Business Context and Reporting Period
Company: AMBEV S.A.
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Second Quarter 2019 (ended June 30, 2019) and Year-to-Date (HY19).
Accounting Standards: International Financial Reporting Standards (IFRS). The filing includes restatements for 2018 due to the adoption of IFRS 16 (Leases) and the application of Hyperinflation Accounting (IAS 29) for Argentinean subsidiaries starting in 3Q18.
Key Financial Metrics
| Metric (R$ Million) | 2Q19 | 2Q18 (Restated) | HY19 | HY18 (Restated) |
|---|---|---|---|---|
| Net Revenue | 12,145.1 | 11,509.5 | 24,785.3 | 23,149.8 |
| Normalized EBITDA | 4,691.3 | 4,673.7 | 9,811.9 | 9,460.6 |
| Normalized Profit | 2,712.1 | 2,335.4 | 5,474.5 | 4,936.2 |
| Normalized EPS (R$) | 0.17 | 0.14 | 0.34 | 0.30 |
| Cash Flow from Operating Activities | 3,114.1 | 3,215.1 | 5,194.2 | 4,155.6 |
| CAPEX | 895.8 | 805.1 | 1,441.8 | 1,277.8 |
| Net Cash Position | 9,311.3 | 7,373.2 (Dec 2018) | - | - |
Margins (2Q19 vs 2Q18):
- Gross Margin: 59.1% (down 160 bps organically).
- Normalized EBITDA Margin: 38.6% (down 260 bps organically).
Material Changes vs. Prior Period
- Revenue Growth: Consolidated net revenue increased 7.2% organically in 2Q19, driven by a 6.3% increase in Net Revenue per hectoliter (NR/hl) and a 0.8% volume increase.
- Brazil: Revenue +7.8% (Volume +3.6%, NR/hl +4.1%).
- Central America & Caribbean (CAC): Revenue +11.6% (Volume +5.7%, NR/hl +5.6%).
- Latin America South (LAS): Revenue +10.6% (Volume -8.9%, NR/hl +21.2%).
- Canada: Revenue -1.2% (Volume -3.4%, NR/hl +2.3%).
- Cost Pressures: Cost of Goods Sold (COGS) increased 11.6% (16.7% cash COGS) due to inflationary pressures in Argentina, foreign exchange (FX) impacts, and higher commodity prices (aluminum, barley), partially offset by lower sugar prices.
- EBITDA Performance: Normalized EBITDA grew 0.3% organically. While CAC saw significant EBITDA growth (+33.9%), Brazil Beer EBITDA declined 8.5% due to margin compression from COGS. LAS EBITDA grew 1.9% despite volume declines.
- Profitability: Normalized profit rose 16.1% to R$ 2,712.1 million, primarily driven by a significant reduction in net finance expenses (down 48.5% to R$ 567.4 million).
Guidance, Outlook, and Risks
- Guidance: Management reiterates 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 execution of "Premiumize at Scale" (growth in Budweiser, Stella Artois, Corona) and "Differentiate the Core" (Brahma, Skol). Investment in Non-Alcoholic Beverages (NAB) premiumization (Lipton, Gatorade).
- Regional Outlook:
- Brazil: Confident in potential to accelerate EBITDA growth.
- CAC: Enthusiastic about short and long-term opportunities.
- LAS: Cautious regarding the Argentinean macroeconomic environment (high inflation, currency devaluation) but confident in brand strength.
- Canada: Focused on trade-up strategy; premium imports growing double digits despite industry decline.
- Risks & Contingencies:
- Hyperinflation Accounting: Significant accounting adjustments for Argentina (IAS 29) impact reported revenue and EBITDA figures.
- Commodity Prices: Exposure to aluminum and barley price fluctuations.
- FX Volatility: Currency translation impacts, particularly in Argentina and Canada.
- Restructuring: R$ 33.9 million in exceptional restructuring expenses recorded in 2Q19.
Investor Verification Checklist
- Argentina Impact: Verify the specific impact of IAS 29 Hyperinflation Accounting on the reported LAS segment results, as organic growth figures are adjusted pro-forma.
- Brazil Beer Margins: Analyze the sustainability of the 620bps margin contraction in Beer Brazil and the trajectory of cash COGS per hectoliter against the "mid-teens" guidance.
- Net Finance Results: Confirm the drivers behind the 48.5% reduction in net finance expenses, specifically the impact of interest income vs. derivative losses and the non-cash accruals related to the Dominican Republic put option.
- Volume Trends: Monitor volume declines in LAS (-8.9%) and Canada (-3.4%) to assess if price increases (NR/hl) can continue to offset volume losses.
- Debt & Liquidity: Review the net cash position of R$ 9.3 billion and the composition of debt (local vs. foreign currency) in the context of FX volatility.