Brazil: Ambev reports lower EBITDA in Q4 and full year 2016

Ambev S.A., Brazil’s No 1 brewer and part of world’s No 1 brewer AB InBev, announced on March 2 its results for the 2016 fourth quarter and full year 2016.

The company’s operating and financial information, unless otherwise indicated, is presented in nominal Reais and prepared according to International Financial Reporting Standards (IFRS), and should be read together with our financial information for the twelve-month period ended December 31, 2016 filed with the CVM and submitted to the SEC.

Top line performance was flattish in the quarter (+0.4%), as solid growth in CAC (Central America and the Caribbean - includes Dominican Republic, Antigua, Dominica, Saint Vincent, Guatemala, Cuba, El Salvador and Nicaragua) (+8.9%) and LAS (Latin America South - includes Argentina, Bolivia, Chile, Ecuador, Paraguay, Peru and Uruguay) (+19.3%) was impacted by a decline in Brazil (-9.7%) and Canada (-0.5%). Volumes were down 5.6% while net revenue per hectolitre (NR/hl) was up by 6.3%. In the full year, top line increased 1.9%, as Brazil's top line decline (-5.2%) was more than offset by solid performance in (i) CAC (+14.0%), as our business in the region continued to grow; (ii) LAS (+15.8%), due to a strong NR/hl performance partially offset by volumes decline in Argentina; and (iii) Canada (+0.7%). On a consolidated basis, volumes declined 5.8% mainly explained by Brazil and Argentina, where the challenging macroeconomic scenario continued to put pressure on consumers, while NR/hl was up by a solid 8.3%, due to our revenue management initiatives.

Ambev’s Cost of Goods Sold (COGS) increased 6.8% in the quarter, while on a per hectolitre basis COGS was up by 13.1%. In the full year, COGS and COGS/hl increased 6.5% and 13.1%, respectively, mainly driven by Brazil.

Selling, General & Administrative (SG&A) expenses (excluding depreciation and amortization) were up by 7.5% in the quarter and 7.6% in the full year, mainly explained by higher sales and marketing expenses, as the company continued to invest in its brands, partially offset by efficiency gains in administrative expenses across all its operations.

Normalized EBITDA was R$ 6,015 million (-12.1%) in the quarter with gross margin and EBITDA margin compression of 210bps and 650bps, respectively. In the full year, EBITDA was R$ 19,483 million (-6.9%) with gross margin contracting 150bps and EBITDA margin contracting 410bps, driven by Brazil (-820bps) and Canada (-50bps) partially offset by CAC (+220bps) and LAS (+180bps).

Net Profit reached R$ 4,834 million in the quarter, 13.5% above 4Q15, while on a normalized basis Net Profit declined 15.9% to R$ 3,656 million. In the full year, Net Profit was up 1.6% to R$ 13,083 million, while adjusted by exceptional items, Net Profit was down 9.7% to R$ 11,949 million, as EBITDA decline and higher net finance results due to the cost of carry of the company’s hedges and non cash accretion expenses related to its investment in the Dominican Republic were partially offset by a lower effective tax rate. EPS was R$ 0.80 and Normalized EPS was R$ 0.75 in the full year.

Cash generated from operations reached R$ 7,920 million in the quarter while R$ 17,702 million in the full year. CAPEX totaled R$ 4,133 million, with CAPEX Brazil declining 35% year over year (R$ 1,969 million), in line with Ambev’s previous guidance.

During 2016, Ambev returned R$ 10,046 million to equity holders in dividends and interest on capital. As of December 31st, 2016, the brewer’s net cash position was R$ 2,763 million. This figure does not include the dividend payment of R$ 0.07 per share (approximately R$ 1.1 billion) announced on December 22nd, 2016, made as of February 23rd, 2017.

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