Ambev(ABEV) - 2023 Q2 - Quarterly Report

Q2 2023 Performance Overview Ambev achieved strong Q2 2023 financial results with double-digit revenue and EBITDA growth, margin expansion, and progress in sustainability initiatives Financial & Operational Highlights Ambev delivered strong Q2 2023 financial performance with 20.0% organic net revenue and 34.2% normalized EBITDA growth, alongside margin expansion Ambev Consolidated Financial Highlights - Q2 2023 (Organic Growth) | Metric | 2Q22 (R$ million) | 2Q23 (R$ million) | Organic Change (%) | | :--- | :--- | :--- | :--- | | Net Revenue | 17,989.0 | 18,898.1 | +20.0% | | Gross Profit | 8,614.7 | 9,262.5 | +24.5% | | Normalized EBITDA | 5,538.1 | 5,275.2 | +34.2% | | Normalized Profit | 3,085.8 | 2,681.0 | -13.1% (Reported)¹ | | Normalized EPS (R$/share) | 0.19 | 0.16 | -13.6% (Reported) | - ¹Normalized Profit in 2Q22 was positively impacted by a one-off tax credit of R$1,233.7 million in Brazil. Excluding this, Normalized Profit would have grown by 18.0% in Q2 2023[7] - Total organic volume decreased by 2.2%, with declines in Brazil (Beer -2.5%, NAB -2.2%), CAC (-2.8%), and Canada (-6.2%), partially offset by growth in LAS (+0.6%)[3] - Normalized EBITDA grew across all business units: LAS (+109.8%), Brazil Beer (+29.7%), Brazil NAB (+24.9%), CAC (+7.9%), and Canada (+4.1%), driven by top-line performance and lower cost pressures[4] - Cash flow from operating activities increased by 55.1% year-over-year, driven by reductions in inventory and improvements in receivables[5] Management Comments Management reported a resilient quarter with double-digit top-line and bottom-line growth, margin expansion, and an improved Brazil Beer COGS/hl forecast - The company achieved a 300 bps expansion in Normalized EBITDA margin and a 170 bps expansion in gross margin during the quarter[10] - In Brazil, premium and super premium beer brands grew volumes in the mid-thirties, gaining market share in the segment[10] - The full-year guidance for Brazil Beer Cash COGS/hl (excluding non-Ambev marketplace products) is now expected to increase between 2.5% and 5.5%, an improvement due to lower inflation and favorable commodity prices[10] - The company reiterates its ambition to deliver better organic Normalized EBITDA growth in 2023 than the 17.1% achieved in 2022, while also expanding gross and EBITDA margins[10] Sustainability Initiatives Ambev advanced its sustainability agenda through social inclusion programs, CO2 emission reductions, and an AI-powered tool for smart drinking - Launched "Fundo Bora Cultura Preta" with R$ 7.0 million to boost black entrepreneurs in culture and entertainment[12] - Reduced over 3.7 thousand tons of CO2 emissions by refurbishing or replacing coolers at over 46,000 points of contact (POCs)[12] - Introduced "Flow Voice," an AI solution that identifies alcohol consumption through voice to support moderation and safety efforts[14] Key Markets Performance Key markets showed varied Q2 2023 performance, with strong revenue and EBITDA growth in Brazil and LAS, despite volume declines in other regions Brazil Brazil's Q2 2023 segment achieved 9.7% organic net revenue growth and 29.0% Normalized EBITDA increase, despite a 2.5% volume decline Brazil Performance - Q2 2023 (Organic) | Metric | 2Q22 (R$ million) | 2Q23 (R$ million) | Organic Change (%) | | :--- | :--- | :--- | :--- | | Volume ('000 hl) | 29,491.1 | 28,767.3 | -2.5% | | Net Revenue | 9,452.3 | 10,366.0 | +9.7% | | Normalized EBITDA | 2,999.6 | 2,679.1 | +29.0% | | Normalized EBITDA Margin | 31.7% | 25.8% | +380 bps | Brazil Beer Brazil Beer's Q2 2023 organic net revenue grew 10.1% and Normalized EBITDA surged 29.7%, despite a 2.5% volume decline Brazil Beer Performance - Q2 2023 (Organic) | Metric | 2Q22 (R$ million) | 2Q23 (R$ million) | Organic Change (%) | | :--- | :--- | :--- | :--- | | Volume ('000 hl) | 21,944.0 | 21,386.8 | -2.5% | | Net Revenue | 7,912.9 | 8,710.7 | +10.1% | | Normalized EBITDA | 2,574.0 | 2,302.6 | +29.7% | | Normalized EBITDA Margin | 32.5% | 26.4% | +400 bps | Brazil NAB (Non-Alcoholic Beverages) Brazil NAB reported 7.5% organic net revenue growth and 24.9% Normalized EBITDA increase in Q2 2023, despite a 2.2% volume decline Brazil NAB Performance - Q2 2023 (Organic) | Metric | 2Q22 (R$ million) | 2Q23 (R$ million) | Organic Change (%) | | :--- | :--- | :--- | :--- | | Volume ('000 hl) | 7,547.1 | 7,380.5 | -2.2% | | Net Revenue | 1,539.4 | 1,655.4 | +7.5% | | Normalized EBITDA | 425.6 | 376.5 | +24.9% | | Normalized EBITDA Margin | 27.6% | 22.7% | +310 bps | - The Pepsi cola brand family grew volumes by mid-single digits, with Pepsi Black more than doubling its volumes versus Q2 2022[18] Central America and the Caribbean (CAC) CAC region showed sequential improvement in Q2 2023, with 7.9% Normalized EBITDA growth and 4.8% organic net revenue, despite a 2.8% volume decline CAC Performance - Q2 2023 (Organic) | Metric | 2Q22 (R$ million) | 2Q23 (R$ million) | Organic Change (%) | | :--- | :--- | :--- | :--- | | Volume ('000 hl) | 3,041.2 | 2,957.6 | -2.8% | | Net Revenue | 2,223.9 | 2,473.5 | +4.8% | | Normalized EBITDA | 799.5 | 920.2 | +7.9% | | Normalized EBITDA Margin | 36.0% | 37.2% | +100 bps | Latin America South (LAS) LAS delivered exceptional Q2 2023 performance with 82.1% organic net revenue growth and 109.8% Normalized EBITDA increase, despite macroeconomic challenges LAS Performance - Q2 2023 (Organic) | Metric | 2Q22 (R$ million) | 2Q23 (R$ million) | Organic Change (%) | | :--- | :--- | :--- | :--- | | Volume ('000 hl) | 6,929.5 | 6,969.8 | +0.6% | | Net Revenue | 3,449.0 | 3,266.0 | +82.1% | | Normalized EBITDA | 904.6 | 837.9 | +109.8% | | Normalized EBITDA Margin | 26.2% | 25.7% | +380 bps | Canada Canada's Q2 2023 Normalized EBITDA grew 4.1% with margin expansion, despite a 6.2% volume decline and flat organic net revenue due to a soft industry Canada Performance - Q2 2023 (Organic) | Metric | 2Q22 (R$ million) | 2Q23 (R$ million) | Organic Change (%) | | :--- | :--- | :--- | :--- | | Volume ('000 hl) | 2,779.9 | 2,607.4 | -6.2% | | Net Revenue | 2,863.8 | 2,792.5 | 0.0% | | Normalized EBITDA | 834.5 | 838.1 | +4.1% | | Normalized EBITDA Margin | 29.1% | 30.0% | +120 bps | Consolidated Financial Results Consolidated Q2 2023 results show strong organic revenue and EBITDA growth and margin expansion, offset by increased finance losses Consolidated Performance Ambev's consolidated Q2 2023 organic net revenue grew 20.0% and Normalized EBITDA increased 34.2%, with margin expansion, despite negative profit impacts Ambev Consolidated Performance - Q2 2023 (Organic) | Metric | 2Q22 (R$ million) | 2Q23 (R$ million) | Organic Change (%) | | :--- | :--- | :--- | :--- | | Net Revenue | 17,989.0 | 18,898.1 | +20.0% | | Gross Profit | 8,614.7 | 9,262.5 | +24.5% | | Normalized Operating Profit | 4,068.5 | 3,571.3 | +34.3% | | Normalized EBITDA | 5,538.1 | 5,275.2 | +34.2% | | Gross Margin | 47.9% | 49.0% | +170 bps | | Normalized EBITDA Margin | 30.8% | 27.9% | +300 bps | Other Operating Income/Expenses Other operating income significantly decreased in Q2 2023 to R$ 396.4 million, primarily due to the absence of prior-year extemporaneous tax credits Breakdown of Other Operating Income/(Expenses) (R$ million) | Item | 2Q22 | 2Q23 | | :--- | :--- | :--- | | Government grants/NPV of long term fiscal incentives | 321.4 | 386.0 | | Credits/(debits) taxes extemporaneous | 922.1 | - | | Gain/(loss) on disposal of assets | 12.5 | 14.5 | | Total | 1,239.4 | 396.4 | Exceptional Items Exceptional items resulted in a R$ 123.4 million loss in Q2 2023, primarily due to increased legal fees related to a court decision - Exceptional items include restructuring expenses, COVID-19 related costs, and legal fees[31] Breakdown of Exceptional Items (R$ million) | Item | 2Q22 | 2Q23 | | :--- | :--- | :--- | | Restructuring | (25.4) | (28.4) | | Legal fees | - | (94.7) | | Other | (5.8) | (0.3) | | Total | (31.2) | (123.4) | Net Finance Results Net finance results for Q2 2023 were a R$ 1,073.5 million loss, significantly increasing due to higher losses on derivative and non-derivative instruments Net Finance Results Breakdown (R$ million) | Item | 2Q22 | 2Q23 | | :--- | :--- | :--- | | Interest income | 756.8 | 521.4 | | Interest expenses | (559.7) | (659.6) | | Gains/(losses) on derivative instruments | (846.0) | (462.3) | | Gains/(losses) on non-derivative instruments | (110.3) | (318.5) | | Hyperinflation Argentina | 451.2 | 102.8 | | Other | (187.5) | (257.4) | | Net finance results | (495.5) | (1,073.5) | - Losses on derivative instruments were mainly due to hedging carry costs for FX exposure of US$ 428.3 million in Argentina (approx. 114% carry cost) and US$ 2.0 billion in Brazil (approx. 6.2% carry cost)[33] Debt and Taxation Ambev maintained a strong net cash position of R$ 8,334.3 million as of June 30, 2023, with an effective tax rate of -9.5% in Q2 2023 Debt Breakdown As of June 30, 2023, Ambev's total consolidated debt was R$ 3,992.3 million, resulting in a net cash position of R$ 8,334.3 million Debt Position (R$ million) | Item | Dec 31, 2022 | June 30, 2023 | | :--- | :--- | :--- | | Consolidated Debt | 3,770.7 | 3,992.3 | | Cash and Cash Equivalents | 14,852.1 | 12,013.1 | | Current Investment Securities | 454.5 | 313.5 | | Net debt/(cash) | (11,535.9) | (8,334.3) | Provision for Income Tax Q2 2023 income tax provision was a R$ 225.8 million benefit, leading to a -9.5% effective tax rate, influenced by tax benefits Effective Tax Rate Reconciliation | Metric | 2Q22 | 2Q23 | | :--- | :--- | :--- | | Aggregated weighted nominal tax rate | 30.6% | 24.3% | | Income tax and social contribution expense (R$ million) | (474.6) | 225.8 | | Effective tax rate | 13.4% | -9.5% | Consolidated Financial Statements Consolidated financial statements show total assets of R$ 133,294.4 million and total equity of R$ 86,366.0 million as of June 30, 2023 Key Balance Sheet Figures (R$ million) | Item | Dec 31, 2022 | June 30, 2023 | | :--- | :--- | :--- | | Total Assets | 137,958.1 | 133,294.4 | | Total Liabilities | 54,630.3 | 46,928.4 | | Total Equity | 83,327.8 | 86,366.0 | Key Cash Flow Figures - YTD 2023 (R$ million) | Item | YTD22 | YTD23 | | :--- | :--- | :--- | | Cash flow from operating activities | 2,722.0 | 2,839.4 | | Cash flow used in investing activities | (2,259.5) | (2,299.1) | | Cash flow from financing activities | (2,731.1) | (2,722.9) | Other Information This section details Ambev's shareholding structure, hyperinflation accounting impact in Argentina, and reconciliation of non-IFRS measures Shareholding Structure As of June 30, 2023, Ambev S.A.'s shareholding structure was majority-controlled by Anheuser-Busch InBev (61.8%), with 28.0% public float Ambev S.A. Shareholding Structure (as of June 30, 2023) | Shareholder | % Outstanding | | :--- | :--- | | Anheuser-Busch InBev | 61.8% | | FAHZ | 10.2% | | Market | 28.0% | | Total Outstanding | 100.0% | Financial Reporting in Hyperinflationary Economies (Argentina) Due to Argentina's hyperinflation, IAS 29 accounting was applied, resulting in a R$ 102.8 million positive finance adjustment but a R$ 276.3 million negative profit impact - The application of IAS 29 is required as Argentina's three-year cumulative inflation rate exceeded 100%[39] Impact of Hyperinflation Accounting (IAS 29) in Q2 2023 (R$ million) | Metric | Total Impact | | :--- | :--- | | Revenue | 15.9 | | Normalized EBITDA | 13.0 | - The overall impact on Q2 2023 profit was negative R$ 276.3 million, and the impact on EPS was negative R$ 0.01[39] Reconciliation of Non-IFRS Measures This section reconciles Normalized EBITDA, a non-IFRS measure, to reported profit, providing transparency on management's performance metrics Reconciliation from Profit to Normalized EBITDA - Q2 2023 (R$ million) | Item | Amount | | :--- | :--- | | Profit | 2,597.8 | | (+) Income tax expense | (225.8) | | (+) Net finance results | 1,073.5 | | (+) Share of results of joint ventures | 2.4 | | (+) Exceptional items | 123.4 | | Normalized Operating Profit | 3,571.3 | | (+) Depreciation & amortization | 1,703.9 | | Normalized EBITDA | 5,275.2 |