revenue growth given the continued decline in total volumes (-3.2% FY 2013). Confirm if price increases are offsetting volume loss without further eroding market share.
- One-Time Gains: Assess the impact of the R$ 300 million one-time gain on restricted funds recovery on the reported EBITDA margin and profit figures.
- Currency Exposure: Review the effectiveness of currency hedges given the devaluation of the Brazilian Real and the projected hedge rate for 2014 (2.19 BRL/USD).
- Direct Distribution Costs: Monitor the impact of the increasing weight of direct distribution (reaching ~70% in Brazil 4Q) on SG&A expenses and distribution costs.
- World Cup Impact: Evaluate the actual volume and revenue uplift from the FIFA 2014 World Cup against management's expectations for Q2 2014.
- Debt and Liquidity: Confirm the net cash position of R$ 8.68 billion excludes the R$ 4 billion in dividends and IOC payments announced in January 2014.