BRAZIL: AmBev Releases Second Quarter 2000 Results
- EBITDA achieved R$245.3 million, a 22.3% growth compared to the pro forma 2Q99
- Brazilian beer sales volume rose 7.2%; Net sales per hectoliter rose 5.8%;
- Soft drinks sales volume was 6.4% higher; Net sales per hectoliter remained stable;
- Brazilian beer market share grew 0.7% to reach 72.4%; and soft drinks had a 17.2% market share
In the second quarter of 2000, the first quarter of effective activities, after approval for AmBev's merger had been granted, the company's net sales reached R$1.1 billion, a 13.7% gain compared to the pro forma net sales of the second quarter of 1999. The R$245.3 million EBTIDA was 22.3% superior to the one obtained in the same period last year. Additionally, a continuous vigilance over the company costs and expenses has contributed to the continuous exceptional results.
The consolidated volume sold rose 7.3% during the second quarter as a result of sales increase in both segments, beer and soft-drinks, in Brazil and abroad. The Brazilian beer segment rose 7.2% compared to the same period in 1999, reaching 13,577 thousand hectoliters volume. The soft-drinks volume was 6.4% higher compared to last year's quarter, reaching a total of 3,761 thousand hectoliters in the period.
The activities in Argentina presented an 18.0% growth. The recent sequence of declining in volumes was reversed in Venezuela and that market accounted for a 16.7% evolution when compared to the same period last year. According to its consolidation strategy in Mercosur, AmBev and Group Danone have signed a stock option purchase agreement, representing the majority of the Compania Salus common shares, the second largest brewery (24% market share) in Uruguay and the leader (42% market share) in the local mineral water market. Salus has registered net sales of US$30 million in 1999. In that year, it produced 190 thousand hectoliters of beer and 850 thousand hectoliters of mineral water.
"The performance reported immediately after the merger makes us confident and optimistic in the path AmBev has to follow. Our permanent and vigorous search for a better company, allied to the attested work capacity of our people, allows us to forecast successive overcome limits, establishing a new benchmark for beverage companies performance", commented AmBev's CEO, Magim Rodriguez.
Brazil: The beer volume was positively impacted primarily by several factors including the successful brand positioning, the growing efficiency in distribution and the strong performance in the point of sale. These factors combined with the market opportunities such as the heating of the economic activity and the more favorable climatic conditions contributed to volume growth. Despite Antarctica's beer portfolio had its market share reduced, AmBev's consolidated volume rose 7.2% in Brazil, another 0.7 percentage points of market share (period from May, 1999 to May, 2000), reaching 72.4%.
The net sales per hectoliter grew 5.8% compared to the second quarter of 1999, due to the brand positioning within the local market, a process initiated last year that aims to reduce the price seasonality along the year.
The cost of production per hectoliter fell 2.1% when compared to the same quarter last year, due to the impact of lower technological depreciation in the Nova Rio and Jacarei plants. The selling and administrative expenses had an increase of 7.6%, reflecting non-recurrent expenses of R$21.2 million due to the process of restructuring and integrating Brahma and Antarctica. Most of the benefits of such expenses will impact the second semester results. The expenses with direct distribution per hectoliter have been reduced by 10.8% and the network has been expanded. Direct distribution is currently responsible for the distribution of 18.3% of the total beer volume in Brazil.
The second quarter EBITDA margin was 27.8% in this segment, while in the same period of 1999 it was 26.8%. The EBITDA registered a growth of 17.7%, reaching R$236.3 million.
Argentina: The company's performance in Argentina remained strong with a volume growth of 18.0% in the second quarter, mainly due to the expansion of sales in the capital, Buenos Aires, through direct distribution. As a consequence, the market grew to 14.6% this quarter, one point percent higher than the 13.6% of the same period last year. Although that market is characterized by tight prices, we managed to keep them constant in dollar terms. The EBITDA in Argentina was negative by R$1.1 million, primarily due to the strong seasonality of the referred period.
Venezuela: After 5 consecutive quarters of declining in volumes, due to the demand contraction as a result of that country economic situation, we begin to realize a recovering movement. Sales volume rose 16.7% in the period, as a combined effect of the marketing and alternative media plans, in addition to improved distribution efficiency and promotion on the point of sale with the dissemination of new coolers which cool down the beer temperature according to the local preference. The net sales per hectoliter grew 4.3% in real terms. The Venezuelan operations EBITDA was close to the equilibrium in this quarter.
The trend of declining volumes in Brahma's soft-drink segment initiated with the repositioning of prices in 1999 has been reverted. The AmBev's overall volume grew 6.4% in the second quarter of 2000, and can be broken down as 4.0% growth for Brahma soft-drinks, 11.4% growth for Pepsi soft-drinks and 4.4% growth for Antarctica ones, with the later mainly influenced by the Guarana flavor.
Net sales per hectoliter of R$47.8 remained stable in relation to the same period last year. The company has decided no longer to compete in the price segment, differentiating its products from competition and their commercial practices. This strategy was supported by marketing campaigns for the orange flavored soft-drink Sukita, Guarana Antarctica and the Pepsi sponsorship of Sport Club Corinthians Paulista, the most popular soccer team in the state of Sao Paulo, which were followed by regional oriented campaigns.
The production cost per hectoliter fell 8.9%. The selling and administrative expenses were reduced by 14.0%, primarily reflecting the decrease in Antarctica subsidiary expenses as a consequence of the merger with Brahma and the implementation of the Zero Budget (OBZ) program. The direct distribution expenses per hectoliter grew 10.8%, representing 39.0% of the soft-drinks volume in Brazil.
The segment's EBITDA reached R$21.0 million in the second quarter.
Interest Income and Expenses. Consolidated net interest expense was R$ 74.6 million compared to R$45.1 million in the same period of 1999.
The company's consolidated US dollar denominated debt position remains fully hedged by holding a portion of its cash position in US dollar denominated securities, as well as through the use of swaps and derivatives.
The consolidated financial indebtedness has been reduced by R$991 million in this quarter, primarily due to the repayment of Antarctica short term and expensive loans. Besides that, the company's net debt was reduced in R$355.3 million. Consequently, the financial leverage has been equally reduced and the current net debt/equity ratio is 51.2%, taking into account 100% of the Brahma's subsidiary net worth.
Contingency Provisions. R$40.4 million in contingency provisions registered in the quarter were for ICMS provision related to potential differences in fiscal incentives for the Rio de Janeiro (R$23.9 million) plant and potential tax assessment fines (R$9.6 million) related to recognition of IPI and ICMS credits on capital expenditures in prior years.
Other Operating Income. The losses (R$16.1 million) recorded in the second quarter 2000 were primarily due to expenses with goodwill amortization (R$20.7 million) at AmBev level as a consequence of accounting practices equalization between subsidiaries, partially offset by a gain (R$4.5 million) with fiscal incentives in certain units within the group.
Non-Operating Results. A non-operating profit of R$4.3 million was booked mainly as a result of questioning the PIS tax semiannually and other tax credits (IPI and ICMS).
Income Tax & Social Contributions. AmBev's income tax benefit during the quarter of R$27.3 million was primarily originated in the Brahma (R$11.8 million) and Antarctica (R$10.5 million) subsidiary tax benefits. Additionally, AmBev (parent company stand-alone) realized an active tax due to fiscal losses in the period.
Profit Sharing. During the second quarter, the company provisioned R$16.2 million, compared to R$15.6 million during the prior year period. AmBev's by-laws state that up to 10% of net income may be paid out to employees, with an additional 5% for executives. These provisions may be paid to employees in the form of variable remuneration dependent strictly upon the achievement of annual corporate and individual objectives.
Net Losses were R$102.4 million during the second quarter, compared to a pro forma net profit of R$34.1 million during the second quarter of 1999. Should we consider 100% of Brahma's shareholders and exclude the "other revenues" effect, we would have accounted for a net profit of R$9.7 million in the second quarter, compared to a net loss of R$59.7 million in the same quarter pro forma last year.
This release contains forward-looking statements. Such statements are not statements of historical fact, and reflect the beliefs and expectations of the Company's management. The words "anticipates", "believes", "estimates", "expects", "forecasts", "intends", "plans", "predicts", "projects", "targets" and similar words are intended to identify these statements, which necessarily involve known and unknown risks and uncertainties. Known risks and uncertainties include, but are not limited to, the impact of competitive products and pricing, market acceptance of products, product transitions by the Company and its competitors, regulatory approval, currency fluctuations, production and supply difficulties, changes in product sales mix, and other risks described in the Company's registration statement and other Securities and Exchange Commission filings. Forward-looking statements speak only as of the date they are made, and the Company does not undertake any obligation to update them in light of new information or future developments.
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