Ambev S.A 6-K, filed Aug 12, 2020
Ambev S.A. (ABEV)
About this 6-K
Ambev S.A filed this 6-K on August 12, 2020.
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 | |
| Expenses | 314,077 | 38,374 | - | - | - | 352,451 | |
| American Dollar | 314,077 | 38,374 | - | - | - | 352,451 | |
| Equity Instrument | 695,095 | 264,501 | - | - | - | 959,596 | |
| Stock prices | 695,095 | 264,501 | - | - | - | 959,596 | |
| Foreign Investments | (545,255) | - | - | - | - | (545,255) | |
| American Dollar | (545,255) | - | - | - | - | (545,255) | |
| 12,473,102 | 3,183,002 | - | - | - | 15,656,104 | ||
| 51 |
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 |
| Fair Value | |||||||
| Exposure | Risk | 2020 | 2021 | 2022 | 2023 | >2023 | Total |
| Cost | 103,136 | (87,513) | - | - | - | 15,623 | |
| Commodity | (245,040) | (71,026) | - | - | - | (316,066) | |
| American Dollar | 316,146 | (11,705) | - | - | - | 304,441 | |
| Euro | 3,402 | 642 | - | - | - | 4,044 | |
| Mexican Peso | 28,628 | (5,424) | - | - | - | 23,204 | |
| Fixed asset | 7,509 | (1,381) | - | - | - | 6,128 | |
| American Dollar | 7,509 | (1,381) | - | - | - | 6,128 | |
| Expenses | 4,505 | (838) | - | - | - | 3,667 | |
| American Dollar | 4,505 | (838) | - | - | - | 3,667 | |
| Equity Instrument | (155,656) | (319) | - | - | - | (155,975) | |
| Stock prices | (155,656) | (319) | - | - | - | (155,975) | |
| Foreign Investments | 4,468 | - | - | - | - | 4,468 | |
| American Dollar | 4,468 | - | - | - | - | 4,468 | |
| (36,038) | (90,051) | - | - | - | (126,089) | ||
| II. | Credit Risk |
Concentration of credit risk on trade receivables
A substantial part of the Company’s sales are made to distributors, supermarkets and retailers, within a broad distribution network. Credit risk is reduced because of the widespread number of customers and control procedures used to monitor risk. Historically, the Company has not experienced significant losses on receivables from customers.
Concentration of credit risk on counterpart
In order to minimize the credit risk of its investments, the Company has adopted procedures for the allocation of cash and investments, taking into consideration limits and credit analysis of financial institutions, avoiding credit concentration, i.e., the credit risk is monitored and minimized to the extent that negotiations are carried out only with a select group of highly rated counterparties.
The selection process of financial institutions authorized to operate as the Company’s counterparty is set forth in our Credit Risk Policy. This Policy establishes maximum limits of exposure to each counterparty based on the risk rating and on each counterparty's capitalization.
In order to minimize the risk of credit with its counterparties on significant derivative transactions, the Company has adopted bilateral “trigger” clauses. According to these clauses, where the fair value of an operation exceeds a percentage of its notional value (generally between 10% and 15%), the debtor settles the difference in favor of the creditor.
| 52 |
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 |
Deposits or cash available, if any, must be kept in accounts with top tier banks or with a high credit rating for each country. Any position of short-term nature (less than 6 months) should be considered as a deposit or cash available.
Counterparty risk must be managed by the Company globally, with product limits established by treasury, considering: (i) counterparty credit rating (ii) duration (iii) amount (iv) split between assets and liabilities, in the absence of a clearing clause in derivative contracts.
The counterparty risk is reassessed quarterly.
The carrying amount of cash and cash equivalents, investment securities, trade receivables excluding prepaid expenses, recoverable taxes and derivative financial instruments are disclosed net of provisions for impairment and represents the maximum exposure of credit risks at June 30, 2020. As at June 30, 2020 there was no concentration of credit risk with any counterparties beyond the limit established by the Company's risk policy.
| III. | Liquidity Risk |
Historically, Ambev’s primary sources of cash flow have been cash flows from operating activities, the issuance of debt, bank borrowings and equity securities. Ambev’s material cash requirements have included the following:
· Debt servicing;
· Capital expenditures;
· Investments in companies;
· Increases in ownership of Ambev’s subsidiaries or companies in which it holds equity investments;
· Share buyback programs; and
· Payments of dividends and interest on shareholders’ equity.
The company believes that cash flows from operating activities, available cash and cash equivalents as well as short-term investments, along with related derivatives and access to borrowing facilities, will be sufficient to fund capital expenditures, financial instrument liabilities and dividend payments going forward. It is the intention of the company to continue to reduce its financial indebtedness through a combination of strong operating cash flow generation and continued refinancing.
| 53 |
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 |
| 06/30/2020 | |||||||
| Carrying amount | Contractual cash flows | Less than 1 year | 1-2 years | 2-3 years | 3-5 years | More than 5 years | |
| Trade and other payables | 25,734,713 | 26,989,648 | 20,738,190 | 4,185,709 | 269,401 | 319,815 | 1,476,533 |
| Secured bank loans | 3,887,079 | 4,089,901 | 3,743,546 | 84,918 | 67,368 | 68,160 | 125,909 |
| Unsecured bank loans | 323,193 | 362,043 | 42,409 | 319,634 | - | - | - |
| Debentures and Bonds | 107,580 | 139,292 | 15,856 | 123,436 | - | - | - |
| Unsecured other loans | 154,153 | 332,786 | 56,537 | 54,523 | 42,019 | 15,199 | 164,508 |
| Lease liabilities | 2,310,824 | 2,941,695 | 586,943 | 859,508 | 421,305 | 596,648 | 477,291 |
| 32,517,542 | 34,855,365 | 25,183,481 | 5,627,728 | 800,093 | 999,822 | 2,244,241 |
| 12/31/2019 | |||||||
| Carrying amount | Contractual cash flows | Less than 1 year | 1-2 years | 2-3 years | 3-5 years | More than 5 years | |
| Trade and other payables | 25,589,612 | 26,899,005 | 21,591,972 | 3,332,859 | 285,989 | 221,654 | 1,466,531 |
| Secured bank loans | 461,154 | 577,821 | 197,614 | 70,292 | 70,884 | 87,941 | 151,090 |
| Unsecured bank loans | 212,668 | 214,522 | 21,149 | 190,604 | 2,769 | - | - |
| Debentures and Bonds | 106,611 | 141,712 | 15,856 | 122,467 | - | 3,389 | - |
| Unsecured other loans | 134,466 | 261,927 | 56,205 | 49,154 | 41,414 | 13,801 | 101,353 |
| Lease liabilities | 2,147,905 | 2,766,595 | 572,184 | 616,217 | 466,326 | 447,618 | 664,250 |
| 28,652,416 | 30,861,582 | 22,454,980 | 4,381,593 | 867,382 | 774,403 | 2,383,224 |
| IV. | Equity price risk |
Through the equity swap transactions approved on May 15th, 2019, December 19th, 2019 and May 13th, 2020 by Ambev’s Board of Directors (see Note 1 - Corporate information), the Company, or its subsidiaries, will receive a price variation related to its shares traded on the stock exchange or ADRs, neutralizing the possible effects of stock-price variation in view of the share-based payment of the Company. As these derivative instruments are not characterized as hedge accounting, they were not therefore designated to any hedge.
At June 30, 2020, an exposure equivalent to R$0.9 billion (R$1.9 billion as of December 31, 2019) in AmBev’s shares (or ADRs) was partially hedged, resulting in a loss in the income statement of R$445,521 (a gain in income statement of R$195,610 as of June 30, 2019).
| V. | Capital management |
Ambev is continuously optimizing its capital structure, aiming to maximize shareholder value while keeping the desired financial flexibility to execute its strategic projects. Besides the statutory minimum equity funding requirements that apply to the Company’s subsidiaries in different countries, Ambev is not subject to any externally imposed capital requirements. When analyzing its capital structure, the Company uses the same debt ratings and capital classifications as applied in the Company’s interim financial statements.
| 54 |
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 |
Financial instruments
(a) Financial instrument categories
Management of the financial instruments held by the Company is affected through operational strategies and internal controls to assure liquidity, profitability and transaction security. Financial instrument transactions are regularly reviewed for the effectiveness of the risk exposure that Management intends to cover (foreign exchange, interest rate, etc.).
The table below shows all interim financial instruments recognized in the financial statements, segregated by category:
| 06/30/2020 | |||
| Amortized cost | Fair value through profit or loss | Total | |
| Financial assets | |||
| Cash and cash equivalents less bank overdraft | 16,748,199 | - | 16,748,199 |
| Trade receivables excluding prepaid expenses | 6,400,121 | - | 6,400,121 |
| Investment securities | 200,195 | 44,823 | 245,018 |
| Financial instruments derivatives | - | 28,103 | 28,103 |
| Derivatives hedge | - | 416,726 | 416,726 |
| Total | 23,348,515 | 489,652 | 23,838,167 |
| Financial liabilities | |||
| Trade payables and put option granted on subsidiary and other liabilities | 16,926,625 | 4,101,084 | 21,027,709 |
| Financial instruments derivatives | - | 184,078 | 184,078 |
| Derivatives hedge | - | 386,840 | 386,840 |
| Interest-bearning loans and borrowings | 6,782,829 | - | 6,782,829 |
| Total | 23,709,454 | 4,672,002 | 28,381,456 |
| 12/31/2019 | |||
| Amortized cost | Fair value through profit or loss | Total | |
| Financial assets | |||
| Cash and cash equivalents less bank overdraft | 11,900,642 | - | 11,900,642 |
| Trade receivables excluding prepaid expenses | 6,456,672 | - | 6,456,672 |
| Investment securities | 163,570 | 14,558 | 178,128 |
| Financial instruments derivatives | - | 37,534 | 37,534 |
| Derivatives hedge | - | 135,834 | 135,834 |
| Total | 18,520,884 | 187,926 | 18,708,810 |
| Financial liabilities | |||
| Trade payables and put option granted on subsidiary and other liabilities | 16,962,949 | 3,092,240 | 20,055,189 |
| Financial instruments derivatives | - | 17,904 | 17,904 |
| Derivatives hedge | - | 337,466 | 337,466 |
| Interest-bearning loans and borrowings | 3,062,804 | - | 3,062,804 |
| Total | 20,025,753 | 3,447,610 | 23,473,363 |
| 55 |
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) Classification of financial instruments by type of fair value measurement
IFRS 13 defines fair value as the price that would be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Also pursuant to IFRS 13, financial instruments measured at fair value will be classified within the following categories:
Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date valuation;
Level 2 – inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and
Level 3 – unobservable inputs for the asset or liability.
| 06/30/2020 | 12/31/2019 | ||||||||
| Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | ||
| Financial assets | |||||||||
| Financial asset at fair value through profit or loss | 44,823 | - | - | 44,823 | 14,558 | - | - | 14,558 | |
| Derivatives assets at fair value through profit or loss | - | 28,103 | - | 28,103 | - | 37,534 | - | 37,534 | |
| Derivatives - operational hedge | 49,108 | 363,150 | - | 412,258 | 25,156 | 110,678 | - | 135,834 | |
| Derivatives - investment hedge | 4,468 | - | - | 4,468 | - | - | - | - | |
| 98,399 | 391,253 | - | 489,652 | 39,714 | 148,212 | - | 187,926 | ||
| Financial liabilities | |||||||||
| Financial liabilities at fair value through profit and loss (i) | - | - | 4,101,084 | 4,101,084 | - | - | 3,092,240 | 3,092,240 | |
| Derivatives liabilities at fair value through profit or loss | - | 184,078 | - | 184,078 | - | 17,904 | - | 17,904 | |
| Derivatives - operational hedge | 77,870 | 308,970 | - | 386,840 | 43,209 | 294,257 | - | 337,466 | |
| 77,870 | 493,048 | 4,101,084 | 4,672,002 | 43,209 | 312,161 | 3,092,240 | 3,447,610 | ||
(i) Refers to the put option granted on subsidiary as described in Note 13 d(4).
Reconciliation of changes in the categorization of Level 3
| Financial liabilities at December 31, 2019 | 3,092,240 |
| Acquisition of investments | (3,138) |
| Total gains and losses in the period | 1,011,982 |
| Losses/(gains) recognized in net income | 196,387 |
| Losses/(gains) recognized in equity | 815,595 |
| Financial liabilities at June 30, 2020 | 4,101,084 |
(c) Fair value of financial liabilities measured at amortized cost
The Company’s liabilities, interest-bearing loans and borrowings, trade payables excluding tax payables, are recorded at amortized cost according to the effective rate method, plus indexation and foreign exchange gains/losses, based on closing indices for each exercise.
| 56 |
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 financial instruments recorded at amortized cost are similar to the fair value and are not material for disclosure.
Calculation of fair value of derivatives
The Company measures derivative financial instruments by calculating their present value through the use of market curves that impact the instrument on the computation dates. In the case of swaps, both the asset and the liability positions are estimated independently and brought to present value, where the difference between the result of the asset and liability amount generates the swap’s market value. For the traded derivative financial instruments, the fair value is calculated according to the adjusted exchange-listed price.
Margins given in guarantee
In order to comply with the guarantee requirements of the derivative exchanges and/or counterparties in certain operations with derivative financial instruments, as at June 30, 2020 the Company held R$868,298 in highly liquid financial investments or in cash, classified as cash and cash equivalents and investment securities (R$816,928 on December 31, 2019).
Offsetting of financial assets and liabilities
For financial assets and liabilities subject to settlement agreements by the net or similar agreements, each agreement between the Company and the counterparty allows this type of settlement when both parties make this option. In the absence of such a settlement, the assets and liabilities will be settled by their amounts, but each party will have the option to settle on net, in case of default by the counterparty.
22. COLLATERAL AND CONTRACTUAL COMMITMENTS WITH SUPLLIERS, ADVANCES FROM CUSTOMERS AND OTHER
| 06/30/2020 | 12/31/2019 | |
| Collateral given for the Company’s own liabilities | 867,406 | 817,036 |
| Other commitments | 1,598,846 | 1,245,169 |
| 2,466,252 | 2,062,205 | |
| Commitments to suppliers | 18,344,728 | 15,877,298 |
| 18,344,728 | 15,877,298 |
The collateral provided for liabilities totaled approximately R$2,466,252 on June 30, 2020 (R$2,062,205 on December 31, 2019), including R$701,999 (R$693,276 on December 31, 2019) of cash guarantees. The deposits in cash used as guarantees are presented as part of other assets. To meet the guarantees required by derivative exchanges and/or counterparties contracted in certain derivative financial instrument transactions, Ambev maintained on June 30, 2020, R$867,298 (R$816,928 on December 31, 2019) in highly liquid financial investments or in cash, classified as cash and cash equivalents and investment securities (Note 21 – Financial instruments and risks).
| 57 |
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 |
Most of the balance relate to commitments with suppliers of packaging.
Future contractual commitments on June 30, 2020 and December 31, 2019 were as follows:
| 06/30/2020 | 12/31/2019 | |
| Less than 1 year | 7,190,636 | 9,300,551 |
| Between 1 and 2 years | 5,665,437 | 3,861,872 |
| More than 2 years | 5,488,655 | 2,714,875 |
| 18,344,728 | 15,877,298 |
23. CONTINGENT LIABILITY
The Company has contingent liabilities related to lawsuits arising from its normal course of business. Due to their nature, such legal proceedings involve certain uncertainties including, but not limited to, court and tribunals rulings, negotiations between affected parties and governmental actions, and consequently the Company’s Management cannot estimate the likely timing of resolution of these matters at this stage.
Contingent liabilities with a probable outcome are fully recorded as liabilities (Note 12 – Provisions).
The Company had lawsuits related to tax, civil and labor matters for which the likelihood of loss was classified as possible by Management, and for which there were no provisions, with the composition and estimates of amounts as follows:
| 06/30/2020 | 12/31/2019 | |
| Income tax and social contribution | 45,813,462 | 43,453,049 |
| Value-added and excise taxes | 22,882,818 | 22,226,320 |
| PIS and COFINS | 3,088,892 | 3,066,849 |
| Labor | 248,074 | 353,296 |
| Civil | 414,571 | 388,732 |
| Others | 1,659,090 | 1,036,024 |
| 74,106,907 | 70,524,270 |
Principal lawsuits with a likelihood of possible loss:
Except for monetary inflation and the cases described below, there were no relevant changes in the main cases with possible chances of loss when compared to the period ending on December 31, 2019.
| 58 |
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 |
Brazilian Federal Taxes
Goodwill CND Holdings
In November 2017, Ambev received a tax assessment related to the goodwill amortization resulting from the merger of CND Holdings into Ambev. The decision from the first-level administrative court was unfavorable to Ambev. Ambev filed an appeal to the Lower Administrative Court. In February 2020, Ambev received a partially favorable decision at the Lower Administrative Court. Ambev was notified of the decision and filed a motion for clarification. In addition, Ambev submitted counterarguments responding to the special appeal filed by the tax authorities on the portion that was judged favorably to Ambev. Currently, Ambev is awaiting the judgment of the motion for clarification.
The updated amount related to this uncertain tax position as at June 2020 was approximately R$1 billion (R$1.1 billion as of December 31, 2019). Ambev has not recorded any provisions for this matter as is classified as possible losses.
Disallowance of taxes paid abroad
Since 2014, Ambev has been receiving tax assessments from the Brazilian Federal Tax Authorities related to the disallowance of deductions associated with alleged unproven taxes paid abroad by its subsidiaries and has been filing defenses. The cases are being challenged at the administrative and judicial levels. In November 2019, the Lower Administrative Court rendered a favorable decision to Ambev regarding the assessment from 2010 in the amount of approximately R$0.2 billion, which became definitive. In January 2020, the Lower Administrative Court rendered unfavorable decisions regarding four of these assessments (from 2015 and 2016). Ambev management estimates the total amount of possible losses in relation to these four assessments to be approximately R$3.6 billion. Regarding the 2015 assessments, Ambev was notified of the decisions and filed a motion for clarification. Ambev is still awaiting the formal notification of the 2016 decisions to file the applicable appeals. The other cases are still waiting final decisions.
The updated amount related to this uncertain tax position as at June, 2020 was approximately R$10.3 billion (R$10.1 billion as of December 31, 2019). Ambev has not recorded any provisions for this matter as is classified as possible losses.
Disallowance on Income Tax deduction
In January 2020, Arosuco, a subsidiary of the Company, received a tax assessment from the Federal Revenue Service of Brazil regarding the disallowance of the income tax reduction benefit provided for in Provisional Measure No. 2199-14 / 2001. In this context, an administrative defense was presented and its judgment is awaited by the Federal Revenue Service.
| 59 |
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 updated amount related to this uncertain tax position as at June, 2020 was approximately R$2.0 billion (non-existent on December 31, 2019). Ambev has not recorded any provisions for this matter as it is classified as possible losses.
ICMS and IPI
ICMS-ST Trigger
Over the years, Ambev has received tax assessments to charge supposed ICMS differences considered due when the price of the products sold by Ambev was above the fixed price table basis established by the relevant States; in such cases the State tax authorities have understood that the calculation basis should be based on a value-added percentage over the actual prices and not the fixed table price. Ambev is currently challenging those charges before courts. The cases are being challenged at both administrative and judicial courts.
Ambev management estimated the amount related to this issue as at June, 2020 to be approximately R$8.2 billion (R$7.7 billion as at 31 December 2019), classified as a possible loss and, therefore, for which Ambev has made no provision. Ambev recorded provisions in the total amount of R$8.3 million (R$8.3 million as at December 31, 2019) in relation to certain proceedings for which it considers the chances of loss to be probable due to specific procedural issues.
Manaus Free Trade Zone – IPI and PIS/COFINS
In Brazil, goods manufactured within the Manaus Free Trade Zone intended for remittance elsewhere in Brazil are exempt and/or zero rated from IPI excise tax and social contributions (PIS/COFINS). With respect to IPI, Ambev’s subsidiaries have been registering IPI excise tax presumed credits upon the acquisition of exempted goods manufactured therein. Since 2009, Ambev has been receiving several tax assessments from the Brazilian Federal Tax Authorities relating to the disallowance of such credits.
Ambev has also been receiving charges from the Brazilian Federal Tax Authorities in relation to (i) federal taxes allegedly unduly offset with the disallowed presumed IPI excise tax credits that are under discussion in these proceedings and (ii) amounts of PIS and COFINS allegedly over Arosuco’s remittances to Ambev.
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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 |
In April 2019, the Federal Supreme Court (“STF”) announced its judgment on Extraordinary Appeal No. 592,891/SP, with binding effects, deciding on the rights of taxpayers registering presumed IPI excise tax credits on acquisitions of raw materials and exempted inputs originating from the Manaus Free Trade Zone. As a result of this decision, Ambev reclassified part of the amounts related to the IPI cases as remote losses maintaining as possible losses only issues related to other additional discussions that were not included in the analysis of the STF.
The cases are being challenged at both the administrative and judicial levels. Ambev management estimates the possible losses in relation to these assessments to be R$4.6 billion (R$4.2 billion at December 31, 2019) as at June, 2020. Ambev has not recorded any provision in connection with these assessments.
Contingent assets
In accordance with IAS 37 - Provisions, Contingent Liabilities and Contingent Assets, contingent assets are not recognized in financial statements, except when realization of income is virtually certain.
The Company and entities under its control are claiming a refund of PIS and COFINS paid in excess since 1990 because ICMS was improperly included in their taxable base, as recognized by the STF within the Extraordinary Appeal No. 574,706/PR, with binding effects. Considering the different taxation systems applicable to the soft drinks and beer sector, as well as due to corporate reorganizations that have occurred over the years, the Company and entities under its control have several lawsuits claiming such refund.
For the periods up to 2009, the Company has lawsuits filed by companies that were merged with it over the years. In September 2019, a final decision was rendered in favor of the Company in one of the cases related to periods prior to 2009. The decision recognizes the right of the former Companhia Antartica Paulista (merged with Ambev S.A.) to recover COFINS paid in excess between March 2000 and May 2005 due to the improper inclusion of the ICMS in its taxable basis. As a result, the Company registered a tax credit of approximately R$0.6 billion. Other lawsuits are still pending final decisions and the amounts of the respective contingent assets are being assessed by the Company's management.
For the period in which the special regime applicable to soft drinks and beer was in place – i.e. from January 2009 to April 2015 (article 58-J of Law 10,833, of 2003, also known as REFRI), a final decision was rendered in favor of the Company (and some companies which had merged with it) and entities under its control; however, the amounts to be recovered are still being assessed by the Company's management due to the complexity of the taxation system applicable in this period, which includes consultation of prices and taxation systems for ICMS, PIS and COFINS (using a ad rem methodology). Such right will be recognized once the financial effects are identifiable with reasonable certainty as determined in IAS 37. Management is making its best efforts to conclude the calculation until December 31st, 2020.
| 61 |
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 |
For the period after the termination of the special regime applicable to soft drinks and beer (currently in place) until the decision rendered by STF, the Company estimates that the contingent asset is R$1.9 billion, which will be recognized once final decisions are rendered under the respective lawsuits.
24. NON-CASH ITEMS
| Six-month period ended: | Three-month period ended: | |||||
| 06/30/2020 | 12/31/2019 | 06/30/2020 | 06/30/2019 | |||
| Cash financing cost other than interests | - | (1,929) | - | 98 | ||
| Fair value of option granted on a subsidiary | (4,266) | (33,900) | (2,133) | 2,133 | ||
| Effect of application of IAS 29 (hyperinflation) | 61,307 | 11,041 | 163,739 | (34,580) | ||
| Acquisition of investments payables | 33,187 | 20,000 | (1,244) | - | ||
25. RELATED PARTIES
Policies and practices regarding the realization of transactions with related parties
The Company adopts corporate governance practices recommended and/or required by applicable laws.
Under the Company’s by-laws, the Board of Directors is responsible for approving any transaction or agreements between the Company and/or any of its subsidiaries (except those fully subsidiaries), directors and/or shareholders (including shareholders, direct or indirect shareholders of the Company). The Antitrust Compliance and Related Parties Committee of the Company is required to advise the Board of Directors of the Company in matters related to transactions with related parties.
Management is prohibited from interfering in any transaction in which conflict exists, even in theory, with the Company’s interests. It is also not permitted to interfere in decisions of any other Management member, requiring documentation in the minutes of meeting of the Board any decision to abstain from the specific deliberation.
The Company’s guidelines with related parties follow reasonable or commutative terms, similar to those prevailing in the market or under which the Company would contract similar transactions with third parties. These are clearly disclosed in the financial statements as formalized in written contracts.
| 62 |
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 with Management members:
In addition to short-term benefits (primarily salaries), the Management members are entitled to participate in the Stock Option Plan and Share-Based Plan (Note 20 – Share-based payments).
Total expenses related to the Company’s Management members were as follows:
| Six-month period ended: | Three-month period ended: | ||||
| 06/30/2020 | 06/30/2019 | 06/30/2020 | 06/30/2019 | ||
| Short-term benefits (i) | 12,363 | 10,110 | 6,572 | 4,371 | |
| Share-based payments (ii) | 19,461 | 21,581 | 9,651 | 12,062 | |
| Total key Management remuneration | 31,824 | 31,691 | 16,223 | 16,433 | |
(i) These correspond substantially to Management’s salaries and profit sharing (including performance bonuses).
(ii) These correspond to the compensation cost of stock options and restricted stocks granted to Management. These amounts exclude remuneration paid to members of the Fiscal Council.
Excluding the above-mentioned plan (Note 20 – Share-based payments), the Company no longer has any type of transaction with the Management members or pending balances receivable or payable in its balance sheet.
Transactions with the Company's shareholders:
a) Medical, dental and other benefits
The Fundação Antonio e Helena Zerrenner Instituição Nacional de Beneficiência (“Fundação Zerrenner) is one of Ambev’s shareholders, with 10.2% of its total share capital. Fundação Zerrenner is also an independent legal entity whose main goal is to provide Ambev’s employees, both active and retired, with health care and dental assistance, technical and superior education courses, facilities for assisting elderly people, through direct initiatives or through financial assistance agreements with other entities. On June 30, 2020 and December 31, 2019, actuarial responsibilities related to the benefits provided directly by Fundação Zerrenner were fully funded by plan assets, held for that purpose, which significantly exceeded the liabilities at those dates. Ambev recognizes the assets (prepaid expenses) of this plan to the extent of the amounts of economic benefit available to the Company, arising from reimbursements or reductions of future contributions.
The expenses incurred by Fundação Zerrenner in providing these benefits totaled R$116,238 (R$130,247 on June 30, 2019), of which R$101,970 and R$14,268 related to active employees and retirees respectively (R$114,660 and R$15,587 on June 30, 2019 related to active employees and retirees respectively).
| 63 |
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) Leasing
Ambev, through its subsidiary BSA (labeling), has an asset leasing agreement with Fundação Zerrenner, for R$22,439 maturing on December 31, 2022.
c) Leasing – Ambev head office
Ambev has a leasing agreement of two commercial sets with Fundação Zerrenner, which is being re-negotiated, and currently the contract is in force for an indefinite period.
d) Licensing agreement
The Company maintains a licensing agreement with Anheuser-Busch, Inc., to produce, bottle, sell and distribute Budweiser products in Brazil, Canada and Argentina, and sale and distribution agreements for Budweiser products in Guatemala, the Dominican Republic, Paraguay, El Salvador, Nicaragua, Uruguay, Chile, Panama, Costa Rica and Puerto Rico. In addition, the Company produces and distributes Stella Artois products under license to ABI in Brazil and Canada and, by means of a license granted to ABI, it also distributes Brahma’s product in the United States and several countries such as the United Kingdom, Spain, Sweden, Finland and Greece. The amount recorded was R$770 (R$945 at June 30, 2019) and R$265,865 (R$221,748 at June 30, 2019) as licensing income and expense, respectively.
Ambev has licensing agreements with the Group Modelo, subsidiaries of ABI, for to import, promote and sell products Corona (Corona Extra, Corona Light, Coronita, Pacifico and Negra Modelo) in the countries of the Latin America and Canada.
Transactions with related parties
| 06/30/2020 | ||||
| Current | Trade receivables (i) | Other receivables (i) | Trade payables (i) | Other payables (i) |
| AB Africa | 8,663 | - | - | - |
| AB InBev | 16,708 | - | (65,332) | - |
| AB Package | 4,531 | - | (262,564) | - |
| AB Services | 13,718 | - | (1,746) | - |
| AB USA | 63,648 | 6,118 | (285,748) | - |
| Bavaria | 17,819 | - | (20,649) | - |
| Cervecería Modelo | 10,962 | - | (317,417) | - |
| Cervecerias Peruanas | 162 | - | (696) | - |
| Inbev | 1,276 | 85,033 | (72,062) | - |
| ITW International | - | - | (303,958) | (167,675) |
| Panama Holding | 47,251 | - | (77) | - |
| Others | 10,326 | 1,037 | (30,794) | - |
| 195,064 | 92,188 | (1,361,043) | (167,675) |
(i) The amount represents the marketing operations (purchase and sale) and the reimbursement between the companies of the group.
| 64 |
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 | ||||
| Current | Trade receivables (i) | Other receivables (i) | Trade payables (i) | Other payables (i) |
| AB InBev | 24,847 | - | (46,678) | - |
| AB Procurement | 1,081 | - | (176) | - |
| AB Services | 15,537 | - | (2,002) | - |
| AB USA | 38,756 | 4,504 | (180,908) | - |
| Bavaria | 607 | - | (63,968) | - |
| Cervecería Modelo | 16,059 | - | (223,141) | - |
| Inbev | 687 | 64,519 | (23,866) | - |
| ITW International | - | - | (223,733) | (108,895) |
| Panama Holding | 27,238 | 166 | (173) | - |
| Others | 18,736 | 803 | (126,072) | (41) |
| 143,548 | 69,992 | (890,717) | (108,936) |
(i) The amount represents the marketing operations (purchase and sale) and the reimbursement between the companies of the group.
The tables below represent the transactions with related parties recognized in the income statement:
| Six-month period ended: 06/30/2020 | ||||||
| Company | Sales and others | Service fees / Reimbursement of expenses and other receivables | Product purchases and others | Service Fee / Expense Reimbursement and other payables | Net finance cost | |
| AB InBev | 107 | - | (32,298) | - | - | |
| AB Package | - | - | (62,253) | - | - | |
| AB USA | 14,812 | - | (618,957) | (1,444) | (1) | |
| Bavaria | 20,093 | - | (16,559) | - | - | |
| Cervecería Modelo | - | - | (578,580) | - | - | |
| Cervecerías Peruanas | 5,387 | - | (10,874) | - | - | |
| GCC India | - | - | (3,334) | (3,334) | - | |
| Inbev | - | - | (53,855) | - | - | |
| ITW International | - | - | - | - | (18,008) | |
| Oriental Brewery | 2,450 | - | - | - | - | |
| Others | 2,044 | 52 | (45,167) | (17,345) | - | |
| 44,893 | 52 | (1,421,877) | (22,123) | (18,009) | ||
| Three-month period ended: 06/30/2020 | ||||||
| Company | Sales and others | Service fees / Reimbursement of expenses and other receivables | Product purchases and others | Service Fee / Expense Reimbursement and other payables | Net finance cost | |
| AB InBev | 39 | - | (7,062) | - | (6) | |
| AB Package | - | - | (38,535) | - | - | |
| AB USA | 9,392 | - | (334,238) | (784) | (1) | |
| Bavaria | 20,093 | - | (20,419) | - | - | |
| Cervecería Modelo | - | - | (277,386) | - | - | |
| Cervecerias Peruanas | 5,387 | - | (2,022) | - | - | |
| GCC India | - | - | (3,334) | (1,966) | - | |
| Inbev | - | - | (21,060) | - | - | |
| ITW International | - | - | - | - | (9,394) | |
| Oriental Brewery | (92) | - | - | - | - | |
| Others | 1,882 | 14 | (34,319) | (17,345) | - | |
| 36,701 | 14 | (738,375) | (20,095) | (9,401) | ||
| 65 |
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 |
| Six-month period ended: 06/30/2019 | ||||||
| Company | Sales and others | Service fees / Reimbursement of expenses and other receivables | Product purchases and others | Service Fee / Expense Reimbursement and other payables | Net finance cost | |
| AB USA | 21,702 | 13 | (401,743) | (1,171) | - | |
| AB Package | - | - | (37,640) | - | - | |
| Cervecería Modelo | 192 | - | (612,926) | (1,367) | - | |
| Inbev | - | - | (80,156) | - | - | |
| ITW International | - | - | - | - | (30,605) | |
| Others | 459 | 60 | (99,965) | (17,589) | - | |
| 22,353 | 73 | (1,232,430) | (20,127) | (30,605) | ||
| Three-month period ended: 06/30/2019 | ||||||
| Company | Sales and others | Service fees / Reimbursement of expenses and other receivables | Product purchases and others | Service Fee / Expense Reimbursement and other payables | Net finance cost | |
| AB USA | 13,716 | 2 | (214,851) | (600) | - | |
| AB Package | - | - | (22,174) | - | - | |
| Cervecería Modelo | 77 | - | (317,364) | (1,367) | - | |
| Inbev | - | - | (56,734) | - | - | |
| ITW International | - | - | - | - | (8,921) | |
| Others | 223 | 11 | (56,378) | (8,898) | - | |
| 14,016 | 13 | (667,501) | (10,865) | (8,921) | ||
Denominations used in the tables above:
| AB InBev Procurement GmbH (“AB Procurement”) |
| Anheuser-Busch Inbev Africa (Pty) Ltd. (“AB Africa”) |
| Anheuser-Busch InBev N.V. (“AB InBev”) |
| Anheuser-Busch Inbev Services LLC (“AB Services”) |
| Anheuser-Busch Inbev USA LLC (“AB USA”) |
| Anheuser-Busch Packaging Group Inc. (“AB Package”) |
| Bavaria S.A. (“Bavaria”) |
| Cervecería Modelo de Mexico S. de R.L. de C.V. (“Cervecería Modelo”) |
| Cerveceria Nacional S de RL (“Panamá Holding”) |
| GCC Services India Private Ltd. (“GCC India”) |
| Inbev Belgium N.V. (“Inbev”) |
| Interbrew International B.V. (“ITW International”) |
| Oriental Brewery Co. Ltd. (“Oriental Brewery”) |
| Unión de Cervecerias Peruanas Backus Y Johnston S.A.A. (“Cervecerias Peruanas”) |
| 66 |
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 |
26. EVENTS AFTER THE REPORTING PERIOD
The Company and E. León Jimenes, S.A. (“ELJ”), as shareholders of Tenedora CND, S.A. (“Tenedora”), a holding company with its head office in Dominican Republic, owner of almost the totality of Cervecería Nacional Dominicana, S.A., have entered into a second amendment to the Shareholders’ Agreement of Tenedora (“Shareholders’ Agreement”), to extend their partnership in the country, postponing the term of the put and call options set forth in such Shareholders’ Agreement. ELJ is currently the owner of 15% of Tenedora’s shares and its put option is now divided in two tranches: (i) Tranche A, corresponding to 12.11% of the shares, exercisable in 2022, 2023 and 2024; and (ii) Tranche B, corresponding to 2.89% of the shares, exercisable starting in 2026. The Company, on the other hand, has a call option of the Tranche A shares exercisable starting in 2021 and of the Tranche B shares to be exercised starting in 2029.
67
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: August 11, 2020
| AMBEV S.A. | ||
| By: | /s/ Lucas Machado Lira | |
|
Lucas Machado Lira Chief Financial and Investor Relations Officer | ||