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, 2015
Reporting Date: May 6, 2015
Currency: Brazilian Reais (R$) unless otherwise noted.
Accounting Standard: International Financial Reporting Standards (IFRS).
Key Financial Metrics
| Metric | 1Q 2015 | 1Q 2014 | Change (%) |
|---|---|---|---|
| Net Revenues | R$ 10,768.8 million | R$ 9,045.1 million | +19.1% (Reported) / +14.5% (Organic) |
| Normalized EBITDA | R$ 5,072.9 million | R$ 4,051.0 million | +25.2% (Reported) / +21.1% (Organic) |
| Normalized EBITDA Margin | 47.1% | 44.8% | +260 bps |
| Gross Margin | 66.4% | 66.7% | -10 bps |
| Normalized Net Profit | R$ 2,970.6 million | R$ 2,603.4 million | +14.1% |
| Normalized EPS | R$ 0.18 | R$ 0.16 | +10.0% |
| Operating Cash Flow | R$ 3,819.1 million | R$ 2,620.0 million | +45.8% |
| Capital Expenditure (CAPEX) | R$ 720 million | R$ 875.8 million | -17.7% |
| Net Cash Position | R$ 5,122.4 million | R$ 7,713.3 million (Dec 2014) | Decrease of R$ 2,590.9 million |
| Shareholder Payout | R$ 4,965 million | R$ 3,978 million (approx) | +24.8% |
Material Changes vs. Prior Period
- Revenue Growth: Net revenues increased 14.5% organically, driven by a 14.0% increase in Net Revenue per hectoliter (NR/hl) and a 0.4% volume increase. Growth was broad-based across Brazil (+10.7%), Central America/Caribbean (+26.4%), Latin America South (+27.8%), and Canada (+6.0%).
- Cost Pressures: Cost of Goods Sold (COGS) rose 15.1% (14.6% per hectoliter) due to inflation in Brazil and Argentina, unfavorable currency hedges, and higher depreciation. SG&A expenses increased 11.9% (excluding depreciation), primarily due to distribution costs and inflation.
- Profitability Expansion: Despite cost headwinds, Normalized EBITDA margin expanded 260 basis points to 47.1%, driven by revenue management and premium mix. Normalized Net Profit grew 14.1%.
- Regional Performance:
- Brazil: EBITDA up 18.1% with margin expansion of 330 bps to 52.3%. Beer volumes grew 0.4% despite a soft consumer environment.
- Central America & Caribbean: EBITDA surged 77.5% with volume growth of 22.6%.
- Latin America South (LAS): EBITDA up 27.2% despite a 1.4% volume decline, offset by a 29.6% NR/hl increase.
- Canada: EBITDA grew 9.6% with volume up 1.4%.
- Financial Expenses: Net finance results worsened to an expense of R$ 481.7 million (from R$ 368.8 million) due to higher non-cash accretion expenses, derivative losses, and foreign exchange translation losses on intercompany loans.
Guidance, Outlook, and Risks
- Guidance (Brazil): Management maintains full-year guidance for Brazil:
- Top line growth: Mid to high single digits.
- Cash COGS growth: Mid to high single digits.
- Cash SG&A growth: Below inflation.
- CAPEX: Up to 2014 levels.
- Outlook: Management expects the macroeconomic environment to remain challenging but remains confident in the strategy of elevating core brands, accelerating premium growth (including Corona and craft), and expanding near-beer offerings.
- Risks and Contingencies:
- Macroeconomic Headwinds: Inflationary pressures in Brazil and Argentina, and weak consumption environments in Argentina.
- Currency Volatility: Depreciation of the Brazilian Real (BRL) impacting intercompany translation and hedging costs.
- Tax Rate: Effective tax rate increased to 24.3% (from 17.5%) due to a one-time negative impact of approximately R$ 360 million related to intercompany transactions.
- Unusual Items: Exceptional items totaled R$ 7.8 million in expenses (restructuring). Other operating income increased significantly (R$ 466.8 million) due to recurrent government grants related to VAT incentives.
Investor Verification Checklist
- Organic vs. Reported Growth: Verify the distinction between reported growth (impacted by currency translation and scope changes) and organic growth, which is the primary metric for operational performance.
- EBITDA Margin Sustainability: Assess whether the 260 bps margin expansion can be sustained given the noted inflationary pressures on COGS and SG&A.
- Cash Flow vs. Payouts: Review the relationship between operating cash flow (R$ 3.8B) and total shareholder payouts (R$ 5.0B), noting the reduction in net cash position.
- Argentina Exposure: Monitor the impact of the Argentine macroeconomic scenario on LAS volumes and the effectiveness of revenue management strategies in that region.
- Tax Rate Volatility: Confirm the nature of the one-time R$ 360 million tax impact to understand if it is a recurring risk or a non-recurring event.