Business Context and Reporting Period
Company: AMBEV S.A.
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Three months ended March 31, 2019
Currency: Brazilian Reais (R$) in thousands
Business Overview: Ambev produces and sells beer, soft drinks, and non-alcoholic beverages primarily in Brazil, Latin America, and Canada. The company is a subsidiary of Anheuser-Busch InBev N.V.
Key Financial Metrics
| Metric | Q1 2019 | Q1 2018 (Restated) |
|---|---|---|
| Net Sales | R$ 12,640,126 | R$ 11,640,219 |
| Gross Profit | R$ 7,532,425 | R$ 7,184,285 |
| Income from Operations (EBIT) | R$ 4,055,733 | R$ 3,800,717 |
| Net Income | R$ 2,749,068 | R$ 2,587,586 |
| Net Income Attributable to Ambev | R$ 2,661,850 | R$ 2,505,919 |
| Normalized EBITDA | R$ 5,120,651 | R$ 4,786,929 |
| Cash Flow from Operating Activities | R$ 2,080,145 | R$ 940,529 |
| Cash and Cash Equivalents (End of Period) | R$ 12,822,525 | R$ 7,953,350 |
| Total Assets | R$ 96,905,532 | R$ 88,766,374 |
| Total Liabilities | R$ 36,414,895 | R$ 40,846,631 |
| Interest-Bearing Loans (Total) | R$ 5,085,238 | R$ 4,103,663 |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased by approximately 8.6% year-over-year, driven by volume and price mix, particularly in the Brazil segment.
- Profitability: Net income rose by 6.2% to R$ 2.75 billion. Normalized EBITDA margin was 40.5% in Q1 2019 compared to 41.1% in Q1 2018.
- Cash Flow Improvement: Operating cash flow more than doubled to R$ 2.08 billion, primarily due to better working capital management and tax payments timing.
- Balance Sheet: Total assets increased by R$ 8.1 billion, largely due to the adoption of IFRS 16 (Leases) and foreign exchange impacts. Total liabilities decreased by R$ 4.4 billion, reflecting a reduction in trade payables and tax liabilities.
- Debt: Total interest-bearing loans increased by R$ 981 million, with a significant portion attributed to the recognition of lease liabilities under IFRS 16.
Guidance, Outlook, Risks, and Unusual Items
Accounting Changes
- IFRS 16 Adoption: The company adopted IFRS 16 on January 1, 2019, using the full retrospective approach. This resulted in the recognition of right-of-use assets and lease liabilities, impacting the balance sheet and reclassifying lease payments in the cash flow statement.
- Hyperinflation Accounting (IAS 29): Continued application of hyperinflation accounting for Argentinean subsidiaries due to cumulative inflation exceeding 100% over three years. This impacts the restatement of non-monetary assets and liabilities.
Segment Performance
- Brazil: Remains the largest contributor with R$ 7.21 billion in sales and R$ 2.29 billion in EBIT.
- Latin America - South: Sales decreased to R$ 2.67 billion (from R$ 3.09 billion in 2018), impacted by the economic environment in Argentina.
- Canada: Sales increased to R$ 1.29 billion with EBIT of R$ 275 million.
Risks and Contingencies
- Tax Litigation: Significant contingent liabilities exist regarding Brazilian federal taxes (IRPJ, CSLL, PIS, COFINS) and state taxes (ICMS). Management estimates a possible loss exposure of approximately R$ 70.6 billion, though provisions are recorded only for probable losses.
- Foreign Exchange: The company is exposed to currency fluctuations, particularly the Argentine Peso and Brazilian Real. Derivative instruments are used to hedge these risks.
- Commodity Prices: Exposure to aluminum, sugar, wheat, and corn prices is managed through fixed-price contracts and derivatives.
Unusual Items
- Exceptional Items: Net exceptional items were R$ 18.4 million (expense) in Q1 2019, compared to R$ 8.4 million in Q1 2018.
- Equity Swaps: The company maintains equity swap contracts to hedge share-based payment risks, with exposure up to 137 million common shares.
Investor Verification Checklist
- IFRS 16 Impact: Verify the specific impact of lease capitalization on debt ratios and EBITDA calculations.
- Argentina Exposure: Review the specific financial impact of hyperinflation accounting (IAS 29) on the Latin America - South segment results.
- Tax Contingencies: Assess the magnitude of the R$ 70.6 billion in possible tax losses versus the recorded provisions to understand potential future cash outflows.
- Working Capital: Analyze the drivers behind the significant increase in operating cash flow, specifically the reduction in trade payables.
- Debt Structure: Confirm the maturity profile of the increased interest-bearing loans, distinguishing between traditional debt and new lease liabilities.