SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 6-K

 

Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of the

Securities Exchange Act of 1934

 

For the month of August, 2020

Commission File Number 1565025

 


 

AMBEV S.A.

(Exact name of registrant as specified in its charter)

 

AMBEV S.A.

(Translation of Registrant's name into English)

 

Rua Dr. Renato Paes de Barros, 1017 - 3rd Floor
04530-000 São Paulo, SP
Federative Republic of Brazil

(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F. 


Form 20-F ___X___ Form 40-F _______

 Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.  

Yes _______ No ___X____

 

 

 

Ambev S.A.

Unaudited interim consolidated

financial statements at
June 30, 2020
and report on review

 

 

 

 

 

Report on review of interim

consolidated financial statements

 

To the Board of Directors and Shareholders

Ambev S.A.

 

 

Introduction

 

We have reviewed the accompanying interim consolidated balance sheet of Ambev S.A. and its subsidiaries ("Company") as at June 30, 2020 and the related interim consolidated statements of income and comprehensive income for the three-month and six-month periods then ended, and the interim consolidated statements of changes in equity and cash flows for the six-month period then ended, and a summary of significant accounting policies and other explanatory notes.

 

Management is responsible for the preparation and fair presentation of these interim consolidated financial statements in accordance with International Accounting Standard (IAS) 34 - Interim Financial Reporting, issued by the International Accounting Standards Board (IASB). Our responsibility is to express a conclusion on these interim consolidated financial statements based on our review.

 

Scope of review

 

We conducted our review in accordance with International Standards on Reviews of Interim Financial Information (ISRE 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity). A review of interim information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

 

Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim consolidated financial statements is not prepared, in all material respects, in accordance with International Accounting Standard (IAS) 34 - Interim Financial Reporting issued by the International Accounting Standards Board (IASB).

 

 

São Paulo, August 11, 2020   

 

 

 

 

PricewaterhouseCoopers

Auditores Independentes

CRC 2SP000160/O-5

 

 

 

 

Alessandro Marchesino de Oliveira

Contador CRC 1SP265450/O-8

 

 

 

PricewaterhouseCoopers, Av. Francisco Matarazzo 1400, Torre Torino, São Paulo, SP, Brasil, 05001-903, Caixa Postal 60054, T: +55 (11) 3674 2000, www.pwc.com.br

 

 

 

AMBEV S.A.

 

Interim Consolidated Balance Sheet

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

Assets Note 06/30/2020 12/31/2019
       
Cash and cash equivalents 5 17,438,952 11,900,666
Investment securities 6 44,823 14,558
Derivative financial instruments 21 444,825 172,147
Trade receivable   4,201,583 4,495,525
Inventories 7 7,771,619 5,978,557
Income tax and social contributions recoverable   3,240,257 1,831,401
Other recoverable taxes   2,150,083 2,242,726
Other assets   975,988 985,557
Current assets   36,268,130 27,621,137
       
       
Investment securities 6 200,195 163,570
Derivative financial instruments 21 4 1,221
Income tax and social contributions recoverable   3,080,485 4,331,901
Other recoverable taxes   806,576 671,084
Deferred tax assets 8 5,304,118 2,950,109
Other assets   1,863,578 1,751,699
Employee benefits   74,936 56,228
Investments in joint ventures   335,800 303,423
Property, plant and equipment 9 25,111,748 22,576,299
Intangible   7,912,013 6,306,364
Goodwill 10 40,435,425 35,009,909
Non-current assets   85,124,878 74,121,807
       
Total assets   121,393,008 101,742,944

 

 

The accompanying notes are an integral part of these interim consolidated financial statements.

1 
 

AMBEV S.A.

 

Interim Consolidated Balance Sheet (continued)

All amounts in thousand of Brazilian Reais unless otherwise stated

 

Equity and liabilities Note 06/30/2020 12/31/2019
       
Trade payables   14,839,528 15,069,575
Derivative financial instruments 21 570,310 355,314
Interest-bearing loans and borrowings 11 4,118,691 653,149
Bank overdrafts 5 690,753 24
Wages and salaries   1,178,142 833,025
Dividends and interest on shareholders’ equity payable   1,308,426 956,560
Income tax and social contribution payable   1,542,216 1,394,178
Taxes and contributions payable   3,066,026 4,108,521
Other liabilities   1,804,592 1,530,654
Provisions 12 120,310 110,033
Current liabilities   29,238,994 25,011,033
       
Trade payables   259,261 309,567
Derivative financial instruments 21 608 56
Interest-bearing loans and borrowings 11 2,664,138 2,409,655
Deferred tax liabilities 8 2,985,431 2,371,098
Income tax and social contribution payable   2,233,042 2,219,551
Taxes and contributions payable   691,203 645,155
Put option granted on subsidiary and other liabilities   4,124,328 3,145,393
Provisions 12 363,169 370,972
Employee benefits   3,300,537 2,704,459
Non-current liabilities   16,621,717 14,175,906
       
Total liabilities   45,860,711 39,186,939
       
Equity 13    
Issued capital   57,899,073 57,866,759
Reserves   75,751,379 75,685,730
Carrying value adjustments   (62,652,347) (72,274,464)
Retained earnings / (losses)   2,924,650 -
Equity attributable to equity holders of Ambev   73,922,755 61,278,025
Non-controlling interests   1,609,542 1,277,980
Total Equity   75,532,297 62,556,005
       
Total equity and liabilities   121,393,008 101,742,944

 

 

The accompanying notes are an integral part of these interim consolidated financial statements.

2 
 

AMBEV S.A.

 

Interim Consolidated Income Statements

For the six and three-month period ended June 30

All amounts in thousand of Brazilian Reais unless otherwise stated

 

    Six-month period ended:   Three-month period ended:
  Note 2020 2019   2020 2019
             
Net sales 15 24,217,927 24,785,259   11,615,330 12,145,133
Cost of sales   (11,445,066) (10,069,002)   (5,801,877) (4,961,301)
Gross profit   12,772,861 14,716,257   5,813,453 7,183,832
             
Distribution expenses   (3,694,432) (3,276,890)   (1,843,119) (1,650,168)
Sales and marketing expenses   (2,862,684) (2,836,231)   (1,307,145) (1,434,950)
Administrative expenses   (1,347,378) (1,368,922)   (682,032) (707,400)
Other operating income/(expenses), net 16 236,176 422,020   64,907 190,767
Costs arising from business combinations 17 (16,716) -   (16,716) -
Restructuring 17 (50,035) (51,020)   (36,155) (32,809)
Effect of application of IAS 29 (hyperinflation) 17 (461) (1,302)   (461) (1,093)
COVID-19 impacts 17 (71,479) -   (61,284) -
Stella Recall 17 (13,303) -   (13,303) -
Income from operations   4,952,549 7,603,912   1,918,145 3,548,179
             
Finance expenses 18 (2,812,984) (1,777,101)   (1,030,341) (817,340)
Finance income 18 482,382 537,596   236,606 249,903
Net finance result   (2,330,602) (1,239,505)   (793,735) (567,437)
             
Share of result of joint ventures   (22,854) (2,867)   (16,237) (731)
Income before income tax   2,599,093 6,361,540   1,108,173 2,980,011
             
Income tax expense 19 (116,525) (996,571)   163,143 (364,110)
Net income   2,482,568 5,364,969   1,271,316 2,615,901
             
Attributable to:            
Equity holders of Ambev   2,318,583 5,182,583   1,226,799 2,520,733
Non-controlling interests   163,985 182,386   44,517 95,168
             
Basic earnings per share – common - R$   0.1474 0.3296   0.0780 0.1603
Diluted earnings per share – common - R$   0.1461 0.3267   0.0773 0.1589

 

The accompanying notes are an integral part of these interim consolidated financial statements.

 

3 
 

AMBEV S.A.

 

Interim Consolidated Statements of Comprehensive Income

For the six and three-month period ended June 30

All amounts in thousand of Brazilian Reais unless otherwise stated

 

  Six-month period ended:   Three-month period ended:
  2020 2019   2020 2019
           
Net income 2,482,568 5,364,969   1,271,316 2,615,901
           
Items that will not be reclassified to profit or loss:          
Recognition of actuarial gains/(losses) (3,598) 3,673   1,156 266
           
Items that may be reclassified subsequently to profit or loss:          
Exchange differences on translation of foreign operations (gains/(losses)          
Investment hedge on foreign operations 132 -   132 -
Investment hedge - put option granted on subsidiary (501,878) 37,186   73,096 42,867
Gains/losses on translation of other foreign operations 9,991,404 (448,355)   1,936,599 (255,545)
Gains/losses on translation of foreign operations 9,489,658 (411,169)   2,009,827 (212,678)
           
Cash flow hedge - gains/(losses)          
Recognized in Equity (Hedge reserve) 1,215,829 286,967   317,315 (135,746)
Removed from Equity (Hedge reserve) and included in profit or loss (722,740) (624,391)   (367,058) (187,356)
Total cash flow hedge 493,089 (337,424)   (49,743) (323,102)
           
Other comprehensive (loss)/income 9,979,149 (744,920)   1,961,240 (535,514)
           
Total comprehensive income 12,461,717 4,620,049   3,232,556 2,080,387
           
Attributable to:          
   Equity holders of Ambev 11,953,480 4,469,302   3,218,645 2,018,082
   Non-controlling interest 508,237 150,747   13,911 62,305

 

 

The accompanying notes are an integral part of these interim consolidated financial statements. The consolidated statements of comprehensive income are presented net of income tax. The income tax effects of these items are disclosed in Note 8 - Deferred income tax and social contribution.

 

4 
 

AMBEV S.A.

 

Interim Consolidated Statements of Changes in Equity

For the six-month period ended June 30

All amounts in thousand of Brazilian Reais unless otherwise stated

 

   Attributable to equity holders of Ambev      
   Capital  Capital reserves  Net income reserves  Retained earnings Carrying value adjustments  Total   Non-controlling interests Total equity
At December 31, 2018 57,710,202 54,781,194 15,341,367 - (71,584,756) 56,248,007   1,206,801 57,454,808
                   
 Net Income - - - 5,182,583 - 5,182,583   182,386 5,364,969
                   
Comprehensive income:                  
Gains/(losses) on translation of foreign operations - - - - (379,332) (379,332)   (31,837) (411,169)
Cash flow hedges - - - - (337,503) (337,503)   79 (337,424)
Actuarial gains/(losses) - - - - 3,554 3,554   119 3,673
Total comprehensive income - - - 5,182,583 (713,281) 4,469,302   150,747 4,620,049
Capital increase (Note 13) 90,794 (87,070) - - - 3,724   - 3,724
Effect of application of IAS 29 (hyperinflation) - - - 789,660 - 789,660   (1,550) 788,110
Gains/(losses) of controlling interest´s share - - - - (247) (247)   107,059 106,812
Tax on deemed dividends - - - - (2,801) (2,801)   - (2,801)
Paid dividends - - - - - -   (159,471) (159,471)
Purchase of shares and results from treasury shares - (866) - - - (866)   - (866)
Share-based payments - 118,411 - - - 118,411   - 118,411
At June 30, 2019 57,800,996 54,811,669 15,341,367 5,972,243 (72,301,085) 61,625,190   1,303,586 62,928,776

 

 

The accompanying notes are an integral part of these interim consolidated financial statements.

5 
 

AMBEV S.A.

 

Interim Consolidated Statements of Changes in Equity

For the six-month period ended June 30

All amounts in thousand of Brazilian Reais unless otherwise stated

 

   Attributable to equity holders of Ambev      
   Capital  Capital reserves  Net income reserves  Retained earnings Carrying value adjustments  Total   Non-controlling interests Total equity
At December 31, 2019 57,866,759 54,811,462 20,874,268 - (72,274,464) 61,278,025   1,277,980 62,556,005
                   
 Net Income - - - 2,318,583 - 2,318,583   163,985 2,482,568
                   
Comprehensive income:                  
Gains/(losses) on translation of foreign operations - - - - 9,145,108 9,145,108   344,550 9,489,658
Cash flow hedges - - - - 493,454 493,454   (365) 493,089
Actuarial gains/(losses) - - - - (3,665) (3,665)   67 (3,598)
Total comprehensive income - - - 2,318,583 9,634,897 11,953,480   508,237 12,461,717
Capital increase (Note 13) 32,314 (32,314) - - - -   - -
Effect of application of IAS 29 (hyperinflation) - - - 603,229 - 603,229   (1,138) 602,091
Options granted on subsidiary - - - - (4,700) (4,700)   - (4,700)
Gains/(losses) of controlling interest´s share - - - - (510) (510)   1,025 515
Tax on deemed dividends - - - - (7,570) (7,570)   - (7,570)
Paid dividends - - - - - -   (176,562) (176,562)
Purchase of shares and results from treasury shares - (2,259) - - - (2,259)   - (2,259)
Share-based payments - 100,222 - - - 100,222   - 100,222
Prescribed/(complement) dividends - - - 2,838 - 2,838   - 2,838
At June 30, 2020 57,899,073 54,877,111 20,874,268 2,924,650 (62,652,347) 73,922,755   1,609,542 75,532,297

 

 

The accompanying notes are an integral part of these interim consolidated financial statements.

6 
 

AMBEV S.A.

 

Interim Consolidated Cash Flow Statements

For the six-month period ended June 30

All amounts in thousand of Brazilian Reais unless otherwise stated

 

  Note 2020 2019
       
Net income   2,482,568 5,364,969
Depreciation, amortization and impairment   2,476,203 2,155,656
Impairment losses on receivables and inventories   190,784 57,855
Additions/(reversals) in provisions and employee benefits   108,280 82,485
Net finance cost 18 2,330,602 1,239,505
Losses/(gain) on sale of property, plant and equipment and intangible assets   (24,397) (33,791)
Equity-settled share-based payment expense 20 103,954 118,812
Income tax expense 19 116,525 996,571
Share of result of joint ventures   22,854 2,867
Other non-cash items included in the profit   (726,162) (662,859)
Cash flow from operating activities before changes in working capital and use of provisions   7,081,211 9,322,070
       
(Increase)/decrease in trade and other receivables   1,363,840 481,005
(Increase)/decrease in inventories   (1,132,666) (832,147)
Increase/(decrease) in trade and other payables   (2,157,840) (1,996,035)
Cash generated from operations   5,154,545 6,974,893
       
Interest paid   (215,558) (194,691)
Interest received   271,670 249,772
Dividends received   4,543 1,701
Income tax paid   (1,832,378) (1,837,456)
Cash flow from operating activities   3,382,822 5,194,219
       
Proceeds from the sale of property, plant and equipment and intangible assets   47,071 40,687
Proceeds from the sale of subsidiaries operations   - 202,907
Acquisitions of property, plant and equipment and intangible assets   (2,153,452) (1,441,812)
Acquisitions of subsidiaries, net of cash acquired   (299,977) (74,830)
Acquisitions of other investments   (4,314) -
Investment in short term debt securities and net proceeds/(acquisitions) of debt securities   (74,944) (4,444)
Cash flow from investing activities   (2,485,616) (1,277,492)
       
Capital increase   - 3,723
Capital increase/(decrease) of non-controlling interest   659 -
Proceeds/(repurchase) of treasury shares   (5,993) (2,752)
Acquisition of non-controlling interest   - (361)
Proceeds from borrowings   3,460,507 871,212
Repayment of borrowings   (103,797) (194,230)
Cash net of finance expenses other than interest   (1,199,486) (1,016,948)
Payment of lease liabilities   (262,113) (258,310)
Dividends and Interest on shareholder´s equity paid   (51,286) (63,404)
Cash flow from financing activities   1,838,491 (661,070)
       
Net  increase/(decrease) in cash and cash equivalents   2,735,697 3,255,657
Cash and cash equivalents less bank overdrafts at the beginning of the year   11,900,642 11,463,498
Effect of exchange rate fluctuations in cash and cash equivalents     2,111,860 (523,613)
Cash and cash equivalents less bank overdrafts at the end of the year   16,748,199 14,195,542

 

 

 

 

 

The accompanying notes are an integral part of these interim consolidated financial statements.

7 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

1. Corporate information
2. Statement of compliance
3. Summary of significant accounting policies
4. Use of estimates and judgments
5. Cash and cash equivalents
6. Investment securities
7. Inventories
8. Deferred income tax and social contribution
9. Property, plant and equipment
10. Goodwill
11. Interest-bearing loans and borrowings
12. Provisions
13. Changes in equity
14. Segment reporting
15. Net sales
16. Other operating income/(expenses)
17. Exceptional items
18. Finance expenses and income
19. Income tax and social contribution
20. Share-based payments
21. Financial instruments and risks
22. Collateral and contractual commitments with suppliers, advances from customers and other
23. Contingent liability
24. Non-cash items
25. Related parties
26. Events after the reporting period
8 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

1.CORPORATE INFORMATION

 

(a)Description of business

 

Ambev S.A. (referred to as “the Company” or “Ambev”), is headquartered in São Paulo-SP, Brazil, and either directly or through participation in other companies, produces and sells beer, draft beer, soft drinks, other non-alcoholic beverages, malt and food in general, as well as advertising its own and third-party products, selling promotional and advertising materials and directly or indirectly exploiting bars, restaurants, snack bars and other establishments.

 

The Company’s shares and ADRs (American Depositary Receipts) are listed on the B3 S.A.- Brasil, Bolsa, Balcão as “ABEV3” and on the New York Stock Exchange (NYSE) as “ABEV”.

 

The Company’s direct controlling shareholders are Interbrew International B.V. (“IIBV”), AmBrew S.A. (“Ambrew”), both subsidiaries of Anheuser-Busch InBev N.V. (“AB InBev”) and Fundação Antonio e Helena Zerrenner Instituição Nacional de Beneficência (“Fundação Zerrenner”).

 

The interim financial statements were approved, by the Board of Directors on July 29, 2020.

 

(b)Major corporate events in 2020 and 2019:

 

Addendum to the agreement with PepsiCo Bolivia

 

The long-term agreement with PepsiCo, under which the Cervecería Boliviana Nacional, subsidiary of the Company in Bolivia, has the exclusive right to produce, sell and distribute certain brands on PepsiCo’s portfolio in Bolivia, was amended in June 1, 2020, extending the agreement for more 10 years and reflect certain changes in the trade agreement between the parties.

 

COVID-19 impacts

 

The outbreak of the new coronavirus (SARS-CoV-2 or COVID-19) on a global scale has increased the volatility of the national and international markets and has been affecting the economies of the countries in which we operate and, consequently, the results of our operations. The response to the COVID-19 pandemic has developed rapidly across the globe in a fluid and uncertain manner. voluntary and, in some cases, mandatory quarantines, restrictions on travel, commercial and social activities, and a ban on the distribution, sale and consumption of alcoholic beverages in some countries where we operate – are directly affecting our sales, distribution and final consumer demand for our products.

9 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

The impact of the pandemic on our operations and the restrictions imposed by each government in response have generated, especially since March 2020, significant changes in market dynamics both in the off-trade sales channel, composed of supermarkets, and in the on-trade channel, which is composed of bars and restaurants. In countries with a higher level of income, a more mature beer market and a greater weight on the off-trade sales channel, such as Canada, the negative impact on the sales volume has been smaller. On the other hand, in countries with lower income levels and a less mature beer market, volume has been impacted according to the market segmentation between the on-trade and off-trade channels; in those cases, the volume reduction is higher depending on the weight of the on-trade channel. In all the cases, the more severe the restrictions on the sale and consuption of our products, the greater the volume reduction, which is why  Bolivia and Panama are the countries most affected. On the other hand, we observed an increase in sales related to e-commerce in all countries, although this channel represents a small portion of the total of the Company's volume.

During the second quarter of 2020, the implementation of the Company's strategy, the release of restrictions in some regions and the impact of government aid for the community in some countries, led to a gradual increase in the volume in most of our operations, especially in Brazil. However, there is some uncertainty about the period for the restrictions imposed by each government on commercial and operational activities, on the circulation of people and on the sale, distribution and consumption of alcoholic beverages, as well as the economic effects on the financial market and exchange rates. Those impacts may result in material adverse effects on our business, liquidity, financial condition, and outcome of operations, as well as volatility in the trading price of our shares. However, we are continuously managing our liquidity and capital resources with discipline (as presented in Notes 11 - Interest-bearing loans and borrowings and 21- Financial instruments and risks). As such, management concludes there is no substantial doubt about the Company's ability to continue as a going concern.

 

As required by IAS 1 - Presentation of Financial Statements, the Company has assessed the impact of COVID-19, as at June 30, 2020, which involved, mainly (i) a review of the assumptions of the annual impairment test, as described in Note 10 (ii) analysis of possible credit losses and inventory obsolescence, (iii) a review of the measurement assumptions of financial instruments, including hedges, (iv) analysis of the recoverability of deferred taxes, and (v) evaluation of the relevant estimates used in the preparation of the interim financial statements, among other analyses.

10 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

Any impacts derived from these analyses are reflected in the financial statements and Explanatory Notes. In addition, due to the protective actions taken for our staff and donations made by our community, the Company incurred exceptional expenses of R$71,479, at June 30, 2020, as reported in Note 17.

 

New acquisitions

On January 22, 2020, the company acquired G&W Distilling Inc., a company that produces a portfolio of ready-to-drink alcoholic beverages, through our subsidiary Labatt Brewing Company Limited.

 

Red Bull distribution contract

On November 7, 2019, the company entered into a long-term distribution agreement with Red Bull do Brasil Ltda. (“Red Bull”), whereby we have been granted the exclusive right to sell and distribute certain brands of Red Bull’s portfolio in specific limited points of sale for the on-trade channel in Brazil. We also have agreements with Red Bull to distribute their portfolio in a few limited channels in Argentina and the Dominican Republic.

 

Information released by the press

 

In the third quarter of 2019, there were news reports based on alleged leaks of statements by Mr. Antonio Palocci in a legal procedure, to which the Company subsequently had access. As previously stated in a press release dated August 9, 2019, the Company, in accordance with its Code of Business Conduct and principles, has remained committed to reviewing and monitoring this matter. In this regard, the Company has not identified evidence supporting Mr. Palocci’s claims of illegal conduct by Ambev. 

 

The Company reiterates its commitment to conducting business in a legal and ethical manner, and it will continue to monitor this matter and will respond as appropriate to any requests from authorities.

 

11 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

Exchange contracts for future financial flows - equity swap

 

On May 15, 2019, the Board of Directors of Ambev approved the conclusion of new equity-swap contracts, without losses upon liquidation, within the regulatory term, of the equity-swap contracts still in force. The settlement of the newly approved equity-swap contracts will occur within a maximum period of 18 months from the date of approval, and such contracts may result in an exposure of up to 80 million common shares (of which all or part may be in the form of ADRs), up to a value limit value of R$1.5 billion.

 

On December 19, 2019, the Board of Directors of Ambev approved new equity-swap contracts, without prejudice to the liquidation, within the regulatory term, of the equity-swap contracts still in force. The settlement of the new approved equity-swap contracts will occur within a maximum period of 18 months from the date of approval, and such contracts may result in an exposure of up to 80 million common shares (of which all or part may be in the form of ADRs), up to a value limit of R$1.5 billion.

 

On May 13, 2020, the Board of Directors of Ambev approved new equity-swap contracts, without prejudice to the liquidation, within the regulatory term, of the equity-swap contracts still in force. The settlement of the new approved equity-swap contracts will occur within a maximum period of 18 months from the date of approval, and such contracts may result in an exposure of up to 65 million common shares (of which all or part may be in the form of ADRs), up to a value limit of R$1.0 billion, in addition to contracts already executed in the context of the approvals of May 15, 2019 and December 19, 2019, and which have not yet been settled as at the date of approval, may result in an exposure of up to 122,014,453 common shares (all or part of which may be in the form of ADRs).

 

Addendum to the agreement with PepsiCo

 

The long-term agreement with PepsiCo, under which the Company has the exclusive right to bottle, sell and distribute certain brands on PepsiCo’s portfolio of soft drinks in Brazil, including Pepsi Cola, Gatorade, H2OH! and Lipton Ice Tea, was amended in October 2018 to reflect certain changes in the trade agreement between the parties. The new terms of the agreement were approved by CADE in December 2018 and became effective as of January 1, 2019. The agreement will be in force until December 31, 2027.

12 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

2.STATEMENT OF COMPLIANCE

 

The consolidated interim financial statements have been prepared using the accounting basis of going concern and are being presented in accordance with IAS 34 - Interim Financial Reporting as issued by the International Accounting Standards Board (“IASB”).

 

The information does not meet all disclosure requirements for the presentation of full annual financial statements and thus should be read in conjunction with the consolidated financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”) for the year ended December 31, 2019. To avoid duplication of disclosures which are included in the annual financial statements, the following notes were not subject to full filling:

 

(a)Summary of significant accounting policies (Note 3);
(b)Trade receivables (Note 19);
(c)Investments securities (Note 16);
(d)Intangible (Note 15);
(e)Goodwill (Note 14);
(f)Trade payables (Note 25);
(g)Interest-bearing loans and borrowings (Note 22);
(h)Employee benefits (Note 23);
(i)Changes in equity (Note 21);
(j)Additional information on operating expenses by nature (Note 10);
(k)Payroll and related benefits (Note 09);
(l)Contingent liabilities (Note 29);
(m)Group Companies (Note 32); and
(n)Insurance (Note 33)

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

There were no significant changes in accounting policies and calculation methods used for the interim financial statements as at June 30, 2020, in relation to those presented in the financial statements for the year ended December 31, 2019.

 

(a)  Basis of preparation and measurement

 

The interim financial statements are presented in thousands of Brazilian Real (“R$”), unless otherwise indicated, rounded to the nearest thousand indicated. Depending on the applicable IFRS requirement, the measurement basis used in preparing the interim financial statements is historical cost, net realizable value, fair value or recoverable amount.

13 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

(b)Recently issued IFRS

 

There were no new standards for the period ended June 30, 2020 for the preparation of these interim financial statements.

 

Other standards, interpretations and amendments to standards

 

There are no other standards, interpretations and amendments to standards that are not yet effective that would be expected to have material impact on the Company consolidated interim financial information.

 

4.   USE OF ESTIMATES AND JUDGMENTS

 

The preparation of interim financial statements in conformity with IFRS requires Management to make judgments, estimates and assumptions that affect the application of accounting practices and the reported amounts of assets and liabilities, income and expenses. The estimates and judgments are based on past experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for decision making regarding the judgments about carrying amounts of assets and liabilities that are not readily evident from other sources. Actual results may differ from these estimates.

The estimates and assumptions are reviewed on a regular basis. Changes in accounting estimates may affect the period in which they are realized, or future periods.

Although each of its significant accounting policies reflects judgments, assessments or estimates, the Company believes that the following accounting practices reflect the most critical judgments, estimates and assumptions that are important to its business operations and the understanding of its results:

(i) predecessor accounting;

(ii) business combinations;

(iii) impairment;

(iv) provisions;

(v) share-based payments;

(vi) employee benefits;

(vii) current and deferred tax;

14 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

(viii) joint arrangements;

(ix) measurement of financial instruments, including derivatives;

(x) inflation accounting and financial reporting in hyperinflationary economies; and

(xi) leasing

 

The fair values of acquired identifiable intangibles of indefinite useful life are based on an assessment of future cash flows. Impairment analyses of goodwill and intangible assets with an indefinite life are performed at least annually and whenever a triggering event occurs, in order to determine whether the carrying value exceeds the recoverable amount.

 

The Company uses its judgment to select a variety of methods, including the net fair value of expenses approach and option valuation models, and makes assumptions about the fair value of financial instruments that are mainly based on market conditions existing at each balance sheet date.

 

Actuarial assumptions are established to anticipate future events and are used in calculating pension and other long-term employee benefit expense and liability. These factors include assumptions with respect to interest rates, rates of increase in health care costs, rates of future compensation increases, turnover rates, and life expectancy. Such estimates are reviewed annually by independent actuaries.

 

The Company is subject to income tax in numerous jurisdictions. Significant judgment is required in determining the worldwide provision for income tax. There are some transactions and calculations for which the ultimate tax determination is uncertain. Some subsidiaries within the Company are involved in tax audits usually in relation to prior years. These audits are ongoing in various jurisdictions at the balance sheet date and, by their nature, these can take considerable time until their conclusion.

 

5.CASH AND CASH EQUIVALENTS

 

  06/30/2020 12/31/2019
     
Cash 774,306 207,529
Current bank accounts 5,000,241 5,403,536
Short term bank deposits (i) 11,664,405 6,289,601
Cash and cash equivalents 17,438,952 11,900,666
     
Bank overdrafts (690,753) (24)
Cash and cash equivalents less bank overdraft 16,748,199 11,900,642

 

(i) The balance refers mostly to bank deposit certificates – (CDB), which have a high liquidity, are readily convertible into known amounts of cash and are subject to an insignificant risk of change in value.

 

15 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

Current account balances included guarantee deposits in the amount of R$478 million as at June 30, 2020 (R$348 million on December 31, 2019) held by the subsidiary of Cuba, which are not freely transferable to the parent company for reasons of exchange restrictions.

 

6.INVESTMENTS SECURITIES

 

  06/30/2020 12/31/2019
     
Financial asset at fair value through profit or loss-held for trading 44,823 14,558
Current investments securities 44,823 14,558
     
Investment on debt securities (i) 200,195 163,570
Non-current investments securities 200,195 163,570
     
Total 245,018 178,128

 

(i) The balance refers substantially to CDB linked to tax incentives and do not have an immediate convertibility in a known amount of cash.

 

7.INVENTORIES

 

  06/30/2020 12/31/2019
     
Finished goods 2,786,500 2,080,668
Work in progress 499,805 450,807
Raw material and consumables 3,515,194 2,637,360
Spare parts and other 762,966 602,548
Prepayments 340,020 328,347
Impairment losses (132,866) (121,173)
  7,771,619 5,978,557

 

Write-offs and losses on inventories recognized in the income statement amounted to R$88,643 in the period ended on June 30, 2020 (R$41,041 in the period ended on June 30, 2019).

 

8.DEFERRED INCOME TAX AND SOCIAL CONTRIBUTION

 

Deferred taxes for income tax and social contribution taxes are calculated on temporary differences between the tax bases of these taxes and the accounting calculation of the Company, among which, tax losses. The rates of these taxes in Brazil, which are expected at the realization of deferred taxes, are 25% for income tax and 9% for social contribution. For the other regions in which the Company operates, the expected nominal rates are as follow:

16 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

Central America and the Caribbean from 15% to 27%
Latin America - South (i) from 10% to 30%
Canada 26.5%

 

(i) Amendments to Argentine tax legislation approved on December 29, 2017 affected the Company beginning in October 2018 and reduced the income tax rate in the first two years from 35% to 30% and, after, to 25%. Further, new amendments to the Argentine tax legislation approved on December 23, 2019 postponed for one year the application of the income tax rate of rate of 25% and extended for a third year the application of the 30% rate.

 

Deferred tax assets are recognized to the extent that it is probable that future taxable profit is probable, which may be offset against temporary differences recorded currently, with a special emphasis on tax losses.

 

The amount of deferred income tax and social contribution by type of temporary difference is detailed as follows:

 

  06/30/2020   12/31/2019
   Assets  Liabilities  Net    Assets  Liabilities  Net
Investment securities 10,125 - 10,125   10,007 - 10,007
Intangible - (1,302,798) (1,302,798)   - (1,067,471) (1,067,471)
Employee benefits 909,397 (3,992) 905,405   749,988 (3,950) 746,038
Trade payables 3,974,996 (225,418) 3,749,578   2,330,349 (246,651) 2,083,698
Trade receivable 101,787 (4) 101,783   45,513 (3,267) 42,246
Derivatives 31,994 (551,388) (519,394)   38,873 (217,204) (178,331)
Interest-Bearing Loans and Borrowings 3 (401) (398)   - (23) (23)
Inventories 273,735 (80,694) 193,041   372,014 (67,066) 304,948
Property, plant and equipment 393,611 (1,566,962) (1,173,351)   290,383 (1,423,367) (1,132,984)
Withholding tax over undistributed profits and royalties - (1,407,313) (1,407,313)   - (1,115,123) (1,115,123)
Investments in joint ventures - (421,589) (421,589)   - (421,589) (421,589)
Interest on shareholders' equity 675,345 - 675,345   - - -
Loss carry forwards 1,217,880 (183,130) 1,034,750   877,308 (148,350) 728,958
Provisions 517,432 (5,659) 511,773   465,863 (2,284) 463,579
Complement of income tax of foreign subsidiaries due in Brazil - (96,883) (96,883)   - - -
Impact of the adoption of IFRS 16 (Leases) 55,152 (2,440) 52,712   44,587 (1,910) 42,677
Other items 54,780 (48,879) 5,901   88,979 (16,598) 72,381
Gross deferred tax assets / (liabilities) 8,216,237 (5,897,550) 2,318,687   5,313,864 (4,734,853) 579,011
Netting by taxable entity (2,912,119) 2,912,119 -   (2,363,755) 2,363,755 -
Net deferred tax assets / (liabilities) 5,304,118 (2,985,431) 2,318,687   2,950,109 (2,371,098) 579,011

 

The Company only offsets the balances of deferred income tax and social contribution assets against liabilities to net presentation when they are within the same entity, of the same nature and expected to be realized in the same period.

The critical estimates of Ambev’s Management, as well the main contingent liabilities related to uncertainties about the tax treatment of income, are disclosed in Notes 4 and 23, respectively.

17 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

At June 30, 2020 the deferred taxes assets and liabilities related to combined tax losses had an expected utilization or settlement by temporary differences as follows:

 

  06/30/2020
Deferred taxes not related to tax losses to be realized until 12 months to be realized after 12 months Total
       
Investment securities - 10,125 10,125
Intangible (1,506) (1,301,292) (1,302,798)
Employee benefits 78,386 827,019 905,405
Trade payables (190,164) 3,939,742 3,749,578
Trade receivable 87,376 14,407 101,783
Derivatives (76,539) (442,855) (519,394)
Interest-bearing loans and borrowings (197) (201) (398)
Inventories 195,430 (2,389) 193,041
Property, plant and equipment (117,419) (1,055,932) (1,173,351)
Withholding tax over undistributed profits and royalties (133,863) (1,273,450) (1,407,313)
Investments in joint ventures - (421,589) (421,589)
Interest on shareholders' equity 675,345 - 675,345
Provisions 299,006 212,767 511,773
Complement of income tax of foreign subsidiaries due in Brazil (96,883) - (96,883)
Impact of the adoption of IFRS 16 (Leases) (748) 53,460 52,712
Other items 13,505 (7,604) 5,901
Total 731,729 552,208 1,283,937

 

Most tax losses and negative social contribution bases on which deferred income tax and social contribution were calculated do not have a limitation period. Their use is based on the projection of the future existence of taxable profits, according to past performance and to the projections of the Company's business in the economies where it is located, in compliance with the applicable fiscal and accounting rules.

 

Deferred tax related to tax losses 06/30/2020
2020 390,778
2021 377,173
2022 61,726
2023 24,670
2024 150,934
2025 to 2027 (i) 29,469
Total 1,034,750

 

(i) There is no expectation of realization that exceeds the term of 10 years.

 

As at June 30, 2020, there were deferred tax assets in the amount of R$949,625 (R$707,102 in December 31, 2019) related to tax losses that were not recorded as the realization was not probable.

The major part of the tax losses does not have a carryforward limit for utilization and the tax losses carried forward in relation to the credit were equivalent to R$3,781,044 on June 30, 2020 (R$2,811,614 in December 31, 2019).

18 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

The net change in deferred income tax and social contribution is detailed as follows:

 

At December 31, 2019 579,011
Recognition of actuarial gains/(losses) (5,535)
Investment hedge in foreign operations 68
Investment hedge - put option of a subsidiary interest 258,543
Cash flow hedge - gains/(losses) (266,090)
Gains/(losses) on translation of other foreign operations 1,219,838
Recognized in other comprehensive income 1,206,824
Recognized in the income statement 610,453
Changes directly in the balance sheet (77,601)
Recognized in deferred tax (73,354)
Effect of application of IAS 29 (hyperinflation) (73,354)
Recognized in other group of balance sheet (4,247)
At June 30, 2020 2,318,687

 

 

9.PROPERTY, PLANT AND EQUIPMENT
  06/30/2020 12/31/2019
Property, plant and equipment 22,947,318 20,547,670
Right of use assets 2,164,430 2,028,629
  25,111,748 22,576,299

 

19 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

  Land and buildings Plant and equipment Fixtures and fittings Under construction Total
Acquisition cost          
At December 31, 2018 10,375,533 28,075,659 5,690,374 1,422,048 45,563,614
Effect of movements in foreign exchange in balance sheet (240,897) (979,470) (300,798) (19,484) (1,540,649)
Effect of application of IAS 29 (hyperinflation) 291,291 1,169,934 399,652 11,108 1,871,985
Acquisition through business combinations 209 14 2,074 5,687 7,984
Acquisitions 14,833 606,150 147,860 3,707,089 4,475,932
Disposals and write-off (33,384) (739,348) (133,343) - (906,075)
Transfer to other asset categories 479,318 1,543,128 561,639 (2,942,166) (358,081)
Others - - - 15 15
At December 31, 2019 10,886,903 29,676,067 6,367,458 2,184,297 49,114,725
Effect of movements in foreign exchange in balance sheet 1,014,386 2,874,181 720,431 223,864 4,832,862
Effect of application of IAS 29 (hyperinflation) 102,961 396,254 72,374 69,915 641,504
Acquisition through business combinations 3,920 10,205 1,563 - 15,688
Acquisitions 6,468 192,015 39,524 1,710,472 1,948,479
Disposals and write-off (11,976) (934,893) (22,603) (470) (969,942)
Transfer to other asset categories 323,742 778,639 225,616 (1,456,758) (128,761)
At June 30, 2019 12,326,404 32,992,468 7,404,363 2,731,320 55,454,555
           
  Land and buildings Plant and equipment Fixtures and fittings Under construction Total
Depreciation and Impairment          
At December 31, 2018 (3,031,365) (18,246,620) (4,185,211) - (25,463,196)
Effect of movements in foreign exchange in balance sheet 23,858 549,124 237,854 - 810,836
Effect of application of IAS 29 (hyperinflation) (51,120) (686,010) (288,131) - (1,025,261)
Depreciation (350,349) (2,516,578) (663,234) - (3,530,161)
Disposals and write-off 9,229 649,837 125,122 - 784,188
Others (786) (130,957) (11,718) - (143,461)
At December 31, 2019 (3,400,533) (20,381,204) (4,785,318) - (28,567,055)
Effect of movements in foreign exchange in balance sheet (234,641) (1,897,793) (536,856) - (2,669,290)
Effect of application of IAS 29 (hyperinflation) (6,442) (142,139) (123,835) - (272,416)
Depreciation (190,694) (1,354,978) (351,669) - (1,897,341)
Disposals and write-off 769 923,240 24,063 - 948,072
Others (14) (49,031) (162) - (49,207)
At June 30, 2019 (3,831,555) (22,901,905) (5,773,777) - (32,507,237)
           
Carrying amount:          
At December 31, 2019 7,486,370 9,294,863 1,582,140 2,184,297 20,547,670
At June 30, 2019 8,494,849 10,090,563 1,630,586 2,731,320 22,947,318

 

20 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

Capitalized interests and fixed assets provided as security are not material.

 

Right-of-use asset:

  Buildings Machinery and equipment Others Total
Acquisition cost        
At December 31, 2018 972,470 1,343,267 78,333 2,394,070
Effect of movements in foreign exchange in balance sheet 17,719 599 1,205 19,523
Additions (i) 317,824 521,243 59,776 898,843
Transfer from (to) other asset categories 31,758 - 16,907 48,665
At December 31, 2019 (i) 1,339,771 1,865,109 156,221 3,361,101
Effect of movements in foreign exchange in balance sheet 139,356 8,312 9,847 157,515
Additions 257,567 51,493 2,908 311,968
Transfer from (to) other asset categories (1,447) - - (1,447)
At June 30, 2019 1,735,247 1,924,914 168,976 3,829,137
         
  Buildings Machinery and equipment Others Total
Depreciation and Impairment        
At December 31, 2018       (308,415)               (490,668)       (57,397)        (856,480)
Effect of movements in foreign exchange in balance sheet           (4,574)                      (547)            (554)            (5,675)
Depreciation       (173,292)               (263,337)       (30,638)        (467,267)
Transfer (from) to other asset categories           (8,207)                   (2,354)          7,511            (3,050)
At December 31, 2019       (494,488)               (756,906)       (81,078)     (1,332,472)
Effect of movements in foreign exchange in balance sheet         (45,598)                   (3,755)         (3,727)          (53,080)
Depreciation       (132,204)               (132,987)       (15,739)        (280,930)
Transfer (from) to other asset categories           (1,445)                    3,220                -                 1,775
At June 30, 2019       (673,735)               (890,428)     (100,544)     (1,664,707)
         
Carrying amount:        
At December 31, 2019        845,283             1,108,203        75,143       2,028,629
At June 30, 2019     1,061,512             1,034,486        68,432       2,164,430

 

(i) Adjusted balances for comparative purposes.

The Company estimated discount rates, based on risk-free interest rates observed in the Brazilian market, for the terms of its contracts, adjusted to their reality (credit spread). Spreads were obtained with financial institutions. The following table shows the rates applied:

Lease Term Rate %
2020 - 2025 5.46%
2026 - 2030 6.92%
2031 - 2035 6.82%

 

21 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

10.GOODWILL

 

  06/30/2020 12/31/2019
     
Balance at the end of the previous year 35,009,909 34,276,176
Effect of movements in foreign exchange in balance sheet 4,806,404 16,086
Effect of application of IAS 29 (hyperinflation) 280,173 691,198
Acquisition, (write-off) and disposal through business combinations 338,939 26,449
Balance at the end of the year 40,435,425 35,009,909

 

The carrying amount of goodwill was allocated to the different cash-generating units as follows:

  Functional currency 06/30/2020 12/31/2019
       
Brazil BRL 17,696,645 17,694,842
  Goodwill   102,939,278 102,937,475
  Non-controlling transactions (i)   (85,242,633) (85,242,633)
       
CAC:      
Dominican Republic DOP 4,304,942 3,476,862
Panama PAB 1,903,571 1,400,457
       
Latin America - South:      
Argentina ARS 2,557,787 1,972,177
Bolivia BOB 1,936,985 1,425,746
Chile CLP 58,665 47,322
Paraguay PYG 1,075,446 836,593
Uruguay UYU 192,395 160,108
       
Canada CAD 10,708,989 7,995,802
    40,435,425 35,009,909

 

(i) This refers to the exchange of the shareholdings operation that occurred in 2013 as a result of the adoption of the predecessor basis of accounting.

Impairment testing

 

The impairment tests were updated from June 30, 2020 considering the best estimates calculated by Ambev’s management. For the second year of the model, as we did not have the strategic plan approved by board, we used the assumptions that were already considered for the projection of the upcoming years using the best estimate for 2020.

 

 

22 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

11.INTEREST-BEARING LOANS AND BORROWINGS

 

  06/30/2020 12/31/2019
     
Secured bank loans (i) 3,624,044 176,673
Unsecured bank loans (i) 13,953 94
Other unsecured loans 38,527 40,378
Lease liabilities 442,167 436,004
Current liabilities 4,118,691 653,149
     
Secured bank loans (i) 263,035 284,481
Unsecured bank loans (i) 309,240 212,574
Debentures and unsecured bond issues 107,580 106,611
Other unsecured loans 115,626 94,088
Lease liabilities 1,868,657 1,711,901
Non-current liabilities 2,664,138 2,409,655

 

(i) In the second quarter Ambev approved new loans for working capital financing. These include the issuance of promissory notes and bank credit notes (CCB), among other types of loans, for a total amount of R$ 3,485 million.

 

Additional information regarding the exposure of the Company to the risks of interest rate and foreign-currency changes are disclosed in Note 21 – Financial instruments and risks.

 

Contractual clauses (covenants)

As at June 30, 2020, the Company's loans had equal rights to payment without subordination clauses. Except for the credit lines due to FINAME contracted by the Company with Banco Nacional de Desenvolvimento Econômico e Social – BNDES (“BNDES”), where collateral was provided on assets acquired with the credit granted, which served as collateral; other loans and financing contracted by the Company had only guarantees as personal collateral or were unsecured. Most loan contracts contained financial covenants covering matters such as limitations on new indebtedness, the Company’s ability to continue as a going-concern, the Company’s assets maintenance, the condition of the business, restrictions on acquisitions, mergers, sale or disposal of its assets, and disclosure of financial statements, and no constitution of real guarantees for new loans contracted, except if: (i) expressly authorized under the loan agreement; or (ii) in new loans contracted from financial institutions linked to the Brazilian government - including the BNDES or foreign governments; - or foreign governments, multilateral financial institutions (eg World Bank) or institutions located in jurisdictions in which the Company operates.

Additionally, all agreements with BNDES are subject to certain “provisions applicable to agreements entered into with BNDES” (“the Provisions”). The Provisions require the borrower, to obtain prior consent from BNDES if they, for instance, wish to: (i) raise new loans (except for the loans described in the Provisions); (ii) give preference and/or priority to other debts; and/or (iii) dispose of or encumber any items of their fixed assets (except as provided for in the Provisions).

23 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

These clauses apply to the extent that the events mentioned produce material adverse effects on the Company and/or its subsidiaries, or the rights of its creditors, and, in the event of any of the events provided in the clauses, the Company may be granted a grace period to resolve such defaults.

As at June 30, 2020, the Company was in compliance with all its contractual obligations for its loans and financing.

 

12.PROVISIONS

 

(a) Provision changes

 

  Balance as of December 31, 2018 Effect of changes in foreign exchange rates Provisions constituted  Provisions used Provisions reversed Other movements (i) Balance as of December 31, 2019
               
Provision for disputes and litigations              
Taxes on sales 137,841 (12) 195,598 (113,012) (38,076) - 182,339
Income tax 169,289 1,229 181,872 (1,896) (98,848) (251,646) -
Labor 118,167 (4,351) 193,111 (148,784) (38,016) - 120,127
Civil 54,916 (2,798) 65,974 (52,618) (1,451) - 64,023
Others 110,283 (18,548) 49,108 (10,113) (24,823) - 105,907
Total provision for disputes and litigations 590,496 (24,480) 685,663 (326,423) (201,214) (251,646) 472,396
               
Restructuring 8,728 754 - (873) - - 8,609
               
Total provisions 599,224 (23,726) 685,663 (327,296) (201,214) (251,646) 481,005

 

(i) Refers to the adoption of IFRIC 23 - Uncertainty over Income Tax Treatments.

24 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

  Balance as of December 31, 2019 Effect of changes in foreign exchange rates Provisions constituted  Provisions used Provisions reversed Balance as of June 30, 2020
             
Provision for disputes and litigations            
Taxes on sales 182,339 261 13,293 (7,903) (5,759) 182,231
Labor 120,127 2,602 75,787 (60,003) (9,913) 128,600
Civil 64,023 3,524 21,531 (24,183) (5,874) 59,021
Others 105,907 3,386 3,317 (3,451) (6,637) 102,522
Total provision for disputes and litigations 472,396 9,773 113,928 (95,540) (28,183) 472,374
             
Restructuring 8,609 2,496 - - - 11,105
             
Total provisions 481,005 12,269 113,928 (95,540) (28,183) 483,479

 

 

(b)The provisions are expected to be settled within the following time windows

 

 

  Balance as of June 30, 2020 1 year or less 1-2 years 2-5 years Over 5 years
           
Provision for disputes and litigations          
Taxes on sales 182,231 45,401 126,756 2,359 7,715
Labor 128,600 28,148 43,522 30,917 26,013
Civil 59,021 17,163 33,161 5,557 3,140
Others 102,522 20,582 22,208 57,181 2,551
Total provision for disputes and litigations 472,374 111,294 225,647 96,014 39,419
           
Restructuring 11,105 9,016 - 2,089 -
           
Total provisions 483,479 120,310 225,647 98,103 39,419

 

The expected settlement of provisions was based on Management’s best estimate at the balance sheet date.

(c) Main lawsuits with probable likelihood of loss:

(c.1) Income and Sales taxes

 

In Brazil, the Company and its subsidiaries are involved in several administrative and judicial proceedings related to Income tax, ICMS, IPI, PIS and COFINS taxes. Such proceedings include, among others, tax offsets, credits and judicial injunctions exempting tax payment.

 

25 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

(c.2) Labor

The Company and its subsidiaries are involved in labor proceedings with former employees, including from service providers. The main issues involve overtime and related effects and respective charges.

 

(c.3) Civil

The Company is involved in civil lawsuits with probable likelihood of loss. The most relevant portion of these lawsuits refers to former distributors, mainly in Brazil, which are mostly claiming damages resulting from the termination of their contracts.

 

The processes with possible probabilities are disclosed in Note 23 - Contingent liability.

 

13.CHANGES IN EQUITY

 

(a) Capital stock

 

    06/30/2020     06/30/2019
  Thousands  of common shares Thousands  of Real   Thousands  of common shares Thousands  of Real
Beginning balance 15,733,575 57,866,759   15,722,147 57,710,202
Capital increase (i) 1,543 32,314   5,376 90,794
Final balance (ii) 15,735,118 57,899,073   15,727,523 57,800,996

 

(i) Capital increase related to the issue of shares.

 

(ii) The capital stock is totally subscribed and paid up.

 

 

(b)  Capital reserve

 

  Capital Reserves  
  Treasury shares Share Premium Others capital reserves  Share-based Payments  Total
           
At December 31, 2018 (882,734) 53,662,811 700,898 1,300,219 54,781,194
Capital Increase (952) - - (86,118) (87,070)
Purchase of shares and results from treasury shares (866) - - - (866)
Share-based payments - - - 118,411 118,411
At June 30, 2019 (884,552) 53,662,811 700,898 1,332,512 54,811,669

 

26 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

  Capital Reserves  
  Treasury shares Share Premium Others capital reserves  Share-based Payments  Total
           
At December 31, 2019 (955,135) 53,662,811 700,898 1,402,888 54,811,462
Capital Increase - - - (32,314) (32,314)
Purchase of shares and results from treasury shares (2,259) - - - (2,259)
Share-based payments - - - 100,222 100,222
At June 30, 2020 (957,394) 53,662,811 700,898 1,470,796 54,877,111

 

 

(b.1) Purchase of shares and result of treasury shares

 

The treasury shares comprise shares that were previously issued by the Company and then reacquired, and the result on treasury shares that refers to gains and losses related to share-based payment transactions and others.

Below are the changes to treasury shares:

 

  Purchase/disposal of shares   Result on Treasure Shares   Total Treasure Shares
  Thousands shares   Thousands Brazilian Real   Thousands shares   Thousands Brazilian Real
       
               
At December 31, 2018 1,028   (20,841)   (861,893)   (882,734)
Changes during the year (717)   15,241   (17,059)   (1,818)
At June 30, 2019 311   (5,600)   (878,952)   (884,552)

 

  Purchase/disposal of shares   Result on Treasure Shares   Total Treasure Shares
  Thousands shares   Thousands Brazilian Real   Thousands shares   Thousands Brazilian Real
       
At December 31, 2019                    3,622                      (68,017)                          (887,118)                      (955,135)
Changes during the year                  (1,582)                        30,850                            (33,109)                          (2,259)
At June 30, 2020                    2,040                      (37,167)                          (920,227)                      (957,394)

 

(b.2) Share premium

 

The share premium refers to the difference between the subscription price that the shareholders paid for the shares and their nominal value. Since this is a capital reserve, it can only be used to increase capital, offset losses, redemptions, reimbursement or repurchase shares.

(b.3) Share-based payment

Different share-based payment programs and stock purchase option plans allow the senior Management from Ambev economic group to acquire shares of the Company.

27 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

The share-based payment reserve recorded a charge of R$103,954 at June 30, 2020 (R$118,812 at June 30, 2019) (Note 20 – Share-based payments).

(c)Net income reserves
  Net income reserves
  Investments reserve  Statutory reserve  Fiscal incentive Total
At December 31, 2018 6,617,327 4,456 8,719,584 15,341,367
         
At June 30, 2019 6,617,327 4,456 8,719,584 15,341,367

 

  Net income reserves
  Investments reserve  Statutory reserve  Fiscal incentive Total
At December 31, 2019 10,798,106 4,456 10,071,706 20,874,268
         
At June 30, 2020 10,798,106 4,456 10,071,706 20,874,268

 

(c.1) Investments reserve

From net income after deductions, an amount not exceeding 60% of the adjusted net income is allocated to the investment reserve to support future investments.

(c.2) Statutory reserve

From net income, 5% will be applied before any other allocation to the statutory reserve, which cannot exceed 20% of capital stock. The Company is not required to supplement the statutory reserve in the year when the balance of this reserve plus the amount of capital reserves exceeds 30% of the capital stock.

(c.3) Tax incentives

The Company has tax incentives framed in certain state and federal industrial-development programs in the form of financing, deferred payment of taxes or partial reductions of the amount due. These programs aim to promote the expansion of employment generation, regional decentralization, complement and diversify the industrial base of the states. In these states, the grace periods, enjoyment and reductions are permitted under the tax law.

The portion of income for the period related to tax incentives, which will be allocated to the profit reserve at the end of the fiscal year on December 31, 2020 and therefore not being used as a basis for dividend distribution, was composed of:

  06/30/2020 06/30/2019
 ICMS (brazilian state value-added tax) 754,360 925,859
 Income tax 31,309 156,417
  785,669 1,082,276

 

 

28 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

(c.4) Interest on shareholders’ equity and dividends

Brazilian companies are permitted to distribute interest attributed to shareholders’ equity calculated based on the long-term interest rate (TJLP); this interest is tax-deductible, in accordance with the applicable law and, when distributed, may be considered part of the minimum mandatory dividends.

As determined by its by-laws, the Company is required to distribute to its shareholders, as a minimum mandatory dividend in respect of each fiscal year ending on December 31, an amount not less than 40% of its net income determined under Brazilian law, as adjusted in accordance with applicable law, unless payment of such amount would be incompatible with Ambev’s financial situation. The minimum mandatory dividend includes amounts paid as interest on shareholders’ equity.

There was no payment of dividends or interest on shareholders' equity in the six-month period ended June 30, 2019 and June 30, 2020.

 

29 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

(d) Carrying-value adjustments

   Carrying value adjustments
  Translation reserves Cash flow hedge Actuarial gains/ (losses) Options granted on subsidiary Gains/(losses) of non-controlling interest´s share Business combination        Accounting adjustments for transactions between shareholders Total
At December 31, 2018 4,089,221 777,123 (1,116,114) (120,083) 19,558 156,091 (75,390,552) (71,584,756)
Comprehensive income:                
Gains/(losses) on translation of foreign operations (379,332) - - - - - - (379,332)
Cash flow hedges - (337,503) - - - - - (337,503)
Actuarial gains/(losses) - - 3,554 - - - - 3,554
Total Comprehensive income (379,332) (337,503) 3,554 - - - - (713,281)
Gains/(losses) of controlling interest´s share - - - - (247) - - (247)
Tax on deemed dividends - - - - (2,801) - - (2,801)
At June 30, 2019 3,709,889 439,620 (1,112,560) (120,083) 16,510 156,091 (75,390,552) (72,301,085)

 

 

   Carrying value adjustments
  Translation reserves Cash flow hedge Actuarial gains/ (losses) Options granted on subsidiary Gains/(losses) of non-controlling interest´s share Business combination        Accounting adjustments for transactions between shareholders Total
At December 31, 2019 3,583,386 644,965 (1,220,882) (120,083) 84,434 156,091 (75,402,375) (72,274,464)
Comprehensive income:                
Gains/(losses) on translation of foreign operations 9,145,108 - - - - - - 9,145,108
Cash flow hedges - 493,454 - - - - - 493,454
Actuarial gains/(losses) - - (3,665) - - - - (3,665)
Total Comprehensive income 9,145,108 493,454 (3,665) - - - - 9,634,897
Options granted on subsidiary - - - (4,700) - - - (4,700)
Gains/(losses) of controlling interest´s share - - - - (510) - - (510)
Tax on deemed dividends - - - - (7,570) - - (7,570)
At June 30, 2020 12,728,494 1,138,419 (1,224,547) (124,783) 76,354 156,091 (75,402,375) (62,652,347)
30 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

(d.1) Translation reserves

 

The translation reserves comprise all foreign currency exchange differences arising from the translation of the interim financial statements with functional currency different from the Real.

The translation reserves also comprise the portion of the gain or loss on the foreign currency liabilities and on the derivative financial instruments determined to be effective net investment hedges.

 

(d.2) Cash flow hedge reserves

 

The hedging reserves comprise the effective portion of the cumulative net change in the fair value of cash flow hedges to the extent the hedged risk has not yet impacted profit or loss (For additional information, see Note 21 – Financial instruments and risks).

 

(d.3) Actuarial gains and losses

The actuarial gains and losses include expectations with regards to future pension plan obligations. Consequently, the results of actuarial gains and losses are recognized on a timely basis considering the best estimate obtained by Management. Accordingly, the Company recognizes on a monthly basis the results of these estimated actuarial gains and losses based on the expectations presented in the independent actuarial report.

The actuarial gain of R$95,589 arising from the surplus that reverted to the sponsor (originating from Ambev Private Pension Institute) from the defined benefits plan was fully recorded under actuarial gains and losses.

(d.4) Options granted on subsidiary

As part of the agreement to acquire the shares of Tenedora, CND S.A. (“Tenedora”) an option to sell (“put”) was issued by Ambev in favor of ELJ and an option to purchase (“call”) was issued from ELJ in favor of Ambev, which may result in an acquisition by Ambev of the remaining shares of Tenedora, for a value based on EBITDA, discounted of net debt, from operations, with a put exercisable at any time. On January 18, 2018, ELJ partially exercised its put option related to approximately 30% of capital stock by Tenedora. As a result, the Company became the owner of approximately 85% of Tenedora. Additionally, it was approved to change the call-option term from 2019 to 2022.

On June 30, 2020 the put option held by ELJ was valued at R$3,906,986 (R$2,950,489 on December 31, 2019) and the liability categorized as “Level 3”, as under Note 21 (b) and in accordance with the IFRS 3. The fair value of this consideration deferred was calculated by using standard valuation techniques (present value of the principal amount and future interest rates, discounted by the market rate). The criteria used are based on market information and from reliable sources and the fair value is revaluated on an annual basis.

31 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

As part of the agreement to acquire the shares of Sucos do Bem, the Company has been granted a put option and a call option on minority shareholders' participation determined by gross revenue of its products and exercisable until 2020, with a few exceptions. On June 30, 2020 the put option was valued at R$68,563 (R$68,252 on December 31, 2019). 

The reconciliation of changes in these options is presented in Note 21 – Financial instruments and risks.

 

(d.5) Accounting for acquisition of non-controlling interests

Transactions with non-controlling interests of the same business, even when performed at arm's length, that present valid economic grounds and reflect normal market conditions, will be consolidated by the same applicable accounting standards as are used within the same accounting entity.

As determined by IFRS 10, any difference between the amount paid (fair value) for the acquisition of non-controlling interests that is related to the carrying amount of such a non-controlling interest will be recognized directly in controlling shareholders’ equity. For the acquisition of the non-controlling interest related to Old Ambev, the above-mentioned adjustment was recognized in the carrying value adjustments when applicable, due to the adoption of the predecessor basis of accounting.

32 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

14.SEGMENT REPORTING

 

(a) Reportable segments – Six-month period ended in:

  Brazil CAC (i) Latin America - South (ii) Canada Consolidated
  06/30/2020 06/30/2019 06/30/2020 06/30/2019 06/30/2020 06/30/2019 06/30/2020 06/30/2019 06/30/2020 06/30/2019
                     
Net sales 12,379,805 13,490,542 2,811,859 3,147,906 4,983,806 4,810,121 4,042,457 3,336,690 24,217,927 24,785,259
Cost of sales (5,931,332) (5,666,986) (1,338,242) (1,364,189) (2,534,270) (1,839,647) (1,641,222) (1,198,180) (11,445,066) (10,069,002)
Gross profit 6,448,473 7,823,556 1,473,617 1,783,717 2,449,536 2,970,474 2,401,235 2,138,510 12,772,861 14,716,257
Distribution expenses (1,949,444) (1,811,909) (302,141) (313,056) (682,153) (526,027) (760,694) (625,898) (3,694,432) (3,276,890)
Sales and marketing expenses (1,543,734) (1,548,354) (250,157) (254,496) (584,564) (555,492) (484,229) (477,889) (2,862,684) (2,836,231)
Administrative expenses (785,112) (828,504) (126,928) (137,240) (250,838) (234,903) (184,500) (168,275) (1,347,378) (1,368,922)
Other operating income/(expenses) 303,352 413,442 (13,096) 56,200 (25,570) (27,287) (28,510) (20,335) 236,176 422,020
Exceptional items (48,282) (21,831) (26,779) (3,025) (37,843) (27,466) (39,090) - (151,994) (52,322)
Income from operations (EBIT) 2,425,253 4,026,400 754,516 1,132,100 868,568 1,599,299 904,212 846,113 4,952,549 7,603,912
Net finance cost (iii) (1,539,490) (500,808) 72,796 (52,196) (834,658) (653,986) (29,250) (32,515) (2,330,602) (1,239,505)
Share of result of joint ventures (2,877) (1,893) (6,063) (1,781) - - (13,914) 807 (22,854) (2,867)
Income before income tax 882,886 3,523,699 821,249 1,078,123 33,910 945,313 861,048 814,405 2,599,093 6,361,540
Income tax expense 460,815 64,073 (229,503) (332,538) (5,974) (415,943) (341,863) (312,163) (116,525) (996,571)
Net income 1,343,701 3,587,772 591,746 745,585 27,936 529,370 519,185 502,242 2,482,568 5,364,969
                     
Normalized EBITDA 3,905,477 5,334,990 1,076,435 1,389,225 1,445,652 2,113,010 1,153,189 974,665 7,580,753 9,811,890
Exceptional items (48,282) (21,831) (26,779) (3,025) (37,843) (27,466) (39,090) - (151,994) (52,322)
Depreciation. amortization and impairment (1,431,942) (1,286,759) (295,140) (254,100) (539,241) (486,245) (209,887) (128,552) (2,476,210) (2,155,656)
Net finance cost (iii) (1,539,490) (500,808) 72,796 (52,196) (834,658) (653,986) (29,250) (32,515) (2,330,602) (1,239,505)
Share of result of joint ventures (2,877) (1,893) (6,063) (1,781) - - (13,914) 807 (22,854) (2,867)
Income tax expense 460,815 64,073 (229,503) (332,538) (5,974) (415,943) (341,863) (312,163) (116,525) (996,571)
Net income 1,343,701 3,587,772 591,746 745,585 27,936 529,370 519,185 502,242 2,482,568 5,364,969
                     
Normalized EBITDA margin in % 31.5% 39.5% 38.3% 44.1% 29.0% 43.9% 28.5% 29.2% 31.3% 39.6%
                     
Acquisition of property, plant and equipment 1,658,749 836,910 200,519 258,886 166,270 266,662 127,914 79,354 2,153,452 1,441,812

 

33 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

(continued)

 

  Brazil CAC (i) Latin America - South (ii) Canada Consolidated
  06/30/2020 12/31/2019 06/30/2020 12/31/2019 06/30/2020 12/31/2019 06/30/2020 12/31/2019 06/30/2020 12/31/2019
                     
Segment assets 44,048,904 44,161,917 14,365,913 11,393,314 18,120,716 14,453,984 17,078,966 12,034,975 93,614,499 82,044,190
Intersegment elimination                 (2,719,061) (2,286,215)
Non-segmented assets                 30,497,570 21,984,969
Total assets                 121,393,008 101,742,944
                     
Segment liabilities 19,310,827 19,907,373 4,294,925 3,932,812 4,258,051 4,411,757 6,086,779 4,078,743 33,950,582 32,330,685
Intersegment elimination                 (2,719,057) (2,286,406)
Non-segmented liabilities                 90,161,483 71,698,665
Total liabilities                 121,393,008 101,742,944

 

(i) CAC: includes operations in Dominican Republic, Saint Vincent, Antigua, Dominica, Cuba, Guatemala, El Salvador, Nicaragua, Honduras, Barbados and Panama.

 

(ii) Latin America – South: includes operations in Argentina, Bolivia, Chile, Paraguay and Uruguay.

 

(iii) Amounts adjusted for comparative purposes.

34 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

(b) Reportable segments – three-month periods ended in:

 

  Brazil CAC (i) Latin America - South (ii) Canada Consolidated
  06/30/2020 06/30/2019 06/30/2020 06/30/2019 06/30/2020 06/30/2019 06/30/2020 06/30/2019 06/30/2020 06/30/2019
                     
Net sales 5,854,660 6,276,170 1,387,433 1,685,781 1,863,625 2,139,957 2,509,612 2,043,225 11,615,330 12,145,133
Cost of sales (2,981,260) (2,609,402) (659,876) (720,860) (1,119,650) (886,037) (1,041,091) (745,002) (5,801,877) (4,961,301)
Gross profit 2,873,400 3,666,768 727,557 964,921 743,975 1,253,920 1,468,521 1,298,223 5,813,453 7,183,832
Distribution expenses (931,439) (864,266) (148,173) (165,179) (315,907) (253,201) (447,600) (367,522) (1,843,119) (1,650,168)
Sales and marketing expenses (716,108) (781,048) (99,222) (116,177) (261,175) (271,917) (230,640) (265,808) (1,307,145) (1,434,950)
Administrative expenses (378,505) (446,206) (75,738) (66,380) (130,042) (114,545) (97,747) (80,269) (682,032) (707,400)
Other operating income/(expenses) 140,884 180,052 (18,416) 51,500 (42,220) (27,325) (15,341) (13,460) 64,907 190,767
Exceptional items (35,895) (14,408) (22,998) (415) (32,910) (19,079) (36,116) - (127,919) (33,902)
Income from operations (EBIT) 952,337 1,740,892 363,010 668,270 (38,279) 567,853 641,077 571,164 1,918,145 3,548,179
Net finance cost (iii) (470,459) (177,958) (48,786) (35,544) (276,103) (347,516) 1,613 (6,419) (793,735) (567,437)
Share of result of joint ventures (1,217) (959) (6,275) (291) - - (8,745) 519 (16,237) (731)
Income before income tax 480,661 1,561,975 307,949 632,435 (314,382) 220,337 633,945 565,264 1,108,173 2,980,011
Income tax expense 404,815 133,874 (109,781) (167,734) 100,348 (132,971) (232,239) (197,279) 163,143 (364,110)
Net income 885,476 1,695,849 198,168 464,701 (214,034) 87,366 401,706 367,985 1,271,316 2,615,901
                     
Normalized EBITDA 1,727,460 2,393,182 553,328 811,112 276,674 841,291 790,800 645,654 3,348,262 4,691,239
Exceptional items (35,895) (14,408) (22,998) (415) (32,910) (19,079) (36,116) - (127,919) (33,902)
Depreciation. amortization and impairment (739,228) (637,882) (167,320) (142,427) (282,043) (254,359) (113,607) (74,490) (1,302,198) (1,109,158)
Net finance cost (iii) (470,459) (177,958) (48,786) (35,544) (276,103) (347,516) 1,613 (6,419) (793,735) (567,437)
Share of result of joint ventures (1,217) (959) (6,275) (291) - - (8,745) 519 (16,237) (731)
Income tax expense 404,815 133,874 (109,781) (167,734) 100,348 (132,971) (232,239) (197,279) 163,143 (364,110)
Net income 885,476 1,695,849 198,168 464,701 (214,034) 87,366 401,706 367,985 1,271,316 2,615,901
                     
Normalized EBITDA margin in % 29.5% 38.1% 39.9% 48.1% 14.8% 39.3% 31.5% 31.6% 28.8% 38.6%

 

 

(i) CAC: includes operations in Dominican Republic, Saint Vincent, Antigua, Dominica, Cuba, Guatemala, El Salvador, Nicaragua, Honduras, Barbados and Panama.

 

(ii) Latin America – South: includes operations in Argentina, Bolivia, Chile, Paraguay and Uruguay.

 

(iii) Amounts adjusted for comparative purposes.

35 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

(c) Additional information – by business unit:

        Six-month period ended:         Three-month period ended:
  Brazil   Brazil
  Beer Soft drink and
Non-alcoholic and
non-carbonated
Total   Beer Soft drink and
Non-alcoholic and
non-carbonated
Total
  06/30/2020 06/30/2019 06/30/2020 06/30/2019 06/30/2020 06/30/2019   06/30/2020 06/30/2019 06/30/2020 06/30/2019 06/30/2020 06/30/2019
                           
Net sales 10,583,210 11,429,326 1,796,595 2,061,216 12,379,805 13,490,542   5,128,583 5,296,505 726,077 979,665 5,854,660 6,276,170
Cost of sales (4,974,984) (4,704,597) (956,348) (962,389) (5,931,332) (5,666,986)   (2,573,628) (2,206,364) (407,632) (403,038) (2,981,260) (2,609,402)
Gross profit 5,608,226 6,724,729 840,247 1,098,827 6,448,473 7,823,556   2,554,955 3,090,141 318,445 576,627 2,873,400 3,666,768
Distribution expenses (1,607,040) (1,484,371) (342,404) (327,538) (1,949,444) (1,811,909)   (782,214) (706,243) (149,225) (158,023) (931,439) (864,266)
Sales and marketing expenses (1,375,608) (1,359,571) (168,126) (188,783) (1,543,734) (1,548,354)   (628,327) (663,368) (87,781) (117,680) (716,108) (781,048)
Administrative expenses (663,303) (711,588) (121,809) (116,916) (785,112) (828,504)   (315,273) (383,262) (63,232) (62,944) (378,505) (446,206)
Other operating income/(expenses) 248,004 270,226 55,348 143,216 303,352 413,442   117,151 94,662 23,733 85,390 140,884 180,052
Exceptional items (48,306) (21,831) 24 - (48,282) (21,831)   (35,919) (15,542) 24 1,134 (35,895) (14,408)
Income from operations (EBIT) 2,161,973 3,417,594 263,280 608,806 2,425,253 4,026,400   910,373 1,416,388 41,964 324,504 952,337 1,740,892
Net finance cost (i) (1,539,490) (486,956) - (13,852) (1,539,490) (500,808)   (470,459) (170,457) - (7,501) (470,459) (177,958)
Share of result of joint ventures (2,877) (1,893) - - (2,877) (1,893)   (1,217) (959) - - (1,217) (959)
Income before income tax 619,606 2,928,745 263,280 594,954 882,886 3,523,699   438,697 1,244,972 41,964 317,003 480,661 1,561,975
Income tax expense 460,815 64,073 - - 460,815 64,073   404,815 133,874 - - 404,815 133,874
Net income 1,080,421 2,992,818 263,280 594,954 1,343,701 3,587,772   843,512 1,378,846 41,964 317,003 885,476 1,695,849
                           
Normalized EBITDA 3,464,759 4,561,901 440,718 773,089 3,905,477 5,334,990   1,598,509 1,983,746 128,951 409,436 1,727,460 2,393,182
Exceptional items (48,306) (21,831) 24 - (48,282) (21,831)   (35,919) (15,542) 24 1,134 (35,895) (14,408)
Depreciation, amortization and impairment (1,254,480) (1,122,476) (177,462) (164,283) (1,431,942) (1,286,759)   (652,217) (551,816) (87,011) (86,066) (739,228) (637,882)
Net finance cost (i) (1,539,490) (486,956) - (13,852) (1,539,490) (500,808)   (470,459) (170,457) - (7,501) (470,459) (177,958)
Share of result of joint ventures (2,877) (1,893) - - (2,877) (1,893)   (1,217) (959) - - (1,217) (959)
Income tax expense 460,815 64,073 - - 460,815 64,073   404,815 133,874 - - 404,815 133,874
Net income 1,080,421 2,992,818 263,280 594,954 1,343,701 3,587,772   843,512 1,378,846 41,964 317,003 885,476 1,695,849
                           
Normalized EBITDA margin in % 32.7% 39.9% 24.5% 37.5% 31.5% 39.5%   31.2% 37.5% 17.8% 41.8% 29.5% 38.1%

 

(i) Amounts adjusted for comparative purposes.

36 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

15.NET SALES

 

Reconciliation between gross sales and net sales:

 

  Six-month period ended:   Three-month period ended:
  06/30/2020 06/30/2019   06/30/2020 06/30/2019
Gross sales and/or services 35,831,096 36,392,191   17,088,478 17,622,376
Excise duty (7,644,995) (7,819,976)   (3,705,016) (3,722,569)
Discounts (3,968,174) (3,786,956)   (1,768,132) (1,754,674)
  24,217,927 24,785,259   11,615,330 12,145,133

 

16.OTHER OPERATING INCOME / (EXPENSES)

 

  Six-month period ended:   Three-month period ended:
  06/30/2020 06/30/2019   06/30/2020 06/30/2019
Government grants/NPV of long term fiscal incentives 274,561 395,198   118,005 191,101
(Additions)/reversals of provisions (28,249) (8,344)   (25,699) (11,104)
Gains/(losses) on disposal of property, plant and equipment, intangible assets and operation of associates (1,277) 12,829   (17,228) 10,161
Other operating income/(expenses), net (8,859) 22,337   (10,171) 609
  236,176 422,020   64,907 190,767

 

Government grants are not recognized until there is reasonable assurance that the Company will meet related conditions and that the grants will be received. Government grants are systematically recognized in income during the periods in which the Company recognizes as expenses the related costs that the grants are intended to offset.

 

17.EXCEPTIONAL ITEMS

 

  Six-month period ended:   Three-month period ended:
  06/30/2020 06/30/2019   06/30/2020 06/30/2019
Costs arising from business combinations (16,716) -   (16,716) -
Restructuring (i) (50,035) (51,020)   (36,155) (32,809)
Effect of application of IAS 29 (hyperinflation) (461) (1,302)   (461) (1,093)
COVID-19 impacts (ii) (71,479) -   (61,284) -
Recall Stella (13,303) -   (13,303) -
  (151,994) (52,322)   (127,919) (33,902)

 

(i) The restructuring expenses recognized refer mainly to the realignment of the structures and processes in the Latin America geographical segment, CAC and Brazil.

 

(ii) Covid-19 expenses refer to additional expenses to ensure the safety of our people - additional expenses with alcohol in gel, masks and additional cleaning at our facilities and donations realized to others institutions.

37 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

18.FINANCE EXPENSES AND INCOME

 

(a)    Finance expenses

 

  Six-month period ended:   Three-month period ended:
  06/30/2020 06/30/2019   06/30/2020 06/30/2019
Interest expense (858,589) (774,230)   (432,118) (382,933)
Capitalized borrowings (75) -   (75) -
Net Interest on pension plans (54,102) (50,521)   (28,539) (25,429)
Losses on hedging instruments and exclusive investment funds (i) (1,147,959) (398,649)   (202,551) (203,720)
Interest on provision for disputes and litigations (67,881) (23,805)   (51,607) (7,439)
Exchange variation (334,501) (129,994)   (138,879) (4,434)
Interest and foreign exchange rate on loans (18,003) (30,605)   (9,395) (8,921)
Financial instruments at fair value through profit or loss (4,266) (2,133)   (2,133) (2,133)
Tax on financial transactions (135,527) (72,650)   (48,924) (18,717)
Bank guarantee expenses (100,971) (69,470)   (65,137) (41,142)
Other financial results (91,110) (126,027)   (50,983) (23,455)
  (2,812,984) (1,678,084)   (1,030,341) (718,323)
           
Non-recurring finance cost - (99,017)   - (99,017)
  (2,812,984) (1,777,101)   (1,030,341) (817,340)

 

(i) The variation refers, for the most part, to the Equity Swap, which changes according to the change in the share price.

 

Interest expenses are presented net of the effect of interest rate derivative financial instruments which mitigate Ambev’s interest rate risk (Note 21 – Financial instruments and risks). The interest expenses were as follows:

 

  Six-month period ended:   Three-month period ended:
  06/30/2020 06/30/2019   06/30/2020 06/30/2019
Financial instruments measured at amortized cost (260,171) (264,225)   (144,068) (137,032)
Financial instruments at fair value through profit or loss (598,418) (510,005)   (288,050) (245,901)
  (858,589) (774,230)   (432,118) (382,933)

 

(b)    Finance income

 

  Six-month period ended:   Three-month period ended:
  06/30/2020 06/30/2019   06/30/2020 06/30/2019
Interest income 297,404 290,924   149,829 155,654
Financial instruments at fair value through profit or loss - 36,676   - 266
Other financial results 20,055 25,421   1,995 6,120
  317,459 353,021   151,824 162,040
           
Effect of application of IAS 29 (hyperinflation) 164,923 184,575   84,782 87,863
  482,382 537,596   236,606 249,903

 

 

38 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

Interest income arose from the following financial assets:

  Six-month period ended:   Three-month period ended:
  06/30/2020 06/30/2019   06/30/2020 06/30/2019
Cash and cash equivalents 132,733 202,267   48,733 106,135
Investment securities held for trading 445 4,133   321 -
Other receivables 164,226 84,524   100,775 49,519
  297,404 290,924   149,829 155,654

 

19.    INCOME TAX AND SOCIAL CONTRIBUTION

 

Income taxes reported in the income statement were as follows:

  Six-month period ended:   Three-month period ended:
  06/30/2020 06/30/2019   06/30/2020 06/30/2019
Income tax expense - current (726,978) (1,786,709)   (431,945) (807,524)
           
Deferred tax expense on temporary differences 269,881 671,275   398,663 326,124
Deferred tax over taxes losses carryforwards movements  in the current period 340,572 118,863   196,425 117,290
Total deferred tax (expense)/income 610,453 790,138   595,088 443,414
           
Total income tax expenses (116,525) (996,571)   163,143 (364,110)

 

The reconciliation from the weighted nominal to the effective tax rate is summarized as follows:

  Six-month period ended:   Three-month period ended:
  06/30/2020 06/30/2019   06/30/2020 06/30/2019
Profit before tax 2,599,093 6,361,540   1,108,173 2,980,011
Adjustment on taxable basis          
Others non-taxable income (562,955) (367,854)   (308,533) (299,933)
Government grants related to sales taxes (754,360) (925,859)   (349,375) (438,673)
Share of result of joint ventures 22,854 2,867   16,237 731
Non-deductible expenses 153,250 225,206   97,038 66,111
Complement of income tax of foreign subsidiaries due in Brazil 284,949 251,522   232,182 128,854
  1,742,831 5,547,422   795,722 2,437,101
Aggregated weighted nominal tax rate 26.56% 29.33%   23.97% 28.93%
Taxes payable – nominal rate (462,919) (1,626,877)   (190,697) (705,114)
Adjustment on tax expense          
Income tax Incentives 31,309 156,417   16,173 114,717
Deductible interest on shareholders' equity 675,345 755,981   533,956 386,945
Tax savings from goodwill amortization 38,731 41,817   19,365 19,365
Withholding income tax (415,047) (233,797)   (173,419) (168,688)
Recognition/(write-off) of deferred charges on tax losses (60,492) (47,571)   (14,422) (17,339)
Effect of application of IAS 29 (hyperinflation) (29,552) (38,203)   (9,999) (19,957)
Others with reduced taxation 106,100 (4,338)   (17,814) 25,961
Income tax and social contribution expense (116,525) (996,571)   163,143 (364,110)
Effective tax rate 4.48% 15.67%   -14.72% 12.22%

 

39 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

The main events that impacted the effective tax rate in the period were:

 

§Government subsidy on sales taxes: Related to regional incentives and local production, which, when reinvested, are not taxed for income tax and social contribution purposes; this explains the impact on the effective tax rate. The amount above is impacted by the fluctuation in volume, price and eventual variation on state VAT (ICMS).

 

§Complement of income tax of foreign subsidiaries due in Brazil: shows the result of the calculation of universal taxation of profits, according to the regulations of Law 12.973/14.

 

§Withholding income tax: The amount is mainly related to dividends distributed and to be distributed by subsidiaries located outside of Brazil, applicable according to local tax legislation. The increase in the amount in 2020 is mainly due to the exchange rate variation of the balances held in liabilities

 

§Deductible interest on shareholders’ equity: under Brazilian law, companies have an option to remunerate their shareholders through payment of interest on capital (“IOC”), which is deductible for income tax purposes.

 

20.SHARE-BASED PAYMENTS

 

There are different stock-option and share-based payment programs which allow the employees and senior Management from the Company and its subsidiaries to acquire (through of exercise of the stock option) or receive shares of the Company. For all stock option programs, the fair value of the shares is estimated at the options grant date, using the “Hull Binomial” pricing model, adjusted to reflect the IFRS 2 requirement that assumptions about forfeiture before the end of the vesting period cannot impact the fair value of the option.

 

This current model of stock option, ruled by the Company’s stock option plan (“Stock Option Plan”), includes two types of grants: (I) Grant 1- the beneficiary can be allocated 30%, 40%, 60%, 70% or 100% of the amount related to the profit share the beneficiary received in the year, to the immediate exercise of options, thus acquiring the corresponding shares of the Company, which transfer to third parties or the Company will only be allowed after the five-year period counted from the date of exercise of the options; and (II) Grant 2 - the beneficiary may exercise the options after a five-year grace period, for a period of five years.

In addition, the Company has implemented a share-based compensation plan (“the Share-Based Plan”) under which certain employees and members of the Management of the Company or its subsidiaries are eligible to receive shares of the Company including in the form of ADRs. The shares that are subject to the Share-Based Plan are designated as "restricted shares".

40 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

Additionally, as a mean of creating a long term incentive (wealth incentive) for certain senior employees and members of Management considered as having “high potential,” the Company grants, under the Share-Based Plan, shares to be delivered in the future divided in two separate lots (Lot A and Lot B), which will be delivered to the participants of the relevant program, subject to maturation periods of five and ten years, respectively.

The weighted average fair value of the options and assumptions used in applying the Company’s option pricing model of 2020 and 2019 grants was as follows:

 

In R$ 06/30/2020 (i) 12/31/2019 (i)
         
Fair value of options granted 4.04   4.50  
Share price 18.05   17.66  
Exercise price 18.05   17.66  
Expected volatility 22.3%   23.8%  
Vesting year 5   5  
Expected dividends 5%   5%  
Risk-free interest rate 6.8% (ii) 7.8% (ii)

 

(i)     Information based on weighted average plans granted, except for the expected dividends and risk-free interest rate.

 

(ii) The percentages include the grants of stock options and ADRs during the period, in which the risk-free interest rate of ADRs are calculated in U.S. dollars.

 

The total number of outstanding options developed was as follows:

Thousand options 06/30/2020   12/31/2019
       
Options outstanding at January 1st 141,736   141,328
Options issued during the period 22   24,593
Options exercised during the period (2,703)   (7,849)
Options forfeited during the period (2,869)   (16,336)
Options outstanding at ended period 136,186   141,736

 

The range of exercise prices of the outstanding options was between R$9.36 (R$0.001 on December 31, 2019) and R$40.10 (R$34.37 on December 31, 2019) and the weighted average remaining contractual life was approximately 6.19 years (6.33 years on December 31, 2019).

 

Of the 136,186 thousand outstanding options (141,736 thousand on December 31, 2019), 43,142 thousand options were vested on June 30, 2020 (46,640 thousand on December 31, 2019).

 

41 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

The weighted average exercise price of the options was as follows:

 

In R$ per share 06/30/2020   12/31/2019
       
Options outstanding at January 1 st 18.53   16.16
Options issued during the period 18.05   18.05
Options forfeited during the period 19.62   21.24
Options exercised during the period 6.77   9.07
Options outstanding at the end of the period 19.39   18.53
Options exercisable at the end of the period 21.88   19.12

 

For the options exercised during the period ended June 30, 2020, the weighted average share price on the exercise date was R$15.84 (R$18.68 as at December 31, 2019).

 

To settle the exercised stock options, the Company may use treasury shares. The current limit of authorized capital is considered sufficient to meet all stock option plans if the issue of new shares is required to meet the grants awarded in the programs.

 

During the period, the Company did not grant deferred stocks under the stock option plan (as at December 2019, 208,000 deferred stocks had been granted related to the exercise of stock options granted in the previous years, and such shares were valued based on the share price of the trading session immediately prior to the stock option grant, representing a fair value of R$3,787 on December 31, 2019). Such deferred stock options are subject to a vesting period of five years from the date of their grant.

During the period, the Company granted 1,565,000 (11,838,000 as at December 31, 2019) restricted shares under the Share-Based Plan, which are valued based on the share price of the trading session immediately prior to the grant of shares, representing a fair value of approximately R$28,866 on June 30, 2020 (R$211,728 as at December 31, 2019). Such restricted share units are subject to a grace period of five years counted from the date of the grant.

The total number of shares purchased or granted by employees, according to each category, under the Stock Option Plan and Share-Based Plan is demonstrated below; the grant of these shares will be performed in the future under certain conditions (deferred stock and restricted shares).

Thousand deferred shares 06/30/2020   12/31/2019
       
Deferred shares outstanding at January 1st 7,926   12,308
New deferred shares during the period -   208
Deferred shares granted during the period (1,543)   (4,167)
Deferred shares forfeited during the period (80)   (423)
Deferred shares outstanding at at the end of the period 6,303   7,926

 

42 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

Thousand restricted shares 06/30/2020   12/31/2019
       
Restricted shares outstanding at January 1st 23,836   12,656
New restricted shares during the period 1,565   11,838
Restricted shares forfeited during the period (368)   (658)
Restricted shares outstanding at the end of the period 25,033   23,836

 

Additionally, certain employees and managers of the Company received options to acquire AB Inbev shares, the compensation cost of which is recognized in the income statement against equity.

The transactions with share-based payments described above generated an expense of R$98,977 on June 30, 2020 (R$129,633 on June 30, 2019), recorded as administrative expenses.

 

21.FINANCIAL INSTRUMENTS AND RISKS

 

Risk factors

The Company is exposed to foreign currency, interest rate, commodity price, liquidity and credit risk in the ordinary course of business. The Company analyzes each of these risks both individually and to define strategies to manage the economic impact on the Company’s performance consistent with its Financial Risk Management Policy.

 

The Company’s use of derivatives strictly follows the Financial Risk Management Policy approved by the Board of Directors. The purpose of the policy is to provide guidelines for the management of financial risks inherent to the capital markets in which Ambev carries out its operations. The policy comprises four main aspects: (i) capital structure, financing and liquidity, (ii) transactional risks related to the business, (iii) financial statements translation risks and (iv) credit risks of financial counterparties.

The policy establishes that all the financial assets and liabilities in each country where Ambev operates must be denominated in their respective local currencies. The policy also sets forth the procedures and controls needed for identifying, measuring and minimizing market risks, such as variations in foreign exchange rates, interest rates and commodities (mainly aluminum, wheat, corn and sugar) that may affect Ambev’s revenues, costs and/or investment amounts. The policy states that all the known risks (e.g. foreign currency and interest) will be hedged by contracting derivative financial instruments. Existing risks not yet recorded (e.g. future contracts for the purchase of raw material or property, plant and equipment) are mitigated using projections for the period necessary for the Company to adapt to the new cost scenario, which may vary from ten to fourteen months, also through the use of derivative financial instruments. Most of the translation risks are not hedged. Any exception to the policy must be approved by the Board of Directors.

43 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

Derivative financial instruments

 

Derivative financial instruments authorized by the Financial Risk Management Policy are futures contracts traded on exchanges, full deliverable forwards, non-deliverable forwards, swaps and options. At June 30, 2020, the Company and its subsidiaries had no target forward, swaps with currency verification or any other derivative operations representing a risk level above the nominal value of their contracts. The derivative operations are managed on a consolidated basis and are classified by strategies according to their purposes, as follows:

 

i) Cash-flow-hedge derivative instruments – The highly probable forecast transactions contracted in order to minimize the Company's exposure to fluctuations of exchange rates and prices of raw materials, investments, equipment and services to be procured, are protected by cash flow hedges that will occur at various different dates during the next fourteen months. Gains and losses classified as hedging reserve in equity are recognized in the income statement in the period or periods when the forecast and hedged transaction affects the income statement.

 

ii) Fair-value-hedge derivative instruments – operations contracted with the purpose of mitigating the Company’s net indebtedness against foreign exchange and interest rate risk. Cash net positions and foreign currency debts are continually assessed for identification of new exposures.

 

The results of these operations, measured according to their fair value, are recognized in financial results.

 

iii) Net-investment-hedge derivative instruments transactions entered into in order to minimize exposure of the exchange differences arising from conversion of net investment in the Company's subsidiaries located abroad for translation account balance. The effective portion of the hedge is allocated to equity and the ineffectiveness portion is recorded directly in financial income statement when identified.

 

The following tables summarize the exposure of the Company that were identified and protected in accordance with the Company's Risk Policy. The following denominations have been applied:

 

Operational Hedge: Refers to the exposures arising from the core business of Ambev, such as purchase of inputs, purchase of fixed assets and service contracts linked to foreign currency, which is protected through the use of derivatives.

 

Financial Hedge: Refers to the exposures arising from cash and financing activities, such as foreign-currency cash and foreign-currency debt, which is protected through the use of derivatives.

44 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

Investment hedge abroad: Refers mainly to exposures arising from cash held in foreign currency in foreign subsidiaries whose functional currency is different from the consolidation currency.

 

Investment hedge - Put option granted on subsidiary: As detailed in Note 13 (d.4) the Company constituted a liability related to acquisition of a non-controlling interest of the operations in the Dominican Republic. This financial instrument is denominated in Dominican Pesos and is recorded by an entity, whose functional currency is the Real. The Company assigned this financial instrument as a hedging instrument for part of its net assets located in the Dominican Republic, in such a manner that the hedge result can be recorded in other comprehensive income of the group, following the result of the hedged item.

45 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

Transactions protected by derivative financial instruments in accordance with the Financial Risk Management Policy

 

                   Six-month period ended: 06/30/2020    Three-month period ended: 06/30/2020
               Fair Value    Gain / (Losses)    Gain / (Losses)
Exposure   Risk     Notional   Assets Liability   Finance Result Operational Result Equity   Finance Result Operational Result Equity
                                 
Cost     (14,100,495)   13,837,647   390,550 (374,927)   (322,664) 667,962 1,322,789   (33,827) 353,692 190,717
    Commodity (2,999,400)   2,736,552   3,397 (319,463)   (84,426) (90,889) (284,738)   (54,297) (70,677) 50,195
    American Dollar (10,726,182)   10,726,182   348,340 (43,899)   (242,571) 784,803 1,625,751   17,890 431,203 170,241
    Euro (184,192)   184,192   4,301 (257)   (2,750) 1,767 10,143   (827) 2,288 (2,965)
    Mexican Pesos (190,721)   190,721   34,512 (11,308)   7,083 (27,719) (28,367)   3,407 (9,122) (26,754)
                                 
Fixed Assets     (1,051,665)   1,051,665   16,435 (10,307)   (373,148) 56,741 162,013   (274,301) 24,710 125,368
    American Dollar (1,051,665)   1,051,665   16,435 (10,307)   (373,148) 56,741 162,013   (274,301) 24,710 125,368
                                 
Expenses     (352,451)   352,451   5,273 (1,606)   (1,083) 1,457 470   (602) 983 292
    American Dollar (352,451)   352,451   5,273 (1,606)   (1,083) 1,457 470   (602) 983 292
                                 
Debts     (435,241)   -   - -   - - -   - - -
    American Dollar (206,889)   -   - -   - - -   - - -
    Interest rate (228,352)   -   - -   - - -   - - -
                                 
Equity Instrument     (949,566)   959,596   28,103 (184,078)   (445,521) - -   95,704 - -
    Stock exchange prices (949,566)   959,596   28,103 (184,078)   (445,521) - -   95,704 - -
                                 
Foreign Investments     545,255   (545,255)   4,468 -   4,201 - 200   4,201 - 200
    American Dollar 545,255   (545,255)   4,468 -   4,201 - 200   4,201 - 200
June 30, 2020     (16,344,163)   15,656,104   444,829 (570,918)   (1,138,215) 726,160 1,485,472   (208,825) 379,385 316,577

 

 

46 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

               12/31/2019    Six-month period ended: 06/30/2020    Three-month period ended: 06/30/2019
               Fair Value    Gain / (Losses)    Gain / (Losses)
Exposure   Risk     Notional   Assets Liability   Finance Result Operational Result Equity   Finance Result perational Result Equity
                                 
Cost     (11,823,740)   11,630,267   122,211 (266,416)   (424,210) 660,524 70,879   (236,750) 275,373 (221,741)
    Commodity (2,293,500)   2,100,027   36,767 (74,796)   (20,543) (65,986) (18,136)   (9,766) (51,328) (76,811)
    American Dollar (9,192,368)   9,192,368   44,319 (188,568)   (401,294) 759,515 126,405   (226,427) 340,935 (131,565)
    Euro (177,565)   177,565   - (3,052)   (1,426) (2,701) (6,279)   (457) (1,062) (618)
    Mexican Pesos (160,307)   160,307   41,125 -   (947) (30,304) (31,111)   (100) (13,172) (12,747)
                                 
Fixed Assets     (816,909)   816,909   11,394 (53,782)   (119,996) 1,769 41,863   (61,586) (50,747) (32,916)
    American Dollar (816,909)   816,909   11,394 (53,782)   (119,996) 1,769 41,863   (61,586) (50,747) (32,916)
                                 
Expenses     (262,098)   262,098   2,229 (17,268)   (35,414) 564 12,249   (18,177) (561) (9,715)
    American Dollar (262,098)   262,098   2,229 (17,268)   (35,416) 722 12,355   (18,177) (561) (9,715)
    Rupee -   -   - -   2 (158) (106)   - - -
                                 
Cash     -   -   - -   (62) - -   (61) - -
    Interest rate -   -   - -   (62) - -   (61) - -
                                 
Debts     (362,773)   -   - -   5,306 - -   4,682 - -
    American Dollar (114,358)   -   - -   - - -   - - -
    Interest rate (248,415)   -   - -   5,306 - -   4,682 - -
                                 
Equity Instrument     (1,873,396)   1,057,829   37,534 (17,904)   195,610 - -   116,554 - -
    Stock Exchange Prices (1,873,396)   1,057,829   37,534 (17,904)   195,610 - -   116,554 - -
                                 
Foreign Investments     -   -   - -   - (28,487) 28,487   - (28,487) 28,487
    American Dollar -   -   - -   - (28,487) 28,487   - (28,487) 28,487
Total     (15,138,916)   13,767,103   173,368 (355,370)   (378,766) 634,370 153,478   (195,338) 195,578 (235,885)
47 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

I.Market risk

 

a.1) Foreign-currency risk

The Company is exposed to foreign currency risk on borrowings, investments, purchases, dividends and/or interest expense and income whenever they are denominated in a currency other than the functional currency of the subsidiary. The main derivative financial instruments used to manage foreign currency risk are futures contracts, swaps, options, non-deliverable forwards and full deliverable forwards.

 

a.2) Commodity risk

A significant portion of the Company’s inputs comprise commodities which historically have experienced substantial price fluctuations. The Company therefore uses both fixed price purchasing contracts and derivative financial instruments to minimize its exposure to commodity price volatility of aluminum, sugar, wheat and corn. These derivative financial instruments have been designated as cash-flow hedges.

 

a.3) Interest rate risk

The Company applies a dynamic interest rate hedging approach whereby the target mix between fixed and floating rate debts is reviewed periodically with purpose of achieving an optimal balance between cost of funding and volatility of financial results, taking into account market conditions as well as the Company’s overall business strategy and this strategy is reviewed periodically.

 

48 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

The table below demonstrates the Company’s exposure related to debts, before and after interest rates hedging strategy, within the limits established by our risk policy. In 2020, the Company is not applying hedge for the exposures described below:

 

  06/30/2020
  Risk
  Interest rate Amount in Brazilian Real
Brazilian Real 5.4% 3,068,213
Working capital in Argentinean Peso 24.9% 647,478
Argentinean Peso 23.7% 10,475
Dominican Peso 9.8% 361,101
Guatemala´s Quetzal 8.4% 15,530
Others 7.1% 31,803
Bolivian Peso 6.6% 15,873
Working capital in Bolivian Peso 4.8% 43,275
American Dollar 3.5% 77,655
Canadian Dollar 3.5% 340,766
Interest rate pre-set   4,612,169
     
     
Brazilian Real 4.9% 1,511,254
American Dollar 4.1% 129,234
Canadian  Dollar 3.2% 809,217
Euro 1.5% 411,708
Interest rate post fixed   2,861,413

 

  12/31/2019
  Risk
  Interest rate Amount in Brazilian Real
Brazilian Real 10.4%                          2,006,718
Working capital in Argentinean peso 94.0%                                     24
Dominican Peso 10.0%                             209,737
American Dollar 4.7%                               19,054
Guatemala´s Quetzal 6.3%                               12,009
Canadian Dollar 3.5%                             243,738
Others 9.2%                             126,252
Interest rate pre-set                            2,617,532
     
     
Brazilian Real 9.3%                             171,809
American Dollar 4.1%                               95,304
Canadian  Dollar 2.7%                                   472
Interest rate post fixed                               267,585

 

a.4) Terms and debt repayment schedule

 

            06/30/2020
  Carrying amount Less than 1 year 1-2 years 2-3 years 3-5 years More than
5 years
Trade and other payables(i) 25,734,713 20,667,996 4,142,842 132,796 310,928 480,151
Secured bank loans 3,887,079 3,624,044 67,357 53,030 45,708 96,940
Unsecured bank loans 323,193 13,953 309,240 - - -
Debentures and Bonds 107,580 - 107,580 - - -
Unsecured other loans 154,153 38,527 41,997 30,650 5,314 37,665
Lease liabilities 2,310,824 442,167 719,365 297,276 424,737 427,279
  32,517,542 24,786,687 5,388,381 513,752 786,687 1,042,035

 

 

49 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

             12/31/2019
   Carrying amount  Less than 1 year  1-2 years  2-3 years  3-5 years  More than
 5 years
Trade and other payables(i) 25,589,612 21,498,681 3,282,421 253,629 214,291 340,590
Secured bank loans 461,154 176,673 55,564 54,748 62,541 111,628
Unsecured bank loans 212,668 94 209,831 2,743 - -
Debentures and Bonds 106,611 - 106,611 - - -
Unsecured other loans 134,466 40,378 34,725 31,277 5,725 22,361
Lease liabilities 2,147,905 436,004 485,275 367,675 317,349 541,602
  28,652,416 22,151,830 4,174,427 710,072 599,906 1,016,181


(i) Includes mainly the amount related to suppliers, taxes, fees and contributions payables, dividends and interest on equity payable, salaries and charges, put option related to our participation in subsidiary and other liabilities, except for related parties, which payment term is less than 1 year.

 

Sensitivity analysis

The Company mitigates risks arising from non-derivative financial assets and liabilities substantially through derivative financial instruments. In this context, the Company has identified the main risk factors that may generate losses from these derivative financial instruments and has developed a sensitivity analysis based on three scenarios which may impact the Company’s future results and/or cash flow, as described below:

 

1 – Probable scenario: Management expectations of deterioration in each transaction’s main risk factor. To measure the possible effects on the results of derivative transactions, the Company uses parametric value at risk (VaR), which is a statistical measure developed through estimates of standard deviation and correlation between the returns of several risk factors. This model results in the loss limit expected for an asset over a certain time period and confidence interval. Under this methodology, we used the potential exposure of each financial instrument, a range of 95% and horizon of 21 days after June 30, 2020 for the calculation, which are presented in the module.

 

2 – Adverse scenario: 25% deterioration in each transaction’s main risk factor as compared to the level observed on June 30, 2020.

 

3 – Remote scenario: 50% deterioration in each transaction’s main risk factor as compared to the level observed on June 30, 2020.

 

50 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended June 30, 2020

All amounts in thousand of Brazilian Reais unless otherwise stated

 

           
Transaction Risk Fair Value Probable scenario Adverse scenario Remote
 scenario
           
Commodities hedge Decrease on commodities price (316,066) (571,272) (1,000,203) (1,684,341)
Input purchase 316,066 595,844 1,065,915 1,815,765
Foreign exchange hedge Foreign currency decrease 331,689 197,920 (2,443,585) (5,218,858)
Input purchase (331,689) (197,920) 2,443,585 5,218,858
Costs effects   - 24,572 65,712 131,424
           
Foreign exchange hedge Foreign currency decrease 6,128 (17,266) (256,788) (519,705)
Capex Purchase (6,128) 17,266 256,788 519,705
Fixed assets effects   - - - -
           
Foreign exchange hedge Foreign currency decrease 3,667 (4,176) (84,446) (172,559)
Expenses (3,667) 4,176 84,446 172,559
Expenses effects - - - -
           
Debt Foreign currency decrease - 8,807 154,649 309,299
Interest expenses Increase in interest rate - 713 11,089 20,864
Debt effects   - 9,520 165,738 330,163
           
Equity Instrument Hedge Stock exchange price decrease (155,975) (213,998) (395,874) (635,773)
Expenses 155,975 213,458 393,367 630,758
Equity effects   - (540) (2,507) (5,015)
           
Equity Instrument Hedge Stock exchange price increase 4,468 (193) (131,846) (268,160)
Expenses (4,468) 193 131,846 268,160
Equity effects   - - - -
    - 33,552 228,943 456,572

 

As at June 30, 2020 the notional and fair value amounts per instrument and maturity were as follows:

 

     Notional Value
Exposure Risk 2020 2021 2022 2023 >2023 Total
               
Cost   11,046,748 2,790,899 - - - 13,837,647
  Commodity 1,542,511 1,194,041 - - - 2,736,552
  American Dollar 9,285,174 1,441,008 - - - 10,726,182
  Euro 128,385 55,807 - - - 184,192
  Mexican Peso 90,678 100,043 - - - 190,721
               
Fixed asset   962,437 89,228 - - - 1,051,665
  American Dollar 962,437 89,228 - - - 1,051,665