E-Malt.com News article: 3086

Brasil: São Paulo: Companhia de Bebidas das Américas – AmBev, the world’s fifth largest brewer and Brazil’s leading beverage company, announced on August 11, 2004 its results for the second quarter 2004 (2Q04). The following financial and operating information, unless otherwise indicated, is presented in Reais, in a nominal and consolidated basis, pursuant to Brazilian Corporate Law. AmBev’s Brazilian operations are comprised of the Brazilian beer segment, the Brazilian soft drinks and non-alcoholic, non-carbonated (NANC) segment and the “other products” segment. AmBev’s consolidated operations are comprised of the Company’s Brazilian operations and its International
Operations, which include AmBev’s 50.98% average economic stake in Quinsa (Argentina) in the quarter and other international operations (Venezuela, Guatemala, Peru, Ecuador and Dominican Republic). Comparisons, unless otherwise stated, refer to the second quarter 2003 (2Q03).

AmBev’s consolidated EBITDA reached R$735.1 million in the quarter, a 33.4% increase compared to the year-ago quarter. The EBITDA of the Brazilian operations totaled R$635.4 million, up 20.8% compared to 2Q03. In AmBev’s Brazilian beer business, efforts focused on recovering market share, without compromising profitability. Market share was 66.3% in June (as compared with 65.0% in March) according to ACNielsen estimates, and the EBITDA margin was 140 basis points higher than 2Q03.

International Operations accounted for 13.6% of consolidated EBITDA (versus 4.5% in 2Q03). The positive and continuous evolution of Quinsa’s results, as well as the good performance of Cerveceria Rio in Central America and Embodom in Caribe, guaranteed a greater impact of this segment on our results.

Carlos Brito, AmBev’s CEO, commented: “With an increase of 33.4% in consolidated EBITDA, results for the second quarter 2004 once again reaffirm AmBev’s potential for value creation. Through the hard work of each of our employees, we continue to succeed in our efforts on recovering market share in Brazil and expanding AmBev’s presence in Latin America.

Guided by the principles of our long term strategy, we firmly continue to implement our revenue management initiatives, continued improvement of point-of-sale execution and permanent quest for cost reductions. As an example of our efforts, in the second quarter we successfully managed to revert pressures on net revenues per hectoliter originated from tax readjustments in Brazil. By applying small price repositionings, carefully defined by packaging, brand and region, we were able to preserve the Company’s profitability without affecting market share.

Looking ahead, we optimistically monitor the recovery signs of the Brazilian economy. We expect the increase in productive activities and the decrease in unemployment rates in Brazil to result in an effective increase in disposable income, boosting demand for consumer goods. Finally, we expect to conclude the operation between AmBev and Interbrew in the end of August. As soon as the transaction is closed, AmBev will operate Labatt in Canada, consolidating strong cash generation in Canadian dollars in the Company’s results. I take this opportunity to emphasize the Company’s commitment with efforts to capture synergies expected from the transaction.”

EBITDA per hectoliter in the Brazilian beer segment reached R$43.2 in the quarter, a 21.0% increase from 2Q03. Higher net revenues per hectoliter and lower costs of products sold were the main factors leading to the increase in EBITDA/hl. The combined effect of the 7.3% decrease in volume sold, together with higher sales, marketing and direct distribution expenses had a negative effect on EBITDA/hl. Net sales reached R$1,425.9 million in the quarter, up 7.9% compared to 2Q03. The 16.5% increase in net sales per hectoliter, R$117.4 compared to R$100.8, more than offset the negative performance of volume sold. The combination of the June/July 2003 price alignment, the 19.5% increase in volume commercialized through AmBev’s direct distribution network (38.3% of total volume sold versus 29.7% recorded in 2Q03) and the larger participation of superpremium brands in the Company’s beer portfolio (6.6% in 2Q04 versus 5.9% in 2Q03) were the main drivers behind increasing net sales per hectoliter.The greater presence of returnables in AmBev’s sales mix (72.5% in 2Q04 versus 71.5% in 2Q03), which, despite having a lower net revenue/hl, have a higher gross margin than non-returnable presentations, and the realignment of the reference price for the ICMS taxation in several states had a negative impact on net sales per hectoliter. As anticipated in the 1Q04 earnings release and conference call, the positive effects resulting from the end of the transition period of the new PIS/Cofins, greater participation of direct distribution in total volume sold (38.3% versus 37.9% in 1Q04) and AmBev’s revenue management initiatives were practically offset by the greater participation of returnable presentations in the Company’s sales mix and the realignment of the reference prices for the ICMS taxation, especially in the Southeastern states. As a result, net revenue per hectoliter saw a small increase of 1.0%, from R$116.2 to R$117.4. For the next quarters, we maintain our estimate of a continued recovery in net revenue per hectoliter, mostly due to the positive trend in direct distribution, increased participation of non-returnable presentations in AmBev’s sales mix and the Company’s continued revenue management initiatives.

Total beer volume sold in the quarter was 7.3% below the same period in 2003, at 12.15 million hectoliters, reflecting not only the smaller market share in the period versus 2003 figures, but also a 2.7% retraction in Brazil’s beer market according to ACNielsen estimates.

The cost of goods sold per hectoliter, excluding depreciation, (cash COGS/hl) decreased by 7.2% compared to 2Q03. The lower implicit foreign exchange rate prevailing in the quarter, including the hedge impact (R$3.01/US$ compared to R$3.31/US$ in 2Q03), as well as more favorable international prices for adjuncts and sugar, and the greater participation of returnable presentation in the sales mix were the main positive factors on cost of goods sold.Lower dilution of fixed costs/hl due to lower volume sold and the higher international prices for aluminum had a negative impact on cash COGS/hl.

Compared to the previous quarter, cash COGS/hl increased 3.6%, principally reflecting the lower dilution of fixed costs/hl, and the higher implicit foreign exchange rate, including the hedge impact (R$3.01/US$ in the quarter compared to R$2.89/US$ in 1Q04).

Selling, general and administrative expenses (SG&A), including direct distribution and depreciation, totaled R$496.6 million in the quarter, up 39.3% compared to the R$356.4 million reported in 2Q03. In the quarter, sales and marketing expenses amounted to R$183.2 million, and were impacted by greater marketing investments as well as by a larger number of POS initiatives. As a result of our marketing and POS actions, we continued the Company’s consistent trend of market share recovery, reaching 66.3% in June. Direct distribution expenses amounted to R$142.1 million in the quarter, up 30.7% when compared to 2Q03, reflecting mainly the approximate 20% increase in volume sold. In terms of hectoliters, direct distribution expenses reached R$30.6 in the quarter, 9.4% above the R$27.9 of 2Q03. The main factors that negatively affected direct distribution expenses were the increase in the proportion of bars, restaurants and small retailers in the distribution mix, higher fixed costs due to a smaller volume sold and the increase in fuel prices.

This segment of Other Products in Brazil is comprised of malt and by-product sales to third parties. Net sales for the second quarter of 2004 totaled R$44.2 million, 21.4% bellow the same period last year. EBITDA from this segment was R$21.8 million, 16.8% above the same period of 2003.

In 2Q04, International Operations accounted for 13.6% of AmBev’s consolidated EBITDA, compared to only 4.5% in the same period of 2003. This increase is a consequence of AmBev’s strategy to utilize a combination of strategic alliances, acquisitions and Greenfield Projects in the Americas to consolidate our position in attractive markets and create value for its shareholders while preserving its strong credit profile.

Throughout the quarter, Quinsa carried out its share buyback program, therefore affecting AmBev’s economic stake in the company. In the second quarter, our average interest was 50.98%, versus 40.85% and 50.34% recorded in 2Q03 and 1Q04, respectively. In addition to the greater interest held by AmBev, more favorable macroeconomic scenarios in countries where Quinsa operates, increases in efficiency and the continuous capture of synergies and opportunities further benefited the results of International Operations results.

Quinsa’s beer volumes in Argentina remained almost flat compared to the same period last year, totaling 1.84 million hectoliters in the quarter. The relative stable exchange rate combined with some price initiatives taken by Quinsa in the period lead its net revenues per hectoliter to increase almost 20% in dollar terms, reaching US$32.2 in the quarter. The Argentinean beer franchise EBITDA margin jumped to 40.4%.

In Bolivia, volumes continued to perform well on the back of the economy recovery. Total volumes reached 428,000 hectoliters, 9.5% above the 391,000 hectoliters sold in the same quarter last year. Prices remained stable in the period. EBITDA margin was 53.4% in the quarter.

In Paraguay, profitability was leveraged due to Quinsa’s strategy to repositioning Brahma, Quilmes and Baviera brands. The combined effect of this strategy with the local currency appreciation positively impacted net revenues and EBITDA. Net revenues increased over 14% in the period and EBITDA margin surpassed 56%.

In Uruguay, beer volumes boosted 31% in the quarter, mainly driven by the country economic recovery. The combined effect of higher price in local currency and the appreciation of the Peso allowed the Uruguayan beer franchise to report a positive EBITDA of US$1.1 million compared to a negative US$0.4 million EBITDA in the 2Q03.


Finally, in Chile, price initiatives taken during 2003 fully compensated the 20% volume decrease in the period. EBITDA remained stable compared to 2Q03.

Consolidated Quinsa’s beer volumes in the second quarter reached 2.8 million hectoliters. The proportional consolidation at AmBev of beer net sales and EBITDA amounted to R$164.9 million and R$71.3 million respectively.


11 August, 2004