Rua Dr. Renato Paes de Barros,
1017, 3rd floor
04530-001 São Paulo, SP, Brazil
(Address of principal executive offices)
Lucas Machado Lira, Chief Financial and Investor Relations Officer
Address: Rua Dr. Renato Paes de Barros, 1017, 3rd floor, 04530-001, São Paulo, SP, Brazil
Telephone No.: +55 (11) 2122-1200
e-mail: ri@ambev.com.br
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact
Person)
Securities registered or to be registered
pursuant to Section 12(b) of the Act:
Securities for which there is a reporting
obligation pursuant to Section 15(d) of the Act:
This annual report
on Form 20-F relates to the registered American Depositary Shares, or ADSs, of Ambev S.A., or Ambev, evidenced by American Depositary
Receipts, or ADRs, each representing one common share, no par value, of Ambev.
In this annual report,
except as otherwise indicated or as the context otherwise requires, the “Company,” “Ambev,” “we,”
“us” and “our” refers to Ambev S.A. and its subsidiaries and, unless the context otherwise requires, the
predecessor companies that have been merged out of existence with and into it. All references to “Old Ambev” refer
to Companhia de Bebidas das Américas – Ambev, our former subsidiary that had common and preferred shares listed
on the São Paulo Stock, Commodities and Futures Exchange (B3 S.A. – Brasil, Bolsa, Balcão), or the B3
(previously named as BM&FBovespa S.A. – Bolsa de Valores, Mercadorias e Futuros), and common and preferred ADSs
listed on the New York Stock Exchange, or the NYSE, and that was merged out of existence with and into us in January 2014. All
references to NAB are to the non-alcoholic beverages in our portfolio other than non-alcoholic beer. All references to “Brazil”
are to the Federative Republic of Brazil, unless the context otherwise requires. All references to the “Brazilian government”
are to the federal government of Brazil. All references to percent ownership interests in Ambev do not take into account treasury
shares.
We prepare our audited
consolidated financial statements in accordance with International Financial Reporting Standards, or IFRS, as issued by the International
Accounting Standards Board, or the IASB. The financial information and related discussion and analysis contained in this annual
report on Form 20-F are presented in reais, except as otherwise specified. Unless otherwise specified, the financial information
analysis in this annual report on Form 20-F is based on our consolidated financial statements as of December 31, 2020 and 2019
and for the three years ended December 31, 2020, included elsewhere in this document. Percentages and some amounts in this annual
report on Form 20-F have been rounded for ease of presentation. Any discrepancies between totals and the sums of the amounts listed
are due to rounding.
Unless otherwise specified,
volumes, as used in this annual report on Form 20-F, include both beer (including future beverages) and NAB volumes. In addition,
unless otherwise specified, our volumes refer not only to the brands that we own or license, but also third-party brands that we
brew or otherwise produce as a subcontractor, and third-party products that we sell through our distribution network. Our volume
figures in this Form 20-F reflect 100% of the volumes of entities that we fully consolidate in our financial reporting. In addition,
market share data contained in this annual report on Form 20-F refers to volumes sold.
In March 2017, the
Supreme Federal Court (“STF”) decided for, in the judgment of RE 574,706/PR, with binding effects, the unconstitutionality
of the inclusion of ICMS in the PIS and COFINS calculation basis. Currently, the General Attorney's Office (PGFN) filed an amendment
to clarify the criteria for calculating the portion of the ICMS that shall be excluded from the calculation basis of the PIS and
COFINS contributions (ICMS paid versus ICMS declared on the invoice) and the definition of the effects of the STF decision is pending
a decision.
In addition, the Company
and its controlled companies are parties to several lawsuits related to the matter, some with final and unappealable favorable
decisions. Due to the tax regime applicable to the soft drinks and beer sector, which has changed over time, the Company has lawsuits
for three different periods: (i) 1990 to 2009, (ii) 2009 to 2015 (the period during which the “REFRI Taxation Model”
was in effect - special soft drinks and beer regime, provided for Article 58-J of Law No. 10,833, of 2003) and (iii) from 2015
onwards (also known as “New Model Taxation").
In 2019 and 2020,
the Company and its controlled companies recognized, in accordance with IAS 37/CPC 25, recoverable tax credits related to this
matter in the total amount of R$5.4 billion, of which R$1.1 billion is related to periods from 1990 to 2009 and from March 2017
(“New Model”) and R$4.3 billion, recorded in 2020, related to periods from 2009 to 2015 (as explained below) as (i)
the gain is virtually certain based on the specific circumstances of each case; and (ii) the
amounts could be estimated with sufficient reliability, by collecting the respective documents and quantifying the related amount.
In relation to the
amount of R$4.3 billion mentioned above, the Company recorded a tax credit (before tax effects), of which R$ 2.5 billion were recorded
in Other Operating Income, as described in Note 7 - Other Operating Income (Expenses), and R$1.8 billion in Financial Income, as
described in Note 11 - Finance Expenses and Income. This amount is related to the final and unappealable decision in a lawsuit
recognizing the right of the Company and its controlled companies to obtain refund of the overpaid amounts while the REFRI taxation
model was in place. In addition to the gain being virtually certain due to the circumstances of the case, the amount could also
be estimated with sufficient reliability after various analysis made (with the assistance of our external consultants), allowing:
(i) the identification of the total ICMS included per liter in the retail selling prices that were verified by the Federal Government
at the time and that had impact in the reference prices used as calculation basis for determination of the PIS and COFINS; and
(ii) the result of exclusion of such total ICMS from the calculation basis of PIS and COFINS in the Company’s operations
in the period.
In addition, as to
the transactions realized after the decision of the STF, the Company and its controlled companies have judicial decisions in place
(in lawsuits filed prior to the decision of the STF) that recognize the right to exclude the ICMS declared on the invoice from
the calculation basis of the PIS and COFINS, which corresponded to a total of R$ 2.7 billion already excluding the amount mentioned
above. This amount represents a reduction in the PIS and COFINS expense recognized in a monthly basis, once it is not an extemporaneous
credit.
For the period of
the New Model before the STF decision, the Company estimates that the contingent asset corresponds to R$1.9 billion, which will
be recognized once the gain is virtually certain given the specific circumstances of the cases and upon confirmation of the estimated
values with sufficient reliability.
On January 1, 2019,
we adopted IFRS 16 which establishes principles for the recognition, measurement, presentation and disclosure of leases and requires
lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS
17. IFRS 16 replaced the previous lease accounting requirements and introduced significant changes in the accounting, removing
the distinction between operating and finance leases under IAS 17 Leases and related interpretations, and required a lessee to
recognize a right-of-use asset and a lease liability at lease commencement date. The impact to the financial statements was demonstrated
in the recognition of right-of-use assets and lease liabilities in the balance sheet for the financial statements as of December
31, 2019.
As a result of the
above, our audited consolidated financial statements for the year ended December 31, 2018 included in this annual report have been
restated for comparative purposes using the full retrospective method.
For further information
regarding the new standards effective as of January 1, 2019 and new accounting requirements, including IFRS 16 Leases, see “Item
5.A. Operating and Financial Review and Prospects—Operating Results—Critical Accounting Policies” and Note 3
to our audited financial statements included elsewhere in this annual report.
Under IAS 29, the
non-monetary assets and liabilities, equity and income statements of subsidiaries operating in hyperinflationary economies are
restated to reflect changes in the general purchasing power of the local currency by applying a general price index.
IAS 29 requires that
the financial information recorded in a hyperinflationary currency be adjusted by applying a general price index and expressed
in the measuring unit (the hyperinflationary currency) current at the end of the reporting period.
As a result of the
above, our audited consolidated financial statements for the years ended December 31, 2018, 2019 and 2020 included in this annual
report reflect hyperinflation accounting for our Argentinean subsidiaries applying IAS 29 rules.
For additional information,
see Note 1(b) to our audited consolidated financial statements as of and for the year ended December 31, 2020.
Market information
(including market share, market position and industry data for our operating activities and those of our subsidiaries or of companies
acquired by us) or other statements presented in this Form 20-F regarding our position (or that of companies acquired by us) relative
to our competitors largely reflect the best estimates of our management. These estimates are based upon information obtained from
customers, trade or business organizations and associations, other contacts within the industries in which we operate and, in some
cases, upon published statistical data. Except as otherwise stated, our market share data, as well as our management’s assessment
of our comparative competitive position, has been derived by comparing our sales volumes for the relevant period to our management’s
estimates of our competitors’ sales volumes for such period, as well as upon published statistical data, and, in particular
the reports published and the information made publicly available by, among others, the local brewers’ associations and the
national statistics bureaus in the various countries in which we sell our products. Although we have no reason to believe any of
this information or these reports are inaccurate in any material respect and believe and act as if they are reliable, we have not
independently verified it.
This annual report
includes the names of our products which constitute trademarks or trade names which we own or which are owned by others and are
licensed to us for our use. This annual report also contains other brand names, trade names, trademarks or service marks of other
companies, and these brand names, trade names, trademarks or service marks are the property of those other companies.
Some of the information
contained in this annual report may constitute forward-looking statements within the meaning of Section 27A of the U.S. Securities
Act of 1933, as amended, or the Securities Act, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended, or the
Exchange Act. We have based these forward-looking statements largely on our current expectations and projections about future events,
industry and financial trends affecting our business.
Many of these forward-looking
statements can be identified by the use of forward-looking words such as “anticipate,” “project,” “may,”
“believe,” “could,” “expect,” “should,” “plan,” “intend,”
“estimate,” “potential,” among others. These statements appear in a number of places in this annual report
and include, but are not limited to, statements regarding our intent, belief or current expectations. Forward-looking statements
are subject to certain risks and uncertainties that are outside our control and are difficult to predict. These risks and uncertainties
could cause actual results to differ materially from those suggested by forward-looking statements. Factors that could cause actual
results to differ materially from those contemplated by forward-looking statements
include, among others:
We caution you that
forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Forward-looking statements
reflect only our current expectations and are based on our management’s beliefs and assumptions and on information currently
available to our management. Actual results may differ materially from those in forward-looking statements as a result of various
factors, including, without limitation, those identified under “Item 3. Key Information—D. Risk Factors” in this
annual report. As a result, investors are cautioned not to place undue reliance on forward-looking statements contained in this
annual report when making an investment decision.
Forward-looking statements
speak only as of the date they are made, and we do not undertake any obligation to update them in light of new information or future
developments or to release publicly any revisions to these statements in order to reflect later events or circumstances or to reflect
the occurrence of unanticipated events.
Investors should consider
these cautionary statements together with any written or oral forward-looking statements that we may issue in the future.
PART I
|
ITEM 1.
|
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
|
Not Applicable.
|
ITEM 2.
|
OFFER STATISTICS AND EXPECTED TIMETABLE
|
Not Applicable.
A. Selected
Financial Data
The following financial
information of Ambev is only a summary and should be read in conjunction with, and is qualified in its entirety by reference to,
our audited consolidated financial statements and related notes which are included elsewhere in this annual report on Form 20-F.
The tables below represent
the selected consolidated income statement and balance sheet data as at and for the years ended on December 31, 2020, 2019, 2018,
2017 and 2016 that has been derived from our audited consolidated financial statements, which were prepared in accordance with
IFRS as issued by the IASB.
Selected
Consolidated Income Statement Data
|
Year Ended
December 31,
|
|
2020(3)
|
2019(3)
|
2018(1)(2)
|
2017(2)
|
2016
|
|
(in R$ million)
|
Net sales
|
58,379.0
|
52,005.1
|
50,231.3
|
47,899.3
|
45,602.6
|
Cost of sales
|
(27,066.1)
|
(21,678.2)
|
(19,249.4)
|
(18,028.4)
|
(16,678.0)
|
Gross profit
|
31,312.9
|
30,326.9
|
30,981.9
|
29,870.9
|
28,924.6
|
Sales, marketing and distribution expenses
|
(14,619.6)
|
(12,647.5)
|
(12,328.5)
|
(11,807.4)
|
(12,010.5)
|
Administrative expenses
|
(2,948.5)
|
(2,680.0)
|
(2,363.4)
|
(2,620.0)
|
(2,166.1)
|
Other operating income/(expense) net
|
2,679.4
|
1,472.7
|
947.3
|
1,217.3
|
1,223.1
|
Exceptional items
|
(452.0)
|
(397.2)
|
(86.4)
|
(108.7)
|
1,134.3
|
Income from operations
|
15,972.2
|
16,074.9
|
17,150.9
|
16,552.1
|
17,105.4
|
Net finance result
|
(2,434.5)
|
(3,109.5)
|
(4,030.3)
|
(3,713.8)
|
(3,702.0)
|
Share of results of joint ventures
|
(43.3)
|
(22.3)
|
1.0
|
(3.1)
|
(5.0)
|
Income before income tax
|
(1,762.5)
|
(754.7)
|
(1,773.9)
|
(5,047.7)
|
(315.0)
|
Net Income
|
11,731.9
|
12,188.4
|
11,347.7
|
7,787.5
|
13,083.4
|
Attributable to:
|
|
|
|
|
|
Equity holders of Ambev
|
11,379.4
|
11,780.0
|
10,995.0
|
7,269.0
|
12,546.6
|
Non-controlling interest
|
352.5
|
408.4
|
352.7
|
518.5
|
536.8
|
|
(1)
|
We adopted IFRS 9 - Financial Instruments and IFRS 15 - Revenue from Contracts with Customers on
January 1, 2018 in accordance with the modified retrospective application. Under this approach, the financial information comparative
to prior periods is not being restated and remains as previously reported. For more information on changes in accounting policies,
see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Critical Accounting Policies.”
|
|
(2)
|
The financial information for 2018 and 2017 have been restated to reflect the impact of adoption
of IFRS 16 - Leases on January 1, 2019 in accordance with the full retrospective application. For more information on changes in
accounting policies, see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Critical
Accounting Policies”.
|
|
(3)
|
The Company changed its accounting policy used to account for extemporaneous (related to previous
periods) tax credits and debits in 2020. See Note 3 to our audited consolidated financial statements. The year ended December 31,
2019 has been restated for comparative purposes. The years ended December 31, 2018, 2017 and 2016 derived from our historical financial
statements and were not restated for this change in accounting policy as amounts deemed immaterial.
|
Earnings
per Share and Dividend per Share
|
Year Ended
December 31,
|
|
2020
|
2019
|
2018(1)(2)
|
2017(2)
|
2016
|
|
|
|
|
|
|
|
(in R$, unless otherwise indicated)
|
Earnings per common share and per ADS(3):
|
|
|
|
|
|
- Basic
|
0.72
|
0.75
|
0.70
|
0.46
|
0.80
|
- Diluted
|
0.72
|
0.74
|
0.69
|
0.46
|
0.79
|
Dividends and interest on shareholders’ equity per share and per ADS (weighted average)(4):
|
|
|
|
|
|
- Basic (R$)
|
0.44
|
0.50
|
0.56
|
0.56
|
0.66
|
- Basic (US$)
|
0.08
|
0.13
|
0.14
|
0.17
|
0.20
|
Weighted average number of shares (million shares):
|
|
|
|
|
|
- Basic
|
15,733
|
15,728
|
15,718
|
15,706
|
15,697
|
- Diluted
|
15,868
|
15,869
|
15,856
|
15,838
|
15,823
|
|
(1)
|
We adopted IFRS 9 - Financial Instruments and IFRS 15 - Revenue from Contracts with Customers on
January 1, 2018 in accordance with the modified retrospective application. Under this approach, the financial information comparative
to prior periods is not being restated and remains as previously reported. For more information on changes in accounting policies,
see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Critical Accounting Policies.”
|
|
(2)
|
The financial information for 2018 and 2017 have been restated to reflect the impact of adoption
of IFRS 16 - Leases on January 1, 2019 in accordance with the full retrospective application. For more information on changes in
accounting policies, see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Critical
Accounting Policies”.
|
|
(3)
|
The calculation of basic earnings per share is based on the net income attributable to equity holders
of Ambev and the proportional weighted average number of shares outstanding during the year. Diluted earnings per share is based
on the net income attributable to equity holders of Ambev and by adjusting the weighted average number of shares outstanding during
the year to assume conversion of all potentially dilutive shares.
|
|
(4)
|
Dividend and interest on shareholders’ equity per share information was calculated based
on the amount paid during the year net of withholding tax.
|
Selected
Consolidated Balance Sheet Data
|
As at December 31,
|
|
2020
|
2019
|
2018(1)(2)
|
2017(2)
|
2016
|
|
(in R$ million)
|
Non-current assets
|
89,854.0
|
74,121.8
|
70,384.8
|
64,048.3
|
59,954.6
|
Property, plant and equipment
|
24,768.4
|
22,576.3
|
21,638.0
|
20,705.1
|
19,153.8
|
Goodwill
|
40,023.5
|
35,009.9
|
34,276.2
|
31,401.9
|
30,511.2
|
Intangible
|
7,580.6
|
6,306.4
|
5,840.6
|
4,674.7
|
5,245.9
|
Deferred tax assets
|
4,560.8
|
2,950.1
|
2,064.7
|
2,310.9
|
2,268.1
|
Income tax and social contributions recoverable
|
10,190.8
|
5,003.0
|
4,374.2
|
2,537.7
|
347.6
|
Trade and other receivables
|
2,145.0
|
1,752.9
|
1,722.3
|
1,999.6
|
1,989.9
|
Other assets
|
584.9
|
523.2
|
468.8
|
418.4
|
438.0
|
Current assets
|
35,342.3
|
27,621.1
|
25,329.6
|
24,718.1
|
23,886.9
|
Inventories
|
7,605.9
|
5,978.6
|
5,401.8
|
4,319.0
|
4,347.1
|
Trade and other receivables
|
5,659.0
|
5,653.2
|
6,302.2
|
6,662.1
|
5,956.9
|
Income tax and social contributions recoverable
|
3,287.1
|
4,074.1
|
2,148.7
|
3,370.5
|
5,423.3
|
Cash and cash equivalents
|
17,090.3
|
11,900.7
|
11,463.5
|
10,354.5
|
7,876.8
|
Investment securities
|
1,700.0
|
14.6
|
13.4
|
11.9
|
282.8
|
Total assets
|
125,196.3
|
101,742.9
|
95,714.4
|
88,766.4
|
83,841.4
|
|
|
|
|
|
|
Shareholders’ equity
|
75,151.2
|
62,556.0
|
57,454.8
|
47,919.7
|
46,651.3
|
Equity attributable to equity holders of Ambev
|
73,815.7
|
61,278.0
|
56,248.0
|
45,945.7
|
44,825.0
|
Non-controlling interests
|
1,335.5
|
1,278.0
|
1,206.8
|
1,974.0
|
1,826.2
|
Non-current liabilities
|
16,567.3
|
14,175.9
|
13,050.6
|
11,779.9
|
8,416.5
|
Interest-bearing loans and borrowings
|
2,053.5
|
2,409.7
|
2,162.4
|
2,831.2
|
1,765.7
|
Employee benefits
|
3,544.0
|
2,704.5
|
2,343.7
|
2,310.7
|
2,137.7
|
Deferred tax liabilities
|
3,043.4
|
2,371.1
|
2,424.6
|
2,329.2
|
2,329.7
|
Income tax and social contributions payable
|
2,596.9
|
2,864.7
|
2,903.4
|
3,189.6
|
681.4
|
Trade and other payables
|
4,882.4
|
3,454.8
|
2,790.4
|
606.6
|
736.6
|
Provisions
|
447.1
|
371.0
|
426.2
|
512.6
|
765.4
|
Current liabilities
|
33,477.8
|
25,011.0
|
25,209.0
|
29,066.7
|
28,773.7
|
Interest-bearing loans and borrowings
|
2,738.8
|
653.1
|
1,941.2
|
1,699.4
|
3,630.6
|
Trade and other payables
|
24,897.3
|
18,745.1
|
17,754.5
|
21,702.8
|
20,692.0
|
Income tax and social contributions payable
|
5,716.8
|
5,502.7
|
5,340.2
|
5,493.8
|
4,282.4
|
Provisions
|
124.9
|
110.0
|
173.0
|
169.0
|
168.6
|
Bank overdraft
|
-
|
0.0
|
0.0
|
1.8
|
0.0
|
Total shareholders’ equity and liabilities
|
125,196.3
|
101,742.9
|
95,714.4
|
88,766.4
|
83,841.4
|
|
|
|
|
|
|
|
(1)
|
We adopted IFRS 9 - Financial Instruments and IFRS 15 - Revenue from Contracts with Customers on
January 1, 2018 in accordance with the modified retrospective application. Under this approach, the financial information comparative
to prior periods is not being restated and remains as previously reported. For more information on changes in accounting policies,
see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Critical Accounting Policies.”
|
|
(2)
|
The financial information for 2018 and 2017 have been restated to reflect the impact of adoption
of IFRS 16 - Leases on January 1, 2019 in accordance with the full retrospective application. For more information on changes in
accounting policies, see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Critical
Accounting Policies”.
|
Other
Data
|
As at and
for the Year Ended December 31,
|
|
2020
|
2019
|
2018(1)(2)
|
2017(2)
|
2016
|
|
(in R$ million, except for operating data)
|
Other Financial Data:
|
|
|
|
|
|
Net working capital(3)
|
1,864.5
|
2,610.1
|
120.6
|
(4,348.6)
|
(4,886.8)
|
Cash dividends and interest on shareholders’ equity paid
|
6,850.3
|
7,871.3
|
8,814.1
|
8,819.8
|
10,330.6
|
Depreciation and amortization(4)
|
5,167.4
|
4,675.2
|
4,448.4
|
4,036.9
|
3,512.0
|
Capital expenditures(5)
|
4,692.7
|
5,069.4
|
3,571.0
|
3,203.7
|
4,132.7
|
|
|
|
|
|
|
Operating cash flows - generated(6)
|
18,855.8
|
18,381.3
|
18,346.1
|
18,424.2
|
12,344.5
|
Investing cash flows - used(6)
|
(6,799.6)
|
(4,838.6)
|
(3,675.7)
|
(3,073.0)
|
(5,897.9)
|
Financing cash flows - used(6)
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(8,602.0)
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(12,283.5)
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(13,656.4)
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(13,414.2)
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(11,645.1)
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Other Operating Data:
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Total production capacity - million hl(7)
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250.8
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257.6
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270.1
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276.5
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280.4
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Total volume sold - million hl(8)
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165.8
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163.2
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158.7
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162.8
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159.8
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Number of employees(9)
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50,479
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51,352
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49,617
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51,432
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53,250
|
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(1)
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We adopted IFRS 9 - Financial Instruments and IFRS 15 - Revenue from Contracts with Customers on
January 1, 2018 in accordance with the modified retrospective application. Under this approach, the financial information comparative
to prior periods is not being restated and remains as previously reported. For more information on changes in accounting policies,
see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Critical Accounting Policies.”
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(2)
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The financial information for 2018 and 2017 have been restated to reflect the impact of adoption
of IFRS 16 - Leases on January 1, 2019 in accordance with the full retrospective application. For more information on changes in
accounting policies, see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Critical
Accounting Policies”.
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(3)
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Represents total current assets less total current liabilities.
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(4)
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Includes depreciation of property, plant and equipment, amortization of intangible assets and impairment
losses related to these assets.
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(5)
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Represents cash expenditures for property, plant, equipment and intangible assets.
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(6)
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Operating, investing and financing cash flow data is derived from our consolidated cash flow statements
contained in our audited consolidated financial statements.
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(7)
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Represents our available production capacity at year-end; capacity can vary from year to year depending
on mix; “hl” is the abbreviation for hectoliters.
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(8)
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Represents our full-year volumes.
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(9)
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Includes all our production- and non-production-related employees.
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Exchange
Controls
There are no restrictions
on ownership of the ADSs or Ambev’s preferred shares or common shares by individuals or legal entities based on location
and/or nationality of the respective investor. However, the right to convert dividends and interest on shareholders’ equity
payments arising from Ambev’s shares, as well as proceeds from the sale of Ambev’s shares, into U.S. dollars and to
remit such amounts outside Brazil is subject to exchange control restrictions and foreign investment legislation. Such operations
generally require that the relevant investments be registered with the Brazilian Central Bank and foreign investors are registered
with the Brazilian Securities Commission (“CVM”).
Restrictions on the
remittance of foreign capital abroad could hinder or prevent Banco Bradesco S.A., the custodian of Ambev’s ADS program, or
“Custodian”, or holders who have exchanged Ambev’s ADSs for Ambev’s shares, from converting dividend distributions,
interest on shareholders’ equity or the proceeds from any sale of shares of Ambev into U.S. dollars and remitting such U.S.
dollars abroad. Holders of Ambev’s securities could be adversely affected by delays or difficulties to meet any regulatory
requirement for conversions of real payments and remittances abroad.
Investors residing
outside Brazil, including institutional investors, may either register their investments in securities in Brazil, (i) as a foreign
direct investment under Law No. 4,131, dated September 3, 1962, or “Law 4,131”; or (ii) as a portfolio investment under
CMN Resolution No. 4,373, dated September 29, 2014, or “CMN Resolution 4,373”, and CVM Ruling No. 560, dated March
25, 2015. Foreign investors, regardless of whether their investments are made as direct investments or portfolio investments, must
be enrolled with the Brazilian Internal Revenue. This registration process is undertaken by financial institution or by an institution
authorized to operate by the Brazilian Central Bank as the investor’s legal representative in Brazil.
Foreign direct investors
under Law 4,131 may directly hold and sell securities in both private and open market transactions, but these investors are likely
to be subject to a different tax treatment on gains, apart from being subject to taxation on the execution of foreign exchange
transactions.
On the other hand,
CMN Resolution 4,373 establishes the possibility for foreign investors to make investments in local currency with funds held in
their foreign bank accounts. With certain exceptions, CMN Resolution 4,373 allows investors to carry out various type of transactions
in the Brazilian capital markets involving a security traded on a Brazilian stock or futures exchange, or through an organized
over-the-counter market, but investors may not transfer the ownership of investments made under such regulation to other non-Brazilian
holders through private transactions. Investments and remittances outside Brazil for gains, dividends, profits or other payments
under Ambev’s securities are made through the foreign exchange market.
In addition, under
Law No. 4,131 any investor must also registered with the Receita Federal do Brasil (the Brazilian Internal Revenue Service),
or the RFB, pursuant to RFB Normative Instruction No. 1,548 of February 13, 2015, and RFB Normative Instruction No. 1,863 of December
28, 2018.
In order to be accredited
to invest under Resolution No. 4,373, foreign investor must:
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appoint a legal representative duly accredited with the Brazilian
Central Bank, that will be responsible for complying with the registration and periodically reporting requirements of the
Brazilian Central Bank and the CVM;
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appoint a custodian duly accredited with the CVM;
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hold a brokerage account with the accredited custodian;
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appoint a tax representative in Brazil;
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be registered with the Brazilian Federal Revenue, to obtain the enrollment of taxpayer registration;
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be registered as a foreign investor with the CVM;
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through the appointed representative in Brazil, register the foreign investment with the Central
Bank.
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The foreign investment
in Ambev’s shares underlying the ADSs was registered by the Custodian on behalf of The Bank of New York Mellon, the depositary
for the ADS programs of Ambev, or “Depositary”, enabling the Custodian to convert dividends and other amounts distributed
by Ambev into foreign currency and remit such proceeds outside Brazil to the Depositary.
If a holder of ADSs
decides to exchange such ADSs for the underlying Ambev’s shares, the holder will be entitled to (i) sell the shares in the
stock exchange and rely on the Depositary’s electronic registration to obtain and remit U.S. dollars abroad; (ii) convert
its investment into a foreign portfolio investment under CMN Resolution 4,373, or (iii) convert its investment into a foreign direct
investment under Law 4,131. If a holder of ADSs wishes to convert its investment into either a foreign portfolio investment under
CMN Resolution 4,373 or a foreign direct investment under Law 4,131, it should begin the process of obtaining its own foreign investor
registration with the Brazilian Central Bank and/or with the CVM, as the case may be, in advance of exchanging the ADSs for Ambev’s
shares.
The Custodian is authorized
to update the Depositary’s electronic registration to reflect conversions of ADSs into foreign portfolio investments. If
a holder of ADSs elects to convert its ADSs into a foreign direct investment under Law 4,131, the conversion will be effected by
the Brazilian Central Bank after receipt of an electronic request from the Custodian with details of the transaction.
Under current legislation,
the Brazilian government may impose temporary restrictions on remittances of foreign capital abroad in the event of a serious imbalance
or an anticipated serious imbalance of Brazil’s balance of payments. See “—D. Risk Factors—Risks Relating
to Brazil and Other Countries in Which We Operate” and “—D. Risk Factors—Risks Relating to Our Common Shares
and ADSs.”
B. Capitalization
and Indebtedness
Not applicable.
C. Reasons
for the Offer and Use of Proceeds
Not applicable.
D. Risk
Factors
Before making an investment
decision, you should consider all of the information set forth in this annual report, including the consolidated financial statements
and our periodic public information released by Ambev from time to time. In particular, you should consider the special features
applicable to an investment in Brazil and applicable to an investment in Ambev, including those set forth below. In general, investing
in the securities of issuers in emerging market countries, such as Brazil, involves a higher degree of risk than investing in the
securities of issuers in the United States. Our business, financial condition and operational results may also be significantly
affected not only by the risks set forth below but also by other risks that are currently unknown or considered irrelevant to us.
Risks
Relating to Brazil and Other Countries in Which We Operate
Economic
and political uncertainty and volatility in Brazil, and the perception of these conditions in the international financial markets,
may adversely affect our business.
Our most significant
market is Brazil, which has periodically experienced rates of inflation higher than expected. Inflation, along with governmental
measures to fight inflation and public speculation about possible future measures, has had significant negative effects on the
Brazilian economy. The annual rate of inflation, as measured by the Índice Nacional de Preços ao Consumidor
(National Consumer Price Index), was 6.6% in 2016, 2.1% in 2017, 3.8% in 2018, 4.3% in 2019 and 4.5% in 2020. Brazil may experience
high levels of inflation in the future and such inflationary pressures may lead to the Brazilian government intervening in the
economy and introducing policies that could adversely affect the Brazilian economy, the securities market and our business. In
the past, the Brazilian government’s interventions included the maintenance of a restrictive monetary policy with high interest
rates that restricted credit availability and reduced economic growth, causing volatility in interest rates.
The SELIC official
interest rate in Brazil oscillated from 7.25% in 2012 to 4.50% in 2019, as established by the Central Bank’s Monetary Policy
Committee (Comitê de Política Monetária do Banco Central do Brasil, or COPOM). On February, 2020, the
COPOM reduced the official interest rate to 4.25% and further reduced it in March 2020 to 3.75% . In an effort to offset the impact
of the COVID-19 pandemic on domestic demand, the COPOM further reduced the rate in May, June and August 2020, with the interest
rate at 2.0% on December 31, 2020. On March 17, 2021, the COPOM increased the SELIC to 2.75%, the applicable rate as of the date
of this annual report. Conversely, more lenient government and Central Bank’s policies and interest rate decreases have triggered
and may continue to trigger increases in inflation, and, consequently, growth volatility and the need for increases in interest
rate. We cannot assure you that inflation will not affect our business in the future. In addition, any effort on the part of the
Brazilian government to preserve economic stability, as well as any public speculation about possible future initiatives, may contribute
significantly to economic uncertainty in Brazil and may heighten volatility in the Brazilian securities markets and securities
issued abroad by Brazilian issuers. It is also difficult to assess the impact that turmoil in the credit markets will have in the
Brazilian economy, and as a result on our operations and financial results in the future.
In addition, Brazil’s
political environment has historically influenced, and continues to influence, the performance of the country’s economy.
Political crises have affected and continue to affect the confidence of investors and the general public, which have historically
resulted in economic deceleration and heightened volatility in the securities issued by Brazilian companies.
The economic and political
instability in Brazil has contributed to a decline in market confidence in the Brazilian economy. In addition, since 2014, Brazil
has experienced amplified economic and political instability derived from various currently ongoing investigations into allegations
of money laundering and corruption being conducted by the Office of the Brazilian Federal Prosecutor, including the largest such
investigation, known as Lava Jato, as well as other derivative or independent investigations such as Cui Bono, A
Origem, Sepsis, Patmos, Zelotes and Greenfield investigations. The potential outcome of such corruption-related
investigations is uncertain, but they have already impacted the general market perception of the Brazilian economy, political environment
and the Brazilian capital market. We have no control
over, and cannot predict, whether such investigations or allegations will lead to further political and economic instability.
Driven by the economic
and political instability in Brazil, among other factors, Brazil has faced a series of economic and political difficulties since
2014, including increasing unemployment rates, decreasing consumer and business confidence, falling industrial output, a deficit
in Brazil’s primary accounts, shrinking gross domestic product until 2017 and meager growth since then, increasing uncertainties
with regards to Congressional decisions and the significant devaluation and volatility of the real.
As of the date of
the submission of this 20-F form, President Jair Bolsonaro is being investigated by the Federal Supreme Court for supposed practice
of improper acts alleged by the former minister of justice, Mr. Sérgio Moro. If the president is convicted, any consequence
- including a potential impeachment - may lead to political instability and could have relevant adverse effects on the political
and economic environment in Brazil, as well as on businesses operated in Brazil, including our business.
The potential outcome
of this and other investigations is uncertain, but they have already negatively affected the image and reputation of the companies
involved, as well as the general market perception of the Brazilian economy. The development of the cases of unethical conduct
has affected and may continue to adversely affect our business, financial condition and operating results, including the trading
price of our shares. We cannot predict whether investigations in progress will lead to further political and economic instability,
or whether new allegations against government officials and executives and/or private companies will emerge in the future. We also
cannot predict the outcome of these investigations nor their impact on the Brazilian economy or the Brazilian stock market.
Consumption of beer,
other alcoholic beverages and soft drinks in many of the jurisdictions in which we operate, including Brazil, is closely linked
to general economic conditions, such that levels of consumption tend to rise during periods of rising per capita income and to
fall during periods of declining per capita income. Consumption of beer and other alcoholic beverages also varies in accordance
with changes in disposable income. Any decrease in disposable income resulting from an increase in inflation, income taxes, cost
of living, unemployment levels, political or economic instability or other factors would likely adversely affect the demand for
beer, other alcoholic beverages, soft drinks and other non-alcoholic beverages, as well as our results of operations. Moreover,
the instability and uncertainty in the Brazilian economic and political scenario may continue to adversely affect the demand for
our products, which in turn may negatively impact our operations and financial results.
The
Brazilian government has exercised, and continues to exercise, significant influence over the Brazilian economy; Brazilian economic
and political conditions have a direct impact on our business.
The Brazilian economy
has been characterized by significant involvement on the part of the Brazilian government, which has historically changed monetary,
credit and other policies to influence Brazil’s economy. The Brazilian government’s actions to control inflation and
affect other policies have involved wage and price controls, the Central Bank’s base interest rates, as well as other measures,
such as the freezing of bank accounts, which occurred in 1990.
Actions taken by the
Brazilian government concerning the economy may have important effects on Brazilian corporations and other entities, including
Ambev, and on market conditions and prices of Brazilian securities. Our financial condition and results of operations may be adversely
affected by the following factors and the Brazilian government’s response to the following factors:
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devaluations and other exchange rate movements;
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exchange control policies;
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employment levels and labor regulation;
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natural and other disasters, including large scale epidemics and pandemics;
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interest rates and monetary policy;
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liquidity of domestic capital and lending markets;
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growth or downturn of the Brazilian economy;
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import and export controls;
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exchange controls and restrictions on remittances abroad;
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response to COVID-19 pandemic, including social benefits and restriction of businesses operations;
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fiscal policy and changes in tax laws; and
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other political, diplomatic, social and economic developments in or affecting Brazil.
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Uncertainty as to
whether the Brazilian federal government will implement changes in policy or regulation affecting these or other factors in the
future may affect economic performance and contribute to economic uncertainty in Brazil and to heightened volatility and lack of
liquidity in the Brazilian capital market and securities issued by Brazilian companies. For example, the deterioration in federal,
state and municipal governments’ fiscal results in recent years has led to an unprecedented increase in gross debt as well
as in the gross debt to GDP ratio, which led Brazil to lose its investment grade from credit rating agencies, decreasing the influx
of foreign capital and contributing to a lower level of economic activity. In addition, the Brazilian economy has experienced a
sharp drop in recent years due, in part, to the interventionist economic and monetary policies of the Brazilian federal government
and the global drop in commodity prices.
We cannot predict
the measures that the Brazilian federal government will take due to mounting macroeconomic pressures or otherwise. Recent economic
and political instability has led to a negative perception of the Brazilian economy and higher volatility in the Brazilian capital
markets and the securities of Brazilian issuers, which also may adversely affect us. Indecision as to changes in policies and regulations
implemented by the Brazilian federal government may contribute to economic uncertainty in Brazil and greater volatility in the
Brazilian capital markets. Prior to the COVID-19 pandemic, Brazil was just emerging from a prolonged recession and a period of
slow recovery, with only meager GDP growth in 2017, 2018 and 2019. Brazil’s incipient economic recovery in 2020 was torpedoed
with the onset of the COVID-19 pandemic and governmental measures in relation thereto, all of which have introduced an additional
level of economic and political uncertainty.
Our
results of operations are affected by fluctuations in exchange rates, and devaluation of the real relative to other currencies,
including the U.S. dollar, which may adversely affect our financial performance.
Most of our sales
are in reais; however, a portion of our debt is denominated in foreign currencies, including U.S. dollars. In addition,
a significant portion of our cost of sales, in particular those related to packaging such as aluminum cans and bottles made of
polyethylene terephthalate, or PET, as well as sugar, hops and malt are denominated in or linked to the U.S. dollar, which was
very volatile in recent years. Therefore, any devaluation of the real when compared to those foreign currencies may increase
our financial expenses and operating costs and could affect our ability to meet our foreign currency obligations. Our current policy
is to hedge substantially our cost of sales against changes in foreign exchange rates, we cannot assure you that such hedging will
be possible, accurate or available at reasonable costs at all times in the future.
In addition, we have
historically reported our consolidated results in reais. In 2020, we derived 48.3% of our net revenues from operating companies
that have functional currencies that are not reais (that is, in most cases, the local currency of the respective operating
company). Consequently, any change in exchange rates between our operating companies’ functional currencies and reais
will affect our consolidated income statement and balance sheet. Decreases in the value of our operating companies’ functional
currencies against reais will tend to reduce those operating companies’ contributions in terms of our financial condition
and results of operations.
We also incur currency
transaction risks whenever one of our operating companies enters into transactions using currencies other than their respective
functional currencies, including purchase or sale transactions and the issuance or incurrence of debt. Although we have hedging
policies in place to manage commodity price and foreign currency risks, there can be no assurance that such policies will be able
to successfully hedge against the effects of such foreign exchange exposure, particularly over the long term.
The Brazilian currency
has devalued frequently, including during the last two decades. Throughout this period, the Brazilian government has implemented
various economic plans and utilized a number of exchange rate policies, including sudden devaluations and periodic mini-devaluations,
during which the frequency of adjustments has ranged from daily to monthly, floating exchange rate systems, exchange controls and
dual exchange rate markets. There have been significant fluctuations in the exchange rates between Brazilian currency and the U.S.
dollar and other currencies. For example, the U.S. dollar depreciated 17.8% against the real in 2016, closing at R$3.25
per U.S.$1.00 as of December 31, 2016, while in 2017, the U.S. dollar appreciated 1.8% against the real, closing at R$3.31
per U.S.$1.00 as of December 31, 2017. The U.S. dollar appreciated 17.2% against the real in 2018, closing at R$3.88 per
U.S.$1.00 as of December 31, 2018. The U.S. dollar appreciated 3.6% against the real in 2019, closing at R$4.02 per U.S.$1.00
as of December 31, 2019. The U.S. dollar appreciated 29.2% against the real in 2020, closing at R$5.20 per U.S.$1.00 as
of December 31, 2020, with a high degree of volatility over the course of 2020, particularly as a result of uncertainties arising
from the COVID-19 pandemic. For example, in May 2020 the real depreciated to its lowest level since the commencement of the currency
to R$5.94 per US$1.00 and as of March 5, 2021, the exchange rate was R$ 5.69 per US$1.00.
Devaluation of the
real relative to the U.S. dollar may create additional inflationary pressures in Brazil by generally increasing the price
of imported products and requiring recessionary governmental policies to curb aggregate demand. On the other hand, appreciation
of the real against the U.S. dollar may lead to a deterioration of the current account and the balance of payments, as well
as dampen export-driven growth. The potential impact of the floating exchange rate and measures of the Brazilian government aimed
at stabilizing the real is uncertain. In addition, a substantial increase in inflation may weaken investor confidence in
Brazil, impacting our ability to finance our operations through the international capital markets.
Other exchange rate devaluations
or political decisions related to exchange rates may impact our business as well. For instance, on January 1st, 2021, Cuba started
the unification of currencies and the process of elimination of the Cuban Convertible Peso. There are uncertainties regarding the
process, its timeline and the effects in inflation, exchange rates and local economy. The Cuban currency may depreciate or appreciate
substantially against the U.S. dollar. In light of the foregoing, there can be no assurance we will be able to protect ourselves
against the effects of fluctuations of the Cuban currency. The process may impact the Cuban economy in general and as a consequence
our Bucanero business.
Increases
in taxes levied on beverage products in the countries in which we operate and unfair competition arising from tax evasion may adversely
affect our results and profitability.
Increases in levels
of taxation in the countries in which we operate could adversely affect our profitability. Increases in taxes on beverage products
usually result in higher beverage prices for consumers. Higher beverage prices generally result in lower levels of consumption
and, therefore, lower net sales. Lower net sales result in lower margins because some of our costs are fixed and thus do not vary
significantly based on the level of production. We cannot assure you that the countries’ governments will not increase current
tax levels and that this will not impact our business.
For instance, in Brazil,
in January 2015 the Brazilian federal government enacted Law No. 13,097, which introduced a new federal taxation model for beer
and soft drinks, creating a less complex and more predictable tax system for the industry. The new tax model came into force on
May 1, 2015. Among other changes, the new set of rules establishes that the Excise Tax
(Imposto sobre Produtos Industrializados), or the IPI Excise Tax, the Social Integration Program Contribution (Programa
de Integração Social), or the PIS Contribution and the Social Security Funding Contribution (Contribuição
para Financiamento da Seguridade Social), or the COFINS, are due by manufacturers and wholesalers and shall be calculated based
on the respective sales price (ad valorem). Under the previous legislation, the referred taxes were due exclusively by the
manufacturer at fixed amounts per liter of beer or soft drink produced (ad rem). Besides, with the enactment of the referred
Law, the PIS/COFINS rates applicable for beer and soft drinks were increased and the rates for IPI were reduced.
Moreover, in May 2018,
the Brazilian Federal Government enacted Decree No. 9,394/2018 reducing IPI rate applicable to transactions with concentrate units
and, in so doing, effectively reducing the value of the IPI presumed credits that we recorded on acquisitions of soft drinks concentrates
from companies located in the Manaus Free Trade Zone from 20% to 4%. Other Decrees were issued with temporary rates. On November
2020, Decree No. 9,394/2018 was revoked by Decree No. 10,554/2020. Currently, the applicable legislation on this matter is Decree
No. 10,523/2020, which was enacted on October 2020, providing that the IPI tax rate of 8% shall apply for transactions with concentrate
units from February 2021 onwards.
On the state level,
in 2015 the States of São Paulo, Rio de Janeiro, Minas Gerais, Distrito Federal, Rio Grande do Sul, Ceará, Amapá,
Rondônia, Amazonas, Tocantins, Piauí, Maranhão, Rio Grande do Norte, Bahia, Pernambuco, Paraíba, Alagoas,
Sergipe and Mato Grosso do Sul increased their ICMS Value-Added Tax rate applicable to beer and/or soft drinks. In 2016, the States
of Rio de Janeiro and Acre also increased their respective ICMS Value-Added Tax rates, scheduled to take effect in early 2017.
In 2017, the States of Goiás and Amazonas increased their soft drinks and beer ICMS rates, respectively. In 2018, the States
of Maranhão and Pernambuco increased their non-alcoholic beverages ICMS rates and Bahia and Maranhão increased beer
ICMS burden, which became effective in early 2019. In 2020, no Brazilian state raised ICMS Value-Added Tax rate for either beer
or non-alcoholic beverages.
In addition, certain
tax laws may be subject to controversial interpretations by tax authorities. If the tax authorities interpret the tax laws inconsistently
with our interpretations, we may be adversely affected, including the full payment of taxes due, plus charges and penalties.
Moreover, the pandemic
of the new Coronavirus (COVID-19) and the declaration of the state of calamity can result in socioeconomic impacts, including an
eventual reduction of tax revenues in Brazil and an increase in public spending, especially in key sectors. In this scenario, the
Federal, State and Municipal Governments may promote legislative changes to impose, even if temporarily, a more onerous tax burden
to our activities. Such measures may adversely affect our business and results.
Our
Latin America South operations are subject to substantial risks relating to the businesses and operations conducted in Argentina
and other South American countries.
We own 100% of the
total share capital of Latin America South Investment, S.L., or LASI, the net revenues from which corresponded to 19.8% of our
consolidated results of operations in 2020. LASI is a holding company with operating subsidiaries in Argentina and other South
American countries. As a result, LASI’s financial condition and results of operations may be adversely affected by the political
instability, fluctuations in the economy and governmental actions concerning the economy of Argentina and the other countries in
which its subsidiaries operate and, consequently, affect our consolidated results.
The results of our
Argentinian operations have been significantly impacted in reais terms in recent years by political instability, fluctuations
in the Argentine economy (such as the devaluation of the Argentine peso in December 2015, 2018, 2019 and 2020), governmental
actions concerning the economy of Argentina (such as Argentina’s selective default on its restructured debt in July 2014),
inflation and deteriorating macroeconomic conditions in the country. Continued deterioration of the Argentine economy, or new foreign
exchange, price controls, export repatriation or expropriation regimes could adversely affect our liquidity and ability to access
funds from Argentina, our financial condition and operating results.
For example, in the
early 2000s, Argentina experienced political and economic instability. A widespread recession occurred in 2002, including a 10.9%
decrease in real GDP, high unemployment and high inflation. In the past, the Argentine economic and social situation has rapidly
deteriorated, and may quickly deteriorate in the future; we cannot assure you that the Argentine
economy will not rapidly deteriorate as in the past. Additionally, in 2018 and 2019 the Argentine peso underwent a significant
devaluation, losing 51% and 36.9%, of its value relative to the real, impacting the net assets, results and cash flows of
our Argentinean operations. In 2020, the devaluation was less drastic (7.9%) but also impacted the same figures. The 2018, 2019
and 2020 devaluations of the Argentine peso relative to the real, and further devaluations of the Argentine peso
in the future, if any, may decrease our net assets in Argentina, with a balancing entry in our equity. See “—Risks
Relating to Our Operations—Our results of operations are affected by fluctuations in exchange rates and devaluation of the
real relative to other currencies, including the U.S. dollar, which may adversely affect our financial performance.”
Following the categorization
of Argentina in our results for the third quarter of 2018 as a country with a three-year cumulative inflation rate greater than
100%, the country is considered as a hyperinflationary economy in accordance with IFRS rules (IAS 29), requiring us to restate
the results of our operations for the year ended December 31, 2018, in hyperinflationary economies for the change in the general
purchasing power of the local currency, using official indices before converting the local amounts at the closing rate of the period.
In addition, on July
30, 2014 Argentina entered into a selective default of its restructured debt and, in early 2016, U.S. courts ruled that Argentina
must make full payments to the remaining holdout bondholders, which was settled in 2016 following negotiations between Argentina
and bondholders.
Under the context
of the significant devaluation of the Argentine peso in 2018, along with increased inflation and weak macroeconomic conditions
Argentina signed, on June 7, 2018, an agreement with IMF to obtain a significant loan to stabilize the macroeconomic situation.
In addition, in August 2019, Argentina held its primary election and the candidate Alberto Fernández defeated the incumbent
president Mauricio Macri, which prompted further devaluation of the Argentine peso. In September 2019, the Argentine central
bank imposed currency restrictions to stabilize the Argentine peso. In October 2019, Argentina held its general elections
and the incumbent president Mauricio Macri was ousted by Alberto Fernández. In 2020, the government implemented multiple
measures in response to the economic crisis resulting from the COVID-19 pandemic including increased health spending, financial
support for workers (including funding of wages), vulnerable groups and certain industry sectors, as well as price controls. These
measures further deteriorated the country’s fiscal situation.
In light of the country’s
ailing economy and market’s concerns as to the incoming administration’s commitment to fiscal responsibility, our liquidity
and operations, as well as our ability to access funds from Argentina could be adversely affected to the extent the economic or
political situation in Argentina deteriorates, or if foreign exchange restrictions are further implemented in the country. It is
also difficult to assess the impact that the changes to the Argentine political scenario will have in the Argentine economy and,
as a result, on our future operations and financial results.
If the economic or
political situation in Argentina further deteriorates, our Latin America South operations may be subject to restrictions under
new Argentinean foreign exchange, export repatriation or expropriation regimes that could adversely affect our liquidity and operations,
and our ability to access funds from Argentina.
In addition, on November
10, 2019, the Bolivian president Evo Morales resigned after social unrests. The unrest in the country led to a decrease in consumption
and restrictions to production, which were normalized by the end of that year. On November 8, 2020, Luis Arce took office as the
new president of Bolivia, having won the elections in the first round with the majority of votes. With these results, the Movement
towards Socialism (Movimiento al Socialismo or MAS) was returned to power and obtained an absolute majority in the
parliament after a one-year interregnum following the ballot in 2019. It is difficult to assess the impact that the changes to
the Bolivian political scenario will have in the Bolivian economy and, as a result, on our future operations and financial results.
Political developments
in Latin America, including government deadlock, political instability and civil strife could impact our Latin America South operations
and have a material adverse effect on our business, financial condition, and results of operations.
Risks
Relating to Our Operations
The
extent of the pandemic declared by the World Health Organization due to the spread of COVID-19, the perception of its effects or
the way in which this pandemic will impact our business, depends on future developments which are highly uncertain and unpredictable,
and may result in a material adverse effect on our business, financial condition, results of operations and cash flow.
Outbreaks or potential
disease outbreaks may have an adverse effect on our operations. Historically, some epidemics and regional or global outbreaks,
such as the one caused by the Zika virus, the Ebola virus, the H5N5 virus (popularly known as avian influenza), the foot and mouth
disease, the H1N1 virus (influenza A, popularly known as swine flu), the Middle East Respiratory Syndrome (MERS) and the Severe
Acute Respiratory Syndrome (SARS), have affected certain sectors of the economy in the countries where these diseases have spread.
On March 11, 2020, the World Health Organization, or the WHO, declared a pandemic due to the global spread of COVID-19, a disease
caused by the new coronavirus (Sars-Cov-2), or COVID-19. This spread has generated significant macroeconomic uncertainties, volatility,
and disruption. In response, many governments have implemented policies designed to prevent or delay the spread of the disease,
such as the restriction on circulation of people and even social isolation, and these measures may remain in place for an extended
and uncertain period.
As the pandemic progressed in the countries
in which we operate, including Brazil, Argentina, Canada and several other countries in Central and South America, states and municipalities
have adopted guidelines that varied in terms of scope and intensity to control the spread of COVID-19, such as the restriction
on circulation of people and social distancing, which resulted in the closing of and operating restrictions on stores, restaurants,
hotels, shopping centers, crowded areas, parks and other public spaces. These restrictions changed consumer behavior and channel
dynamics that adversely impacted our profitability. See “Item 5. Operating Financial Review and Prospects—A. Operating
Results.” As of December 31, 2020, restrictions to people circulation of various levels are still in place across our operations.
These measures may remain in force for a significant period of time and even more restrictive measures may be adopted by the authorities
at any time.
The dissemination
of COVID-19 made us change our business practices (including additional hygienic practices for workplaces and employees, in addition
to canceling in-person meetings, events and conferences) during the pandemic. We may take additional actions, as required by government
authorities or as determined by management, considering the best interests of our employees, customers and business partners. We
cannot guarantee that these measures will be sufficient to mitigate the risks posed by the pandemic or that they will meet the
demands of government authorities.
The extent to which
the COVID-19 outbreak will affect our business, financial condition, results of operations or cash flows will depend on future
developments, which are highly uncertain and unpredictable. These developments include, among others, the duration and geographic
distribution of the outbreak, its severity, actions to contain the virus or minimize its impact, and how quickly and to what extent
normal economic and operational conditions can be resumed. Even after containing the outbreak of COVID-19, our business may continue
to suffer adverse and material impacts due to the global or regional economic impact, including recession, economic slowdown or
increase in unemployment levels, which may affect the purchasing power of our customers.
In addition, we cannot
guarantee that other regional and/or global outbreaks will not occur. Furthermore, new waves of COVID-19 have already started to
emerge in some regions in which we operate and may spread. We cannot guarantee that we will be able to take the necessary measures
to prevent an adverse impact on our businesses of equal or greater dimension than the impact caused by the COVID-19 pandemic, in
case of new regional and/or global outbreaks or new large-scale waves of COVID-19.
Any outbreak of a
disease that affects human behavior or that requires public policies to restrict the circulation of people and/or social contact
may change consumer behavior, having an adverse impact on our business, as well as on the economies in the countries in which we
operate. Disease outbreaks may also make it impossible for our employees and customers to go to our facilities (including for preventative
reasons or avoiding large-scale contamination), which would adversely affect the development of our business.
As there are no comparable
recent events that can provide us with guidance regarding the effect of a severe global pandemic, we cannot predict the final impact
of the COVID-19 outbreak. Finally, the impact of the COVID-19 pandemic can also precipitate or exacerbate the other risks described
in this annual report.
We face
operational risks that can result in the partial or temporary shutdown of our operations, which may adversely affect our financial
condition and results of operations.
We face operational
risks that may result in partial or temporary suspension of our operations and in loss of production. Such outages may be caused
by factors associated with equipment failure, information system disruptions or failures (including due to cyber-attacks), accidents,
fires, strikes, weather, exposure to natural disasters, regional water crisis, electricity power outages and chemical product spills,
accidents involving water reservoirs, availability of our suppliers to meet demand of raw and packaging materials, among other
operational and environmental hazards. The occurrence of these events may, among other impacts, result in serious damage to our
property, assets and reputation, a decrease in production or an increase in production costs, any of which may adversely affect
our financial condition and results of operations.
During the normal
course of our business, we depend on the continuous availability of logistics and transportation networks, including roads, railways,
warehouses and ports, among others. Such operations may be disrupted by factors beyond our control, such as social movements, natural
disasters, electricity shortages and labor strikes. Any interruption in the supply of inputs for the operation of our industrial
units or in the delivery of our products to clients could cause a material adverse impact on our results of operations.
Moreover, the transportation
and infrastructure system in Brazil and other countries we operate is under development and needs improvements so that it can work
efficiently and serve better our business. Any significant interruptions or reductions in the use of transport infrastructure or
in its operations in the cities where our distribution centers are located, may delay or impair our ability to distribute goods
and cause our sales to drop, which may negatively impact our financial and operating results.
Volatility
in commodities prices may adversely affect our financial performance.
A
significant portion of our cost of sales is comprised of commodities such as aluminum, sugar, corn, wheat and PET bottles, the
prices of which fluctuated in 2020. An increase in commodities prices directly affects our consolidated operating costs. Although
our current policy is to mitigate our exposure risks to commodity prices whenever financial instruments are available, we cannot
assure that such hedging will be possible or available at reasonable costs at all times in the future.
Set forth below is
a table showing the volatility in 2020 prices of the principal commodities we purchase:
Commodity
|
High Price
|
Low Price
|
Average
in 2020
|
Fluctuation
|
Aluminum (US$/ton)
|
2,051.5
|
1,421.5
|
1,0702.3
|
10%
|
Sugar (US$ cents/pounds)
|
15.78
|
9.21
|
12.88
|
15%
|
Corn (US$ cents/bushel)
|
4.84
|
3.03
|
3.64
|
25%
|
Wheat (US$ cents/bushel)
|
6.41
|
4.74
|
5.50
|
15%
|
PET (US$/ton)
|
718.83
|
430.93
|
535.68
|
(20)%
|
Sources: Aluminum LME, Sugar ICE, Corn
CBOT, Wheat CBOT and PET IHS (formerly CMAI).
Competition
could lead to a reduction of our margins, increase costs and adversely affect our profitability.
We compete with both
brewers and other beverages companies. Globally, brewers, as well as other players in the beverage industry, compete mainly on
the basis of brand image, price, quality, distribution networks and customer service. Consolidation has significantly increased
the capital base and geographic reach of our competitors in some of the markets in which we operate.
Concurrently, competition
in the beverage industry is expanding and the market is becoming more fragmented, complex and sophisticated as consumer preferences
and tastes evolve. Competition may divert consumers and customers from our products. Competition in our various markets could cause
us to reduce pricing, increase capital investment, increase
marketing and other expenditures, prevent us from increasing prices to recover higher costs, and thereby cause us to reduce margins
or lose market share. Any of the foregoing could have a material adverse effect on our business, financial condition and results
of operations. Innovation faces inherent risks, and the new products we introduce may not be successful, while competitors may
be able to respond more quickly than we can to emerging trends.
The purchasing decisions
of consumers are affected by factors including brand recognition, product quality and performance, price and subjective preferences.
Some of our competitors may have marketing investments substantially larger than ours. If our advertising, promotional and marketing
strategies do not succeed and if we are unable to offer new products to meet the market demands, our market share and results may
be adversely affected. If we cannot introduce new products in a timely manner or if our end consumers believe that our competitors’
products are more attractive, our sales, profitability and our results of operations may be adversely affected.
Additionally, the
unfair pricing practices in some markets and the lack of transparency, or even certain illicit practices, such as tax evasion and
corruption, may skew the competitive environment, with material adverse effects on our profitability or ability to operate.
Our business is
subject to regulations in the countries in which we operate.
Our business is regulated
by federal, state and municipal laws and regulations governing many aspects of our operations, including brewing, marketing and
advertising, consumer promotions and rebates, workplace safety, transportation, environmental aspects, distributor relationships,
retail execution, sales and data privacy, among others. We may be subject to claims that we have not complied with existing laws
and regulations, which could result in fines and penalties.
In Brazil, the Ministry
of Agriculture (“MAPA”) or its agencies are responsible for the registration, standardization, classification, labelling
and for the inspection and surveillance of beverage production and commerce. MAPA regulation sets forth that the registration of
establishments and beverages products is valid throughout the country and must be renewed every ten years, except for imported
beverages that do not require registration with the MAPA. Moreover, some products and beverages (i.e. energy drinks) may be subject
to prior registrations or post-production regulations issued by the Brazilian National Health Surveillance Agency (“ANVISA”).
We may be subject
to laws and regulations aimed at reducing the availability of beer and carbonated soft drink, or CSD beverages, in some of our
markets to address alcohol abuse, underage drinking, health concerns and other social issues. For example, certain Brazilian states
and small municipalities in which we operate have enacted legislation restricting the hours of operations of certain points of
sale, prohibiting the sale of CSDs in schools and imposing restrictions on advertisement of alcoholic beverages. The Brazilian
Congress is also evaluating proposed regulation imposing hygienic seals on beverage cans, as well as regulation on the consumption,
sales and marketing of alcoholic beverages, including beer which, if enacted, may impose restrictions on the advertisement of alcoholic
beverage products on television during specified times of the day and the hours of operation of certain points of sale, among other
things. Furthermore, there are legal proceedings pending before Brazilian courts that may lead to restrictions on advertisement
of alcoholic beverages. These rules and restrictions may adversely impact our results of operations. For further information, see
“Item 4. Information on the Company—B. Business Overview—Regulation.”
Additionally, we may
be unable to timely comply with recently enacted laws and regulations in the countries we operate or to comply with laws and regulations
in countries we recently started to operate. There is a global trend of increasing regulatory restrictions with respect to the
sale of alcoholic and CSD beverages. Compliance with such regulatory restrictions can be costly and may affect earnings in the
countries in which we operate.
In addition, the
partnership between Labatt Brewing Company Ltd. ("Labatt"), our Canadian subsidiary, and Tilray Inc., or Tilray, to
research non-alcoholic beverages containing tetrahydrocannabinol, or THC, and cannabidiol, or CBD, both derived from
cannabis, and also to commercialize a non-alcoholic CBD beverage in Canada only, could lead to increased legal, reputational
and financial risks, as the laws and regulations governing recreational cannabis are still developing, including in ways that
we may not foresee. For instance, the involvement in the legal cannabis industry in Canada
may invite new regulatory and enforcement scrutiny in other markets. Cannabis remains illegal in many markets in which we operate,
and violations of law could result in significant fines, penalties, administrative sanctions, convictions or settlements arising
from civil proceedings or criminal charges. Furthermore, the political environment and popular support for cannabis legalization
is changing quickly and remains in flux.
If we
are not successful in obtaining and maintaining the necessary licenses in the countries in which we operate, we may be subject
to fines, penalties, or other regulatory sanctions, which could negatively impact our business and cause us to incur additional
costs.
Our business is subject
to obtaining and maintaining the necessary licenses and regulatory approvals issued by the competent bodies in the countries in
which we operate. We cannot guarantee that such licenses or regulatory approvals will be granted, renewed, or extended. Such licenses
or regulatory approvals may be withdrawn, or made subject to limitations or onerous conditions. The absence of such licenses or
regulatory approvals may result in the interruption of the activities of a specific plant or distribution center, which may adversely
affect our results. Additionally, for the granting or renewal of such licenses or regulatory approvals, the competent authorities
may determine that we must make certain changes to our operations or facilities, potentially resulting in additional costs.
Due to the COVID-19
pandemic in Brazil certain local authorities have extended the validity of our licenses, permits or authorizations. In addition,
in order to control the spread of COVID-19, new rules were enacted on June 18, 2020 by the Ministry of Health setting forth health
protocols and limitations applicable to different industries that resulted on the restriction on circulation of people and social
distancing. These protocols and limitations resulted in the closing of and operating restrictions on pubs, stores and restaurants,
which adversely affected our sales.
We are
subject to risks associated with noncompliance with any data protection laws in the countries in which we operate and can be adversely
affected by any penalties or other sanctions imposed.
In the year 2018,
Law No. 13.709/2018, the Lei Geral de Proteção de Dados Pessoais (Brazilian General Data Protection Law) or
LGPD, was enacted and came into effect as of September 18, 2020. Inspired by the General Data Protection Regulation of the European
Union, the LGPD sets forth a comprehensive set of rules that promise to reshape how companies, organizations and public authorities
collect, use, process and store personal data when carrying out their activities.
The LGPD sets out
a legal framework for the processing of personal data and provides, among others, for the rights of data subjects, the legal bases
that legitimize processing operations, requirements for obtaining consent, obligations and requirements related to data breaches,
requirements for international data transfers, among others. The LGPD also creates the Autoridade Nacional de Proteção
de Dados (National Data Protection Authority), or ANPD, with powers to enforce the law.
In the midst of the
COVID-19 pandemic, Law No. 14,010/2020 was approved, which, among other measures, postponed the applicability of the administrative
sanctions provided for in the LGPD to August 1, 2021. On August 26, 2020, after the Brazilian House of Representatives approved
the conversion into law of Provisional Measure No. 959 (with some changes and postponing the entry into force of the LGPD until
December 31, 2020 with the exception of sanctions), the Brazilian Senate considered the postponement of the entry into force of
the LGPD to be preemptive because the legislative branch had discussed the delayed entry into force of the LGPD in Law No. 14,010/2020.
As a result, the President of Brazil signed Conversion Bill No. 34/2020 with respect to the other provisions of Provisional Measure
No. 959 and the LGPD entered into force on September 18, 2020, except for the administrative sanctions to become effective in August
1st, 2021.
In the current scenario
(prior to the effectiveness of the administrative sanctions provided for in the LGPD), failure to comply with data protection legislation
may result in the following: (i) the filing of lawsuits, individual or collective, claiming damages resulting from violations,
based not only on the LGPD, but also on the sparse legislation that address data protection matters; (ii) the application of specific
penalties foreseen in the sparse legislation, such as Marco Civil da Internet (Brazilian Internet Act) and the Consumer
Protection Code (“CDC”), in case of violation of its provisions, by some consumer protection bodies and public
prosecution offices.
The LGPD, as well
as any other changes to existing personal data protection laws and the introduction of such laws in other jurisdictions in which
we operate, may subject us to, among other things, additional costs and expenses and may require costly changes to our business
practices and security systems, policies, procedures and practices. In August 2021, when the LGPD administrative sanctions will
be effective, failure to comply with the LGPD may result in the following penalties: (a) Warning; (b) One-time fine, of up to two
percent of the turnover of the infringing entity´s conglomerate in Brazil, up to R$ 50,000,000.00 reais per violation;
(c) Daily fine, which is also subject to the limit set above; (d) Press release; (e) Blocking or deletion of personal data; (f)
Partial suspension of the database to which the infraction refers for 6 months, extendable for another 6 months; (g) Suspension
of the data processing activity to which the infraction refers for 6 months, extendable for another 6 months; (h) Partial or complete
prohibition of any data processing activities, which could harm our reputation and negatively affect our business and operating
results. Moreover, we may be liable for property, moral, individual or collective damages caused by us, including by third party
providers that process personal data for us, and jointly liable for property, moral, individual or collective damages caused by
our subsidiaries, due to non-compliance with the obligations established by the LGPD.As a result of our business activities, we
hold large volumes of personal data, including that of employees, dealers, customers and consumers. Therefore, we have designed
and implemented a privacy governance framework in order to comply with the LGPD and improve some of the existing guidelines. We
have also implemented security measures to protect our databases and prevent cyberattacks, thereby reducing risks of exposure to
data breaches and information security incidents.
Additionally, as a
result of the remote work measures adopted in response to the COVID-19 pandemic, there is a possibility of an increase in cyberattacks
through our employees’ personal computers, since the cyber security of the networks used by them in their homes may not maintain
the same level of security as that of our corporate work environment, which may impair our ability to manage our business.
Despite the security
measures that we have in place, our facilities and systems may be vulnerable to security breaches, cyber-attacks, acts of vandalism,
computer viruses, misplaced or lost data, programming or human errors, or other similar events, and individuals may attempt to
gain unauthorized access to our database in order to misappropriate such information for potentially fraudulent purposes. Our security
measures may fail to prevent such incidents and breaches of our systems could result in adverse impact to our reputation, financial
condition, and market value. In addition, if we are unable to prove that our systems are properly designed to detect and to try
and detain a cyberattack, or even if we fail to respond to a cyberattack properly, we could be subject to severe penalties and
loss of existing or future business, aside from damages awarded to our customers, dealers and employees whose personal data might
have been mishandled or breached. Finally, if we fail to ensure the security of personal data, we may be subject to the obligation
to notify the ANPD and the data subjects involved in the security incident or data breach.
Information
technology failures, including those that affect the privacy and security of sensitive customer and business information, could
disrupt our operations.
We rely on information
technology systems to process, transmit and store large amounts of electronic data, including personal information. A significant
portion of the communication between our personnel, customers and suppliers depends on information technology. As with all large
systems, our information systems may be vulnerable to a variety of interruptions due to events beyond our control, including, but
not limited to, natural disasters, terrorist attacks, telecommunications failures, computer viruses, hackers' attacks or other
security issues.
We depend on information
technology to enable us to operate efficiently and interface with customers, as well as to maintain in-house management and control.
We also collect and store non-public personal information that customers provide to purchase products or services, including personal
information and payment information.
In addition,
the concentration of processes in shared services centers means that any technology disruption could impact a large portion
of our business within the operating regions we serve. Any transitions of processes to, from or within shared services
centers as well as other transformational projects, could lead to business disruptions. If we do not allocate, and
effectively manage, the resources necessary to build and sustain the proper technology infrastructure, we could be subject to
transaction errors, processing inefficiencies, the loss of customers, or failure to attract new customers, lost revenues
resulting from the disruption or shutdown of computer systems, unexpected failure of devices and software in use by our IT
platforms, operations or supply chain disruptions, alteration, corruption or loss of accounting financial
or other data on which we rely for financial reporting and other purposes, which could cause errors or delays in our financial
reporting or the loss of or damage to intellectual property through a security breach. As with all information technology systems,
our system could also be penetrated by outside parties with the purpose of extracting information, corrupting information or disrupting
business processes.
We take various
actions with the aim of minimizing potential technology disruptions – such as investing in intrusion detection solutions,
proceeding with internal and external security assessments, building and implementing business continuity plans and reviewing risk
management processes – but all of these protections may be compromised as a result of third-party security breaches, burglaries,
cyberattack, errors by employees or employees of third-party vendors, of contractors, misappropriation of data by employees, vendors
or unaffiliated third parties, or other irregularities that may result in persons obtaining unauthorized access to company data
or otherwise disrupting our business. Unauthorized or accidental access to, or destruction, loss, alteration, disclosure, misuse,
falsification or unavailability of, information could result in violations of data privacy laws and regulations, damage to our
reputation or our competitive advantage, loss of opportunities to acquire or divest of businesses or brands and loss of ability
to commercialize products developed through research and development efforts and, therefore, could have a negative impact on net
operating revenues. More generally, these or other similar technology disruptions can have a material adverse effect on our business,
results of operations, cash flows or financial condition.
While we continue
to invest in new technology-monitoring and cyberattack prevention systems, no commercial or government entity can be entirely free
of vulnerability to attack or compromise given how rapidly and unpredictably techniques evolve to obtain unauthorized access or
disable or degrade service.
If we
do not successfully comply with applicable anti-corruption laws and regulations, we could be subjected to fines, penalties or other
regulatory sanctions, as well as adverse press coverage, which could impact our reputation, operations and sales.
We are committed to
conducting business in a legal and ethical manner in compliance with local and international laws and regulations applicable to
our business. Nevertheless, there is a risk that our management, employees or other representatives may take actions that violate
applicable anti-corruption laws, including Brazilian Federal Law No. 12,846/2013 (known as the Clean Company Act or BCCA)
and the U.S. Foreign Corrupt Practices Act (known as the FCPA).
The BCCA imposes strict
liability on companies for certain acts against the public administration, including corrupt acts involving public officials, whether
foreign or local. Under the BCCA, companies may be held liable for such acts and face administrative and judicial sanctions, including
severe fines and disgorgement of profits. When imposing sanctions under the BCCA, Brazilian authorities may consider whether a
company has implemented an effective compliance program.
Notwithstanding the
BCCA and related Brazilian enforcement efforts, Brazil still has a perceived elevated risk of corruption. To a certain degree,
that may leave us exposed to potential violations of the BCCA, FCPA or other applicable anti-corruption laws and regulations. For
example, a number of high-profile corporate corruption allegations have surfaced in Brazil, especially since the beginning of 2014.
See “—D. Risk Factors—Risks Relating to Brazil and Other Countries in Which We Operate—Economic and political
uncertainty and volatility in Brazil, and the perception of these conditions in the international financial markets, may adversely
affect our business.”
Additionally, in
the ordinary course of business, we regularly contract and deal with business partners and consulting firms. Some of these third
parties have been managed or controlled by former government officials. Because Brazilian authorities are conducting ongoing investigations
that target certain firms and business partners that we previously engaged, we have been cited as clients in connection with such
investigations.
In the third quarter
of 2019, there were news reports regarding alleged leaks of statements about the Company by a former consultant, Mr. Antonio Palocci,
in a legal procedure to which we subsequently had access. In this regard, we have not identified evidence supporting Mr. Palocci’s
claims of illegal conduct by Ambev and remain committed to monitoring this matter.
We have implemented
an anti-corruption compliance program designed to detect, prevent and remediate potential violations of applicable anti-corruption
laws. Nevertheless, there remains some risk that improper conduct could occur, thereby exposing us to potential
liability and the costs associated with investigating and remediating such potential misconduct. Our existing internal controls
and compliance procedures may not be sufficient to prevent or detect all inappropriate conduct, fraud or violations of applicable
law by our employees, agents, and other business partners.
If we are not in
compliance with anti-corruption and other similar laws, including the BCCA and FCPA, we may be subject to administrative, civil
and criminal penalties. This could harm our brand and reputation and have a material adverse impact on our business, financial
condition, results of operations and prospects. Adverse press coverage also may result from having our name or brands associated
with any misconduct and, even if unwarranted or baseless, could damage our reputation, brands and sales. Therefore, if we become
involved in any investigations or other proceedings under the FCPA, BCCA or other applicable anti-corruption laws, our business
could be adversely affected.
We are
subject to Brazilian and other antitrust regulations.
As any company operating
in Brazil, we are subject to the Brazilian antitrust law and regulation, which sets forth the conducts that should be considered
a violation to the economic order and the penalties applied. We have a substantial share of the beer market in Brazil and thus
we are subject to scrutiny and enforcement by Brazilian antitrust authorities (mainly the Administrative Council for Economic Defense
– CADE). We are committed to conducting business in a legal manner, having implemented what we understand to be a sound competition
compliance program to prevent anticompetitive practices. Nevertheless, from time to time, we are and may become involved in litigation,
investigations and other legal or administrative proceedings relating to antitrust claims arising from allegations of violations
of laws, regulations or acts, either from competitors, clients and other third parties or initiated by CADE. Therefore, we cannot
assure you that Brazilian antitrust regulation will not affect our business in the future.
We also have substantial
share of the beer market in other countries, such as Argentina, Bolivia and the Dominican Republic, in which our operations are
subject to scrutiny by local antitrust authorities. We cannot assure you that local antitrust regulations will not affect our business
in such other countries in the future.
We are
exposed to the risk of litigation.
We are now and may
in the future be party to legal proceedings and claims (including labor, tax and alcohol-related claims) and significant damages
may be asserted against us. See “Item 8. Financial Information—A. Consolidated Financial Statements and Other Financial
Information—Legal Proceedings” and Notes 26 and 30 to our audited consolidated financial statements as of and for December
31, 2020, included elsewhere in this annual report, for a description of our material litigation contingencies. Given the inherent
uncertainty of litigation, it is possible that we might incur liabilities as a consequence of the proceedings and claims brought
against us, including those that are not currently believed by us to present a reasonably possible chance of loss to us. Our management
may also be exposed to sanctions due to legal proceedings against its members involving our operations.
Our tax contingency
has grown in recent years mainly because (1) their principal amount is adjusted on a monthly basis in accordance with the SELIC
rate and (2) because of the highly litigious environment in Brazil in connection with tax disputes. Such environment is caused,
among other reasons, by the highly complex tax legislation in Brazil, which in many instances reduces certainty of interpretation,
as well as impossibility of out of court settlements between the Brazilian IRS and taxpayers. As the administrative phase of our
tax proceedings ends and the judicial proceedings begin, the Company will be required to guarantee the amounts under discussion,
through insurance bonds, bank guarantees or bank deposits. We will continue to vigorously defend our position in connection with
such disputes and we may take, as we have done in the past, the benefit of tax amnesty programs that from time to time are issued
by the Federal or State Governments.
Moreover, companies
in the alcoholic beverage and soft drink industries are, from time to time, exposed to collective suits (class actions) or other
litigation relating to alcohol advertising, alcohol abuse problems or health consequences from the excessive consumption of beer,
other alcoholic beverages and soft drinks. As an illustration, certain beer and other alcoholic beverage producers from Brazil
have been involved in class actions and other litigation seeking damages. If any of these types of litigation were to result in
fines, damages or reputational damage to us or our brands, this could have a
material adverse effect on our business, results of operations, cash flows or financial position.
We rely
on key third parties, including key suppliers, and the termination or modification of the arrangements with such third parties
could negatively affect our business.
We rely on third-party
suppliers for a range of raw materials for our beer and non-beer products, and for packaging material, including aluminum cans,
glass, kegs and PET bottles. We seek to limit our exposure to market fluctuations in the supply of these raw materials by entering
into medium- and long-term fixed-price arrangements. We have a limited number
of suppliers of aluminum cans, glass and PET bottles. Consolidation of the aluminum can industry, glass and PET bottle industry
in certain markets in which we operate has reduced local supply alternatives and increased the risk of disruption to aluminum can,
glass and PET bottle supplies. Although we generally have other suppliers of raw materials and packaging materials, the termination
of or material change to arrangements with certain key suppliers, disagreements with those suppliers as to payment or other terms,
or the failure of a key supplier to meet our contractual obligations or otherwise deliver materials consistent with current usage
would or may require us to make purchases from alternative suppliers, in each case at potentially higher prices than those agreed
with this supplier. Additionally, we may be subject to potential reputational damage if one of our suppliers violates applicable
laws or regulations. These factors could have a material adverse effect on our business, results of operations, cash flows or financial
condition.
We have also entered
into contracts with third parties to provide transportation and logistics services in connection with part of our products. The
early termination of these contracts or our inability to renew them or negotiate new contracts with other service providers with
similar conditions could adversely affect our financial and operating condition. In addition, the majority of our suppliers of
transportation operate under concessions granted by the Brazilian government and the loss or non-renewal of such concessions may
also adversely affect our results of operations and financial condition.
Additionally, we have
licenses to bottle and/or distribute brands held by companies over which we do not have control. See “Item 4. Information
on the Company—B. Business Overview—Licenses.” If we are unable to maintain such arrangements on favorable terms,
this could have a material adverse effect on our business, results of operations, cash flows or financial condition.
Demand
for our products may be adversely affected by changes in consumer preferences and tastes.
We depend on our ability
to satisfy consumer preferences and tastes. Consumer preferences and tastes can change in unpredictable ways due to a variety of
factors, such as changes in demographics, consumer health concerns regarding obesity, product attributes and ingredients, changes
in travel, vacation or leisure activity patterns, weather, negative publicity resulting from regulatory action or litigation against
us or comparable companies or a downturn in economic conditions. Consumers also may begin to prefer the products of competitors
or may generally reduce their demand for products of our business segment. Failure by us to anticipate or respond adequately to
changes in consumer preferences and tastes could adversely impact our business, results of operations and financial condition.
Negative publicity
focusing on our products or on the way we conduct our operations may harm our business.
Media coverage and
publicity generally can exert significant influence on consumer behavior and actions. If the social acceptability of beer, other
alcoholic beverages or soft drinks were to decline significantly, sales of our products could materially decrease. In recent years,
there has been increased public and political attention directed at the alcoholic beverage and soft drink industries. This attention
is a result of public concern over alcohol-related problems, including drunk driving, underage drinking, drinking while pregnant
and health consequences resulting from the misuse of beer (for example, alcoholism), as well as soft-drink related problems, including
health consequences resulting from the excessive consumption of soft drinks (for example, obesity). Factors such as negative publicity
regarding the consumption of beer, other alcoholic beverages or soft drinks, publication of studies indicating a significant health
risk from consumption of those beverages, or changes in consumer perceptions affecting them could adversely affect the sale and
consumption of our products and harm our business, results of operations, cash flows or financial condition to the extent consumers
and customers change their purchasing patterns.
Key brand names are
used by us, our subsidiaries, associates and joint ventures, and licensed to third-party brewers. To the extent that we or one
of our subsidiaries, associates, joint ventures or licensees are subject to negative publicity, and the negative publicity causes
consumers and customers to change their purchasing patterns, it could have a material adverse effect on our business, results of
operations, cash flows or financial condition. As we continue to expand our operations into emerging and growth markets, there
is a greater risk that we may be subject to negative publicity, in particular in relation to environmental impacts, labor rights
and local work conditions. Negative publicity that materially damages the reputation of one or more of our brands could have an
adverse effect on the value of that brand and subsequent revenues from that brand or business, which could adversely impact our
business, results of operations, cash flows and financial condition.
We rely
on the reputation of our brands and damages to their reputation may have an adverse effect on our sales.
Our success depends
on our ability to maintain and enhance the image and reputation of our existing products and to develop a favorable image and reputation
for new products. The image and reputation of our products may be reduced in the future; concerns about product quality, even when
unfounded, could tarnish the image and reputation of our products. An event or series of events that materially damages the reputation
of one or more of our brands could have an adverse effect on the value of that brand and subsequent revenues from that brand or
business. Restoring the image and reputation of our products may be costly or not possible.
Moreover, our marketing
efforts are subject to restrictions on the permissible advertising style, media and messages used. In a number of countries, for
example, television is a prohibited channel for advertising beer and other alcoholic products, and in other countries, television
advertising, while permitted, is carefully regulated. Any additional restrictions in such countries, or the introduction of similar
restrictions in other countries, may constrain our brand building potential and thus reduce the value of our brands and related
revenues.
If any
of our products is defective or found to contain contaminants, we may be subject to product recalls, individual or collective litigation
and/or other liabilities.
We take precautions
to ensure that our beverage products and our associated packaging materials (such as bottles, crowns, cans and other containers)
meet accepted food safety and regulatory standards. Such precautions include quality control programs for primary materials, the
production process and our final products. We have established procedures to correct issues or concerns that are detected.
In the event that
any failure to comply with accepted food safety and regulatory standards (such as a contamination or a defect) does occur in the
future, it may lead to business interruptions, product recalls or liability, each of which could have an adverse effect on our
business, reputation, prospects, financial condition and results of operations.
Although we maintain
insurance policies against certain product liability (but not product recall) risks, we may not be able to enforce our rights in
respect of these policies, and, in the event that a contamination or defect occurs, any amounts that we recover may not be sufficient
to offset any damage we may suffer, which could adversely impact our business, results of operations and financial condition.
Seasonal
consumption cycles and adverse weather conditions may result in fluctuations in demand for our products.
Seasonal consumption
cycles and adverse weather conditions in the markets in which we operate may have an impact on our operations. This is particularly
true in the summer months, when unseasonably cool or wet weather can affect sales volumes.
Climate
change, or legal, regulatory or market measures to address climate change, may negatively affect our business or operations, and
water scarcity or poor quality could negatively impact our production costs and capacity.
There is a growing
concern that carbon dioxide and other greenhouse gases in the atmosphere may have an adverse impact on global temperatures, weather
patterns and the frequency and severity of extreme weather and natural disasters. In the event that such
climate change has a negative effect on agricultural productivity, we may be subject to decreased availability or less favorable
pricing for certain agricultural commodities that are necessary for our products, such as barley, hops, sugar and corn. In addition,
public expectations for reductions in greenhouse gas emissions could result in increased energy, transportation and raw material
costs and may require us to make additional investments in facilities and equipment due to increased regulatory pressures. As a
result, the effects of climate change could have a long-term, material adverse impact on our business and results of operations.
We also face water
scarcity and quality risks. The availability of clean water is a limited resource in many parts of the world, facing unprecedented
challenges from climate change and the resulting change in precipitation patterns and frequency of extreme weather, overexploitation,
increasing pollution, and poor water management. We have implemented an internal strategy in order to considerably reduce the use
of water in our operative plants. However, as demand for water continues to increase around the world, and as water becomes scarcer
and the quality of available water deteriorates, we may be affected by increasing production costs or capacity constraints, which
could adversely affect our business and results of operations.
We have announced
Sustainability Goals focused on smart agriculture, water stewardship, circular packaging, climate action, and entrepreneurship.
If we fail to achieve these goals for any reason, there is a risk of reputational damage.
Our
operations are subject to safety and environmental regulations, which could expose us to significant compliance costs and litigation
relating to environmental issues.
Our operations are
subject to a wide range of Brazilian federal, state and municipal safety and environmental laws and regulations related to licenses
or authorizations necessary to our business, as well as use of water resources and management of solid waste and take-back scheme
obligations.
Our activities require
the constant obtaining and renewal of environmental permits, on which the installation and operation of the production units depend.
Technical difficulties or failure to meet license renewal terms and the requirements of environmental agencies may have adverse
effects on our business, as we may be subject to the imposition of successive fines, interruption of activities or the shutdown
of units, as applicable (worse-case scenario). This may adversely affect our image, results of operations and financial condition.
As environmental laws and their application have become increasingly stringent, our expenditures to meet environmental requirements
may increase substantially in the future.
The failure to comply
with these laws and regulations may result in the revocation of licenses and suspension of our activities or in the payment of
environmental repair costs, which can be substantial, as well as civil, administrative and criminal liabilities.
While we have budgeted
for future capital and operating expenditures to maintain compliance with environmental laws and regulations, there can be no assurance
that we will not incur substantial environmental liability, or those applicable environmental laws and regulations will not change
or become more stringent in the future and consequently negatively affect our results of operations
We may
not be able to protect our intellectual property rights.
Our future success
depends significantly on our ability to protect our current and future brands and products and to defend our intellectual property
rights, including trademarks, patents, domain names, industrial design, trade secrets and know-how. We have been granted numerous
trademark registrations and patents covering our brands and products and have filed, and expect to continue to file, trademark
and patent applications before the relevant intellectual property authorities in the variety of markets we conduct our business,
always seeking to protect newly developed brands and products. We cannot be sure that trademark and patent registrations will be
issued with respect to any of our applications. Therefore, events such as the definitive rejection of our trademark applications
before the authorities, the unauthorized use or other misappropriation of our trademarks may diminish their value and reputation,
so that we may suffer negative impact on the operating results. There is also a risk that we could, by omission, fail to renew
a trademark, domain name, industrial design or patent on a timely basis or that our competitors will challenge, invalidate or circumvent
any existing or future trademarks and patents requested by, issued to, or licensed by, us. In case
of judicial questioning of any trademarks the judicial decision may negatively affect their use and may be prohibited from continuing
to exploit them.
Although we have put
in place appropriate actions to protect our portfolio of intellectual property rights (including patent applications, trademark
registration and domain names), we cannot be certain that the steps we have taken will be sufficient or that third parties will
not infringe upon or misappropriate proprietary rights. If we are unable to protect our proprietary rights against infringement
or misappropriation, it could have a material adverse effect on our business, results of operations, cash flows or financial condition,
and in particular, on our ability to develop our business. In addition, any dispute or litigation related to intellectual property
assets may be costly and time consuming due to the uncertainty of litigation on the matter.
Natural
and other disasters and accidents caused by human and technological errors could disrupt our operations.
The economy of countries
in which we operate, as well as our business activity and operating results, may be adversely impacted by natural (including floods,
fires), social, technical (technological or human errors) or physical risks such as large-scale epidemics and pandemics, including
the COVID-19 pandemic, and the occurrence of natural disasters, terrorist events and military and other actions may result in significant
widespread disruptions to commerce and the ability of businesses, including ours, to operate normally. The exemplified events and
others can affect our business in general or be specific to certain strategic locations, where our plants, distribution center
or logistic hubs may be located. Such disruptions may result in reduced economic activity and business sentiment, both in the Brazilian
market and internationally.
Our
insurance coverage may be insufficient to make us whole on any losses that we may sustain in the future.
The cost of some of
our insurance policies could increase in the future. In addition, some types of losses, such as losses resulting from wars, acts
of terrorism, or natural disasters, generally are not insured because they are either uninsurable or it is not economically practical
to obtain insurance. Moreover, insurers recently have become more reluctant to insure against these types of events. Should a material
uninsured loss or a loss in excess of insured limits occur, this could adversely impact our business, results of operations and
financial condition.
The
ability of our foreign subsidiaries to distribute cash upstream may be subject to various conditions and limitations.
Our foreign subsidiaries’
ability to distribute cash (to be used, among other things, to meet our financial obligations) through dividends, intercompany
advances, management fees and other payments is, to a large extent, dependent on the availability of cash flows at the level of
such foreign subsidiaries and may be restricted by applicable laws and accounting principles. In particular, 48.3% (R$28.2 billion)
of our total net revenues of R$58.4 billion in 2020 came from our foreign subsidiaries. In addition, some of our subsidiaries are
subject to laws restricting their ability to pay dividends or the amount of dividends they may pay.
If we are not able
to obtain sufficient cash flows from our foreign subsidiaries, this could negatively impact our business, results of operations
and financial condition because the insufficient availability of cash at our company level may constrain us from paying all of
our obligations.
Contractual
and legal restrictions to which Ambev and its subsidiaries are potentially or allegedly subject may be triggered upon the consummation
of certain transactions involving our indirect controlling shareholder, Anheuser-Busch InBev SA/NV, or ABI, resulting in adverse
limitations to our operations.
Ambev and its subsidiaries
are a party to certain joint venture, distribution and other agreements, guarantees and instruments that may contain restrictive
provisions that our contractual counterparties may try to interpret as being triggered upon the consummation of certain unrelated
transactions of ABI. Some of those contracts may be material and, to the extent they may contain any such restrictive provisions,
our counterparties may seek to enforce certain contractual remedies that may curtail material contractual rights and benefits that
we have thereunder under the argument that ABI’s consummation of certain transactions has triggered the referred provisions.
Similarly, unrelated transactions consummated by ABI may subject us to further antitrust restrictions in the countries in which we already operate.
Any such restrictions may limit the amount and quality of business we conduct in each of those countries.
We operate
a joint venture in Cuba, in which the Government of Cuba is our joint venture partner. Cuba is still targeted by broad and comprehensive
economic and trade sanctions of the United States. Our operations in Cuba may adversely affect our reputation and the liquidity
and value of our securities.
Ambev currently owns
a controlling interest of 50% in Cerveceria Bucanero S.A., or Bucanero, a Cuban company in the business of producing and selling
beer. The other 50% equity interest in Bucanero is owned by the Government of Cuba. We have the right to appoint the general manager
of Bucanero. Bucanero’s main brands are Bucanero and Cristal, but it also imports and sells in Cuba other brands
produced by certain of our other subsidiaries. In 2020, Bucanero sold 0.9 million hectoliters of beer, representing about 0.5%
of our total volume of 165.8 million hectoliters for the year. Although Bucanero’s production is primarily sold in Cuba,
a small portion of its production is exported to and sold by certain distributors in other countries outside Cuba (but not the
United States).
Based on U.S. foreign
policy, the U.S. Treasury Department’s Office of Foreign Assets Control and the U.S. Commerce Department together administer
and enforce broad and comprehensive economic and trade sanctions against Cuba. These sanctions were strengthened by the Trump Administration,
including through a National Security Presidential Memorandum, issued on June 16, 2017, that, among other things, introduced prohibitions
on certain financial transactions with certain entities and sub-entities identified by the U.S. Department of State. Although our
operations in Cuba are quantitatively immaterial, our overall business reputation may suffer, or we may face additional regulatory
scrutiny as a result of our activities in Cuba based on the fact that Cuba remains a target of U.S. economic and trade sanctions.
In addition, there
have in the past been initiatives by federal and state lawmakers in the United States, and certain U.S. institutional investors,
including pension funds, to adopt laws, regulations or policies requiring the divestment from, or reporting of interests in, companies
that do business with countries designated as state sponsors of terrorism. On January 11th, 2021, the United States
government designated Cuba as a state sponsor of terrorism, a list from which Cuba had previously been removed in 2015. If U.S.
investors decide to liquidate or otherwise divest their investments in companies that have operations of any magnitude in Cuba,
the market in and value of our securities could be adversely impacted.
Also, Title III of
the Cuban Liberty and Democratic Solidarity (LIBERTAD) Act of 1996 (known as the “Helms-Burton Act”) authorizes private
lawsuits for damages against anyone who traffics in property confiscated without compensation by the Government of Cuba from persons
who at the time were, or have since become, nationals of the United States. The Helms-Burton Act also includes a section that authorizes
the U.S. Department of State to prohibit entry into the United States of non-U.S. persons who traffic in confiscated property,
and corporate officers and principals of such persons, and their families. Although Title III of the Helms-Burton Act has been
suspended by discretionary presidential action since its inception in 1996 (and no action has been taken under this provision since
its inception), on May 2, 2019, the former Trump Administration activated Title III of the Helms-Burton Act, thereby allowing nationals
of the United States that hold claims under the Helms-Burton Act to file suit in U.S. federal court against all persons trafficking
in property confiscated by the Cuban government. As a result of the activation of Title III of the Helms-Burton Act, we may be
subject to potential U.S. litigation exposure, including claims accrued during the prior suspension of Title III of the Helms-Burton
Act. Given the unprecedented activation of Title III of the Helms-Burton Act, there is substantial uncertainty as to how the statute
will be interpreted by U.S. Courts. In 2009, ABI received notice of a claim purporting to be made under the Helms-Burton Act relating
to the use of a trademark by Bucanero, which is alleged to have been confiscated by the Cuban government and trafficked by ABI
through their former ownership and management of Bucanero. It remains uncertain how the activation of Title III of the Helms-Burton
Act will impact our U.S. litigation exposure with respect to the notice of claim.
We may not be able
to recruit or retain key personnel.
In order to develop,
support and market our products, we must hire and retain skilled employees with particular expertise. The implementation of our
strategic business plans could be undermined by a failure to recruit or retain key personnel or the unexpected loss of senior employees,
including in acquired companies. We face various challenges inherent in the management
of a large number of employees over diverse geographical regions. Key employees may choose to leave their employment for a variety
of reasons, including reasons beyond our control. The impact of the departure of key employees cannot be determined and may depend
on, among other things, our ability to recruit other individuals of similar experience and skill at an equivalent cost. It is not
certain that we will be able to attract or retain key employees and successfully manage them, which could disrupt our business
and have an unfavorable material effect on our financial position, income from operations and competitive position.
Risks
Relating to Our Common Shares and ADSs
The
relative volatility and illiquidity of securities of Brazilian companies may substantially limit your ability to sell our common
shares and ADSs at the price and time you desire.
Investing in securities
of companies in emerging markets, such as Brazil, involves greater risk than investing in securities of companies from more developed
countries, and those investments are generally considered speculative in nature. Brazilian investments, such as investments in
our common shares and ADSs, are subject to economic and political risks, involving, among other factors:
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changes in the Brazilian regulatory, tax, economic and political environment that may affect the
ability of investors to receive payment, in whole or in part, in respect of their investments; and
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restrictions on foreign investment and on repatriation of capital invested.
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The Brazilian securities
markets are substantially smaller, less liquid and more concentrated and volatile than major U.S. and European securities markets.
They are also not as highly regulated or supervised as those other markets. The relative illiquidity and smaller market capitalization
of Brazilian securities markets may substantially limit your ability to sell the Ambev common shares and ADSs at the price and
time you desire.
Deterioration
in economic and market conditions in Brazil and other emerging market countries, as well as in developed economies (including as
a result of the COVID-19 virus pandemic), may adversely affect the market price of our common shares and ADSs.
Economic and market
conditions in Brazil and other emerging market countries, especially those in Latin America, influence the market for securities
issued by Brazilian companies as well as investors’ perception of economic conditions in Brazil. Crises in emerging markets,
such as in Southeast Asia, Russia and Argentina, historically caused volatility in the Brazilian stock market and other emerging
countries. In addition, global financial crisis originating in developed economies, including the subprime debt crisis in the United
States and the sovereign debt crisis in Europe, have had an impact on many economies and capital markets around the world, including
Brazil, which may adversely affect investors’ interest in the securities of Brazilian issuers such as Ambev.
Also, more recently,
the COVID-19 virus pandemic has resulted in significant financial market volatility and uncertainty around the globe. Therefore,
the market value of our common shares and ADSs may be adversely affected by events occurring inside and outside of Brazil. Additionally,
monetary policy changes and/or implementation of protectionist policies in the United States and other relevant countries for the
international economy may impact, directly or indirectly, the economy in the countries where we operate, generating several risks,
especially exchange rate, interest rate and increase in the price of commodities, and, consequently, affecting our results.
Future
equity issuances may dilute the holdings of current holders of Ambev common shares or ADSs and could materially affect the market
price for those securities.
We may in the future
decide to offer additional equity to raise capital or for other purposes. Any such future equity offering could reduce the proportionate
ownership and voting interests of holders of our common shares and ADSs, as well as our earnings and net equity value per common
share or ADS. Any offering of shares and ADSs by us or our main shareholders, or a perception that any such offering is imminent,
could have an adverse effect on the market price of these securities.
Brazilian
foreign exchange controls and regulations could restrict conversions and remittances abroad of the dividend payments and other
shareholder distributions paid in Brazil in reais arising from Ambev's common shares (including shares underlying the Ambev ADSs).
Brazilian law provides
that whenever there is a serious imbalance in Brazil’s balance of payments or reasons to foresee such a serious imbalance,
the Brazilian government may impose temporary restrictions on the remittance to foreign investors of the proceeds of their investments
in Brazil. Such restrictions may hinder or prevent the Custodian or holders who have exchanged ADSs for Ambev’s underlying
shares from converting distributions or the proceeds from any sale of such shares into U.S. dollars and remitting such U.S. dollars
abroad. In the event the Custodian is prevented from converting and remitting amounts owed to foreign investors, the Custodian
will hold the reais it cannot convert for the account of the holders of ADSs who have not been paid. The Depositary will not invest
the reais and will not be liable for interest on those amounts. Any reais so held will be subject to devaluation risk against the
U.S. dollar.
In addition, the likelihood
that the Brazilian government would impose such restrictions may be affected by the extent of Brazil’s foreign currency reserves,
the availability of foreign currency in the foreign exchange markets on the date a payment is due and the size of Brazil’s
debt service burden relative to the economy as a whole. We cannot assure you that the Brazilian Central Bank will not modify its
policies or that the Brazilian government will not institute restrictions or delays on cross-border remittances in respect of securities
issued in foreign capital markets. For further information on this matter, see “—A. Selected Financial Data—Exchange
Controls.”
The surrender of
ADSs may cause the loss of the ability to remit foreign currency abroad and of certain Brazilian tax advantages
While ADSs holders
benefit from the electronic certificate of foreign capital registration obtained in Brazil by the Custodian, which permits the
Depositary to convert dividends and other distributions with respect to the shares underlying the ADSs into foreign currency and
remit the proceeds abroad, the availability and requirements of such electronic certificate may be adversely affected by future
changes to the applicable regulation.
If an ADS holder surrenders
the ADSs and, consequently, receives shares underlying the ADSs, such holder will have to register its investment in Ambev’s
shares with the Brazilian Central Bank either as (i) a foreign direct investment, subject to Law 4,131, which will require an electronic
certificate of foreign capital registration, the Electronic Declaratory Registration of Foreign Direct Investment (RDE-IED), or
(ii) as a foreign investment in portfolio, subject to CMN Resolution 4,373, which among other requirements, requires the appointment
of a financial institution in Brazil as the custodian of the preferred shares and legal representative of the foreign investor
in the Electronic Declaratory Registration of Portfolio (RDE – Portfolio).
The failure to register
the investment in the Ambev’s shares as foreign investment as described above (e.g., RDE – IED or RDE – Portfolio)
will impact the ability of the holder to dispose of Ambev’s shares and to receive dividends. Moreover, upon receipt of Ambev’s
shares underlying the ADSs, Brazilian regulations require the investor to enter into corresponding exchange rate transactions and
pay taxes on these exchange rate transactions, as applicable.
In addition, if a
holder of Ambev’s shares attempts to obtain an electronic certificate of foreign capital registration, such holder may incur
expenses or suffer delays in the application process, which could impact the investor’s ability to receive dividends or distributions
relating to Ambev’s shares or the return of capital on a timely manner.
Certain
shareholder entitlements may not be available in the U.S. to holders of Ambev ADSs.
Due to certain United
States laws and regulations, U.S. holders of Ambev ADSs may not be entitled to all of the rights possessed by holders of Ambev
common shares. For instance, U.S. holders of Ambev ADSs may not be able to exercise preemptive, subscription or other rights in
respect of the Ambev common shares underlying their Ambev ADSs, unless a registration statement under the Securities Act is effective
with respect to those rights or an exemption from the registration requirements thereunder is available.
Holders
of Ambev ADSs may be unable to fully exercise voting rights with respect to the Ambev shares underlying their ADSs.
Under Brazilian law,
only shareholders registered as such in the corporate books of Brazilian companies may attend shareholders’ meetings. Because
all the Ambev common shares underlying the Ambev ADSs are registered in the name of the Depositary (and not the ADS holder), only
the Depositary (and not the ADS holder) is entitled to attend Ambev’s shareholders’ meetings. A holder of Ambev ADSs
is entitled to instruct the Depositary as to how to vote the respective Ambev common shares underlying their ADSs only pursuant
to the procedures set forth in the deposit agreement for Ambev’s ADS program. Accordingly, holders of Ambev ADSs will not
be allowed to vote the corresponding Ambev common shares underlying their ADSs directly at an Ambev shareholders’ meeting
(or to appoint a proxy other than the Depositary to do so), unless they surrender their Ambev ADSs for cancellation in exchange
for the respective Ambev shares underlying their ADSs. We cannot ensure that such ADS cancellation and exchange process will be
completed in time to allow Ambev ADS holders to attend a shareholders’ meeting of Ambev.
Further, the Depositary
has no obligation to notify Ambev ADS holders of an upcoming vote or to distribute voting cards and related materials to those
holders, unless Ambev specifically instructs the Depositary to do so. If Ambev provides such instruction to the Depositary, it
will then notify Ambev’s ADS holders of the upcoming vote and arrange for the delivery of voting cards to those holders.
We cannot ensure that Ambev’s ADS holders will receive proxy cards in time to allow them to instruct the Depositary as to
how to vote the Ambev common shares underlying their Ambev ADSs. In addition, the Depositary and its agents are not responsible
for a failure to carry out voting instructions or for an untimely solicitation of those instructions.
As a result of the
factors discussed above, holders of Ambev ADSs may be unable to fully exercise their voting rights.
Our
status as a foreign private issuer allows us to follow Brazilian corporate governance practices and exempts us from a number of
rules under the U.S. securities laws and listing standards, which may limit the amount of public disclosures available to investors
and the shareholder protections afforded to them.
We are a foreign private
issuer, as defined by the Securities and Exchange Commission, or the SEC, for purposes of the Exchange Act. As a result, we are
exempt from many of the corporate governance requirements of stock exchanges located in the United States, as well as from rules
under the Exchange Act that impose certain disclosure obligations and procedural requirements for proxy solicitations under Section
14 of the Exchange Act. For example, our officers, directors and principal shareholders are exempt from the reporting and “short-swing”
profit recovery provisions under Section 16 of the Exchange Act. Moreover, we are not required to file periodic reports and financial
statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act.
Accordingly, there may be less publicly available information concerning us than there is for U.S. public companies.
In addition, for so
long as we remain as a foreign private issuer, we will be exempt from most of the corporate governance requirements of stock exchanges
located in the United States. Accordingly, you will not be provided with some of the benefits or have the same protections afforded
to shareholders of U.S. public companies. The corporate governance standards applicable to us are considerably different than the
standards applied to U.S. domestic issuers. For example, although Rule 10A-3 under the Exchange Act generally requires that a company
listed in the United States have an audit committee of its board of directors composed solely of independent directors, as a foreign
private issuer we are relying on an exemption from this requirement under Rule 10A-3(c)(3) of the Sarbanes-Oxley Act of 2002 that
is available to us as a result of features of the Brazilian Corporation Law applicable to our Fiscal Council. In addition, we are
not required under the Brazilian Corporation Law to, among other things:
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have a majority of our Board of Directors be independent (though our bylaws provide that two of
our directors must be independent and, in certain circumstances pursuant to the Brazilian Corporation Law, our minority shareholders
may be able to elect members to our Board of Directors);
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have a compensation committee, a nominating committee, or corporate governance committee of the
Board of Directors (though we currently have a non-permanent Operations, Finance and Compensation Committee that is responsible
for evaluating our compensation policies applicable to management);
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have regularly scheduled executive sessions with only non-management directors (though none of
our current directors hold management positions in us); or
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have at least one executive session of solely independent directors each year.
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For further information
on the main differences in corporate governance standards in the United States and Brazil, see “Item 6. Directors, Senior
Management and Employees—C. Board Practices—Differences Between United States and Brazilian Corporate Governance Practices.”
As a
Brazilian company, Ambev is subject to different corporate laws and regulations than those typically applicable to U.S.-listed
companies, which may result in Ambev’s shareholders having fewer or less well-defined shareholder rights than the shareholder
rights of those companies.
Ambev’s corporate
affairs are governed by its bylaws and the Brazilian Corporation Law, which may differ from the legal principles that would apply
to Ambev if the company were incorporated in a jurisdiction in the United States, such as Delaware or New York, or in other jurisdictions
outside of Brazil. In addition, shareholder rights under the Brazilian Corporation Law to protect them from actions taken by the
board of directors or controlling shareholders may be fewer and less well-defined than under the laws of jurisdictions outside
of Brazil.
Although insider trading
and price manipulation are restricted under applicable Brazilian capital markets regulations and treated as crimes under Brazilian
law, the Brazilian securities markets may not be as highly regulated and supervised as the securities markets of the United States
or other jurisdictions outside Brazil. In addition, rules and policies against self-dealing and for the preservation of shareholder
interests may be less well-defined and enforced in Brazil than in the United States or other jurisdictions outside Brazil, potentially
causing disadvantages to a holder of Ambev ADSs as compared to a holder of shares in a U.S. public company. Further, corporate
disclosures may be less complete or informative than required of public companies in the United States or other jurisdictions outside
Brazil.
Our
current controlling shareholders will be able to determine the outcome of our most significant corporate actions.
Our two direct controlling
shareholders, Interbrew International B.V., or IIBV, and AmBrew S.A., or AmBrew, both of which are subsidiaries of ABI, together
with Fundação Antonio e Helena Zerrenner Instituição Nacional de Beneficência, or FAHZ,
held in aggregate 72.1% of our total and voting capital stock (excluding treasury shares) as of December 31, 2020.
ABI indirectly held
shares in us representing 61.8% of our total and voting capital stock (excluding treasury shares) as of December 31, 2020. ABI
thus has control over us, even though (1) ABI is subject to the Ambev shareholders’ agreement among IIBV, AmBrew and FAHZ
dated April 16, 2013 and effective as of July 2, 2019, or the Shareholders’ Agreement, and (2) ABI is controlled by Stichting
Anheuser-Busch InBev, or Stichting, a foundation organized under the laws of the Netherlands, which represents an important part
of interests of the founding Belgian families of Interbrew N.V./S.A. (as ABI was then called) (mainly represented by Eugénie
Patri Sébastien S.A.) and the interests of the Brazilian families which were previously our controlling shareholders (represented
by BRC S.à.R.L.), or the Interbrew Founding Families. For further information on these matters see “Item 4. Information
on the Company—A. History and Development of the Company—The InBev-Ambev Transactions” and “Item 7. Major
Shareholders and Related Party Transactions—A. Major Shareholders—Ambev’s Major Shareholders—The Shareholders’
Agreement.”
Our controlling
shareholders are able to elect the majority of the members of our Board of Directors and Fiscal Council, and generally
determine the outcome of most other actions requiring shareholder approval, including dividend distributions, the
consummation of corporate restructurings, issuances of new shares, sales of materials assets and bylaw amendments. Under
Brazilian Law No. 6,404/76, as amended, or the Brazilian Corporation Law, the protections afforded to non-controlling
security holders may differ from, or be less comprehensive than, the corresponding protections and fiduciary
duties of directors applicable in the U.S. or other jurisdictions. See “—As a Brazilian company, Ambev is subject to
different corporate laws and regulations than those typically applicable to U.S.-listed companies, which may result in Ambev’s
shareholders having fewer or less well-defined shareholder rights than the shareholder rights of those companies.”
Our
shareholders may not receive any dividends.
According to our bylaws,
we generally pay our shareholders 40% of our annual adjusted net income, calculated and adjusted pursuant to Brazilian Corporation
Law in accordance with the mechanisms described in our bylaws as presented in our consolidated financial statements prepared under
IFRS. The main sources for these dividends are cash flows from our operations and dividends from our operating subsidiaries. Therefore,
that net income may not be available to be paid out to our shareholders in a given year. In addition, we might not pay dividends
to our shareholders.
In any particular
fiscal year based on the opinion of the Board of Directors that any such distribution would be inadvisable in view of our financial
condition. While the law does not establish the circumstances rendering the payment of dividends inadvisable, it is generally agreed
that a company need not pay dividends if such payment threatens its existence as a going concern or harms its normal course of
operations, including deterioration of its financial condition resulting from the COVID-19 pandemic.
Any dividends not
distributed would be allocated to a special reserve account for future payment to shareholders, unless it is used to offset subsequent
losses or as otherwise provided for in our bylaws. It is possible, therefore, that our shareholders will not receive dividends
in any particular fiscal year.
Foreign
holders of our ADSs may face difficulties in serving process on or enforcing judgments against us and other persons.
We are organized under
the laws of Brazil and most of our directors and executive officers, as well as our independent registered public accounting firm,
reside or are based in Brazil. In addition, substantially all of our assets and those of these other persons are located in Brazil.
As a result, it may not be possible for foreign holders of our ADSs to expediently effect service of process upon us or those persons
within the United States or other jurisdictions outside Brazil or to efficiently enforce against us or them judgments obtained
in the United States or other jurisdictions outside Brazil. Because judgments of U.S. courts for civil liabilities based upon the
U.S. federal securities laws may only be enforced in Brazil if certain formal and procedural conditions are met (including non-violation
of Brazilian national sovereignty, public policy and “good morals”), holders of our ADSs may face greater difficulties
in protecting their interests in the context of legal, corporate or other disputes between them and us, our directors and/or our
executive officers than would shareholders of a U.S. corporation. In addition, a plaintiff (whether or not Brazilian) residing
outside Brazil during the course of litigation in Brazil must provide a bond to guarantee court costs and legal fees if the plaintiff
owns no real property in Brazil that could secure such payment. The bond must have a value sufficient to satisfy the payment of
court fees and defendant’s attorney fees, as determined by a Brazilian judge. This requirement does not apply to (1) the
enforcement of debt instruments or awards, including foreign judgments that have been duly recognized by the Brazilian Superior
Court of Justice (Superior Tribunal de Justiça); (2) counterclaims; and (3) circumstances where the plaintiff or
other intervening parties (regardless of citizenship) resides in a country that is a party to a treaty in force in Brazil that
establishes that no security, bond or deposit of any kind is required by reason only of their foreign nationality (e.g., the Hague
Convention on International Access to Justice). Furthermore, Brazil does not have a treaty with the United States to facilitate
or expedite the enforcement in Brazil of decisions issued by a state court in the United States, which shall necessarily be previously
recognized by the Brazilian Superior Court of Justice in order to produce effects in Brazil. As to arbitral awards issued in the
United States, it is important to note that Brazil has ratified the New York Convention on the Recognition and Enforcement of Foreign
Arbitral Awards (Decree No. 4311/2002), and arbitral awards rendered outside of the Brazilian territory are enforceable if the
requirements provided by such treaty are fulfilled, and the arbitral award is previously recognized by the Brazilian Superior Court
of Justice.
Judgments
of Brazilian courts with respect to our shares will be payable only in reais.
If proceedings are
brought in the courts of Brazil seeking to enforce our obligations in respect of our common shares, we will not be required to
discharge any such obligations in a currency other than reais. Under Brazilian exchange control limitations, an obligation
in Brazil to pay amounts denominated in a currency other than reais may only be satisfied in Brazilian currency at the
exchange rate, as determined by the Central Bank, in effect on the date of the effective payment. The then prevailing exchange
rate may not afford non-Brazilian investors with full compensation for any claim arising out of, or related to, our obligations
under our common shares.
|
ITEM 4.
|
INFORMATION ON THE COMPANY
|
Ambev’s principal
executive offices are located at Rua Dr. Renato Paes de Barros, 1017, 3rd floor, 04530-001,
São Paulo, SP, Brazil, and its telephone number and email are: +55 (11) 2122-1414 and ri@ambev.com.br.
A. History
and Development of the Company
Overview
We are the successor
of Brahma and Antarctica, two of the oldest brewers in Brazil. Antarctica was founded in 1885. Brahma was founded in 1888 as Villiger
& Cia. The Brahma brand was registered on September 6, 1888, and in 1904 Villiger & Cia. changed its name to Companhia
Cervejaria Brahma. However, the legal entity that has become Ambev S.A., the current NYSE- and B3-listed company, was incorporated
on July 8, 2005 as a non-reporting Brazilian corporation under the Brazilian Corporation Law and is the successor of Old Ambev.
Until the stock swap merger of Old Ambev with Ambev S.A. approved in July 2013 (see “—Stock Swap Merger of Old Ambev
with Ambev S.A.”), Ambev S.A. did not conduct any operating activities and had served as a vehicle for ABI to hold a 0.5%
interest in Old Ambev’s capital stock.
In the mid-1990s,
Brahma started its international expansion into Latin America, and since then we have been buying assets in different parts of
the continent including the South America, Central America and the Caribbean.
In the late 1990s,
Brahma obtained the exclusive rights to produce, sell and distribute Pepsi CSD products throughout Brazil, and since then we have
been distributing these products throughout that country. In addition, certain of our subsidiaries have franchise agreements for
Pepsi products in Argentina, Bolivia, Uruguay and the Dominican Republic. See “Item 4. Information on the Company—B.
Business Overview—Licenses—Pepsi.”
In the early 2000s,
we acquired a 40.5% economic interest in Quinsa and the joint control of that entity, which we shared temporarily with Beverages
Associates (BAC) Corp., or BAC, the former sole controlling shareholder of Quinsa. This transaction provided us with a leading
presence in the beer markets of Argentina, Bolivia, Paraguay and Uruguay, and also set forth the terms for our future acquisition
of Quinsa’s full control from BAC. In April 2006, we increased our equity interest in Quinsa to 91% of its total share capital,
after which we started to fully consolidate Quinsa upon the closing of that transaction in August 2006.
In August 2004, we
and a Belgian brewer called Interbrew S.A./N.V. (as ABI was then called) completed a business combination that involved the merger
of an indirect holding company of Labatt one of the leading brewers in Canada, into us. At the same time, our controlling shareholders
completed the contribution of all shares of an indirect holding company which owned a controlling stake in us to Interbrew S.A./N.V.
in exchange for newly issued shares of Interbrew S.A./N.V. After this transaction, Interbrew S.A./N.V. changed its company name
to InBev S.A./N.V. (and, since 2008, to Anheuser-Busch InBev SA/NV) and became our majority shareholder through subsidiaries and
holding companies. (see “—The InBev-Ambev Transactions”).
The InBev-Ambev
Transactions
The “InBev-Ambev
transactions” consisted of two transactions negotiated simultaneously: (1) in the first transaction, BRC exchanged its Old
Ambev shares for shares in Interbrew N.V./S.A. (as ABI was then called); and (2) in the second transaction, Old Ambev issued new
shares to Interbrew N.V./S.A. in exchange for Interbrew’s 100% stake in Labatt.
Exchange
of Shares Between BRC and the Interbrew Founding Families
In March 2004, various
entities controlled by BRC entered into a contribution and subscription agreement with Interbrew N.V./S.A. (as ABI was then called)
and various entities representing the interests of the Interbrew Founding Families to exchange their controlling interest in Old
Ambev for newly issued voting shares of Interbrew N.V./S.A., which represented 24.7% of Interbrew N.V./S.A.’s voting shares.
Upon closing of this
transaction in August 2004, (1) BRC received approximately 44% of the voting interest in Stichting, which thereupon owned approximately
56% of Interbrew N.V./S.A.’s common shares, and (2) Interbrew N.V./S.A. received approximately a 53% voting interest and
a 22% economic interest in Old Ambev. Such voting interest was subject to our shareholders’ agreement at the time, as amended
in connection with the InBev-Ambev transactions. In addition, Interbrew N.V./S.A. changed its legal name to InBev N.V./S.A. (and,
since its acquisition of Anheuser-Busch, Inc. in the U.S. in 2008, to Anheuser Busch-InBev N.V./S.A.).
Acquisition
of Labatt
Pursuant to the Incorporação
agreement dated March 3, 2004, Labatt Brewing Canada Holding Ltd., or Mergeco, was merged into Old Ambev by means of an upstream
merger under the Brazilian Corporation Law, or the Incorporação. Mergeco held 99.9% of the capital stock of
Labatt Holding ApS, or Labatt ApS, a corporation organized under the laws of Denmark, and Labatt ApS owned all the capital stock
of Labatt. Upon completion of the Incorporação, Old Ambev held 99.9% of the capital stock of Labatt ApS, and,
indirectly, of Labatt. As consideration for the acquisition of Labatt, Old Ambev issued common and preferred shares to Interbrew
N.V./S.A. (as ABI was then called).
With the consummation
of this transaction in August 2004, (1) Labatt became a wholly-owned subsidiary of Old Ambev, and (2) Interbrew N.V./S.A. (as ABI
was then called) increased its stake in Old Ambev to approximately 68% of common shares and 34% of preferred shares.
Ownership
Structure of InBev N.V./S.A. and Old Ambev Upon Consummation of the InBev-Ambev Transactions
InBev N.V./S.A.
Upon closing the InBev-Ambev
transactions, 56% of InBev N.V./S.A.’s voting shares were owned by Stichting, 1% was jointly owned by Fonds Voorzitter Verhelst
SPRL and Fonds InBev-Baillet Latour SPRL, 17% were owned directly by entities and individuals associated with the Interbrew Founding
Families and the remaining 26% constituted the public float.
BRC became the holder
of 44% of Stichting’s voting interests, while the Interbrew Founding Families held the remaining 56% of Stichting’s
voting interests. In addition, BRC and entities representing the interests of the Interbrew Founding Families entered into a shareholders’
agreement, providing for, among other things, joint and equal influence over the exercise of the Stichting voting rights in InBev
N.V./S.A. (as ABI was then called).
Old Ambev
Upon closing of the
InBev-Ambev transactions, InBev N.V./S.A. (as ABI was then called) became the owner of approximately 68% of Old Ambev’s voting
shares, FAHZ retained approximately 16% of such shares, and the remaining shares were held by the public.
Mandatory
Tender Offer
Pursuant to the Brazilian
Corporation Law, InBev N.V./S.A. (as ABI was then called) was required to conduct, following the consummation of the InBev-Ambev
transactions, a mandatory tender offer, or the MTO, for all remaining outstanding common shares of Old Ambev. The MTO was completed
in March 2005, and InBev N.V./S.A. (as ABI was then called) increased its stake in Old Ambev to approximately an 81% voting interest
and a 56% economic interest in that company. FAHZ did not tender its Old Ambev shares in the MTO.
Stock
Swap Merger of Old Ambev with Ambev S.A.
On July 30, 2013,
the minority shareholders of Old Ambev approved a stock swap merger of Old Ambev with us, according to which each and every issued
and outstanding common and preferred share of Old Ambev not held by Ambev S.A. (including in the form of ADSs) was exchanged for
five newly issued common shares of Ambev S.A. (including in the form of ADSs). As a result of the stock swap merger, Old Ambev
became a wholly-owned subsidiary of Ambev S.A., which continued the same operations of Old Ambev. The ratio adopted for the stock
swap merger did not result in any ownership dilution in the equity interest held in us by our minority shareholders, including our former non-voting
preferred shareholders, who were granted a separate class vote on the transaction without the interference of our controlling shareholder.
The stock swap merger
combined our former dual-class capital structure, comprised of voting common shares and non-voting preferred shares, into a new,
single-class capital structure, comprised exclusively of voting common shares. The purpose of this transaction was to simplify
our corporate structure and improve our corporate governance, with a view to increasing liquidity for all shareholders, eliminating
certain administrative, financial and other costs and providing more flexibility for the management of our capital structure. As
a result of the stock swap merger, all shareholders of Old Ambev, including former holders of that company’s non-voting preferred
shares, gained access to the same rights and privileges enjoyed by Old Ambev’s common shareholders, including full voting
rights and the right to be included in a change-of-control tender offer under the Brazilian Corporation Law that ensures that holders
of common stock are offered 80% of the price per share paid to a selling controlling shareholder in a change-of-control transaction.
Upstream
Merger of Old Ambev with and into Ambev S.A.
In January 2014, and
as a subsequent step of the stock swap merger, an upstream merger of Old Ambev and one of its majority-owned subsidiaries with
and into Ambev S.A. was consummated. This upstream merger had no impact on the shareholdings that our shareholders held in us.
As a result of this upstream merger, our corporate structure was simplified.
Recent
Acquisitions, Divestments and Strategic Alliances
In September 2017,
we entered into an agreement with ABI, pursuant to which our subsidiary Cervecería y Maltería Quilmes S.A., or Quilmes,
agreed to transfer to a third-party, Compañia Cervecerías Unidas S.A. or its affiliates, or CCU, certain Argentinean
brands (Norte, Iguana and Baltica) and related business assets as well as payment of US$50 million. In exchange, ABI has agreed
to transfer to Quilmes the brewery of Cerveceria Argentina Sociedad Anonima Isenbeck, an Argentinean subsidiary of ABI. In addition,
at closing ABI licensed to Quilmes in perpetuity the right to produce and commercialize the Budweiser brand, among other ABI brands,
in Argentina upon ABI's recovery of the distribution rights to such brands from CCU. The transaction was subject to certain conditions
precedent and closed on May 2, 2018. Rothschild acted as our exclusive financial advisor.
In December 2017,
E. León Jimenes, S.A., or ELJ, the other shareholder together with us in Tenedora CND, S.A., or Tenedora – a holding
company incorporated in the Dominican Republic, owner of almost the totality of Cervecería Nacional Dominicana, S.A. –
partially exercised its put option in connection with shares representing 30% of Tenedora's capital stock, in accordance with Tenedora’s
shareholders’ agreement. The transaction was subject to certain conditions precedent and closed on January 18, 2018. As a
result of the partial exercise of such put option, at closing we paid to ELJ the amount of US$926.5 million and became the owner
of approximately 85% of Tenedora, with ELJ remaining with 15%. In addition, in light of the strategic importance of the alliance
with ELJ, our Board of Directors approved amending from 2019 to 2022 the term for the call option granted by ELJ to us to become
exercisable.
On July 2, 2020, the
Company and ELJ, as shareholders of Tenedora, signed the second amendment to Tenedora’s Shareholders Agreement (“Shareholders
Agreement”), extending their partnership in the country and postponing the terms of the put and call options defined in the
original 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 over the Tranche A shares
exercisable starting in 2021 and of the Tranche B shares to be exercised starting in 2029. The details of the assumptions used
for this option are described in Note 28 of the notes to the interim consolidated financial statements).
In June 2018, we concluded
the sale of all shares of our subsidiary, Barbados Bottling Co. Limited, a subsidiary that produces and distributes carbonated
soft drinks in Barbados, in the amount of US$53 million. We recorded a gain of approximately US$22 million as a result of this
transaction.
In December 2018,
our Canadian subsidiary Labatt entered into a joint venture named Fluent Beverages, or Fluent, with High Park Farms Ltd., a subsidiary
of Tilray, a global player in cannabis production and distribution. Each company intends to invest up to US$50 million in such
joint venture. Fluent’s main purpose is to research and commercialize non-alcoholic beverages containing cannabis extracts
within Canada only. In December 2019, Fluent launched its first non-alcoholic CBD-infused beverage within Canada only.
In January 2019, the new
terms of 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 CSDs in Brazil, including Pepsi-Cola, Gatorade, H2OH! and Lipton
Ice Tea, became effective after being approved by Brazilian antitrust authorities in December 2018. Such new terms were agreed
by the parties in an amendment dated October 2018 and reflect certain changes in the commercial arrangement between them. The agreement
with PepsiCo will be in force until December 31, 2027.
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 1st, 2020,
extending the agreement for more 10 years and reflecting certain changes in the commercial agreement between the parties.
In March 2019, our
Brazilian subsidiary Arosuco Aromas e Sucos Ltda., or Arosuco, acquired 100% of HBSIS Soluções em Tecnologia da Informação
Ltda., or HBSIS, a company that develops computer programs, systems and software, with an investment of R$50 million. Our
integration with HBSIS is assisting in the expansion and improvement of technology to all areas of our business with agility and
scale.
On November 7, 2019,
we entered into a long-term distribution agreement with Red Bull do Brasil Ltda., or 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 of the on-trade
channel in Brazil.
On January 22, 2020,
our subsidiary Labatt Breweries has acquired Goodridge & Williams distillery known for spirits and canned cocktails. The acquisition
includes the craft distiller’s ready-to-drink brands along with an innovative range of sugar-free, low calorie NÜTRL
products as we look to further expand our ready-to-drink offerings in the Canadian market.
On February 18, 2020,
our subsidiary Cervecería y Maltería Quilmes has acquired Dante Robino, an Argentine winery located in Mendoza, with
almost 100 years of history. The acquisition puts itself as an opportunity to complement the beer portfolio and learn about a new
segment that has grown consistently in Argentina over the years and has a significant market share in the country.
On August 16, 2020,
Cervecería Chile S.A., a Chilean subsidiary of the Company, entered into a long-term distribution agreement with Embotelladora
Andina S.A., Coca-Cola Embonor S.A. and Embotelladora Iquique S.A. (the “Distributors”), by which the Distributors
were granted the right to sell and distribute certain products within the Company’s portfolio, with exclusivity in specific
zones and sales channels in Chile.
B. Business
Overview
Description
of Our Operations
We are the largest
brewer in Latin America in terms of sales volumes and one of the largest beer producers in the world, according to our estimates.
We currently produce, distribute and sell beer, CSDs, other alcoholic beverages and non-alcoholic and non-carbonated products in
18 countries across the Americas.
Effective January 1, 2019,
we reorganized our regional reporting structure. We no longer report the Latin America North business segment (LAN) and, from now
on, we are reporting the Brazil, Central America and the Caribbean business segments separately. On December 31, 2020, we conducted
our operations through four business segments, as follows:
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·
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Brazil, which includes the beer sales division and the NAB sales division;
|
|
·
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Central America and the Caribbean, or CAC, which includes our direct operations in the Dominican
Republic, Saint Vincent, Antigua, Dominica, Cuba, Guatemala (which also serves El Salvador, Honduras and Nicaragua), Barbados and
Panama;
|
|
·
|
Latin America South, or LAS, which
includes our operations in Argentina, Bolivia, Paraguay, Uruguay and Chile; and
|
|
·
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Canada, represented by Labatt’s operations, which includes domestic sales in Canada
and some exports to the U.S. market.
|
The following map
illustrates our four business segments as of December 31, 2020:
An analysis of our
consolidated net sales by business segment for the periods indicated is presented in the table below:
|
Net Sales
(in R$ million)
Year Ended December 31,
|
|
2020
|
2019
|
2018
|
|
Sales
|
% of Total
|
Sales
|
% of Total
|
Sales
|
% of Total
|
Brazil
|
30,196.5
|
51.7%
|
28,129.9
|
54.1%
|
26,814.2
|
53.4%
|
Beer Brazil
|
25,953.0
|
44.5%
|
23,765.5
|
45.7%
|
23,008.5
|
45.8%
|
NAB
|
4,243.5
|
7.3%
|
4,364.4
|
8.4%
|
3,805.7
|
7.6%
|
CAC
|
7,319.3
|
12.5%
|
6,757.9
|
13.0%
|
5,813.9
|
11.6%
|
Latin America South
|
11,560.8
|
19.8%
|
10,028.7
|
19.3%
|
10,753.9
|
21.4%
|
Canada
|
9,302.4
|
15.9%
|
7,088.6
|
13.6%
|
6,849.3
|
13.6%
|
Total
|
58,379.0
|
100.0%
|
52,005.1
|
100.0%
|
50,231.3
|
100.0%
|
An analysis of our
sales volume by business segment for the periods indicated is presented in the table below:
|
Sales Volumes
(‘000 hl)
Year Ended December 31,
|
|
2020
|
2019
|
2018
|
|
Volume
|
% of Total
|
Volume
|
% of Total
|
Volume
|
% of Total
|
Brazil
|
111,285.4
|
67.1%
|
106,806.7
|
65.4%
|
101,642.9
|
64.0%
|
Beer Brazil
|
84,791.7
|
51.1%
|
80,263.7
|
49.2%
|
77,784.2
|
49.0%
|
NAB
|
26,493.7
|
16.0%
|
26,542.9
|
16.3%
|
23,858.8
|
15.0%
|
CAC
|
11,451.2
|
6.9%
|
13,859.5
|
8.5%
|
13,159.8
|
8.3%
|
Latin America South
|
33,062.4
|
19.9%
|
32,991.1
|
20.2%
|
33,971.2
|
21.4%
|
Canada
|
9,998.9
|
6.0%
|
9,585.7
|
5.9%
|
9,942.9
|
6.3%
|
Total
|
165,797.9
|
100.0%
|
163,243.0
|
100.0%
|
158,716.9
|
100.0%
|
Business
Strategy
We aim to continuously
create value for our stockholders. The main components of our business strategy are:
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·
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our people and culture;
|
|
·
|
our strategic growth platforms;
|
|
·
|
quality of our products;
|
|
·
|
permanent cost efficiency; and
|
Our
People and Culture
We believe highly
qualified, motivated and committed employees are critical to our long-term success. We carefully manage our hiring and training
process with a view to recruiting and retaining outstanding professionals. In addition, we believe that through our compensation
program, which is based both on variable pay and stock ownership, we have created financial incentives for high performance and
results. Another core element of our culture is our distinguished managerial capability, which is characterized by (1) a hardworking
ethos, (2) results-focused evaluations, (3) the encouragement
of our executives to act as owners and not only as managers, (4) leadership by personal example, and (5) appreciation of field
experience.
Strategic
Pillars
We focus our efforts
behind the following strategic pillars to support our sustainable long-term growth:
|
·
|
Ambev as an ecosystem: Despite the challenges brought by COVID-19, we believe that the pandemic
has helped us to reframe our purpose as a company and change our approach towards our ecosystem, with the development of what we
believe to be more sustainable relationships with our customers and communities in regions we operate. We constantly seek to prioritize
the health and safety of our employees together with actions that we believe can cause a positive impact on the regions we operate
and stakeholders generally. These actions are leveraged by our capabilities and resulted in the following actions:
|
|
o
|
In Brazil, we donated 30 million reais for two COVID-19 vaccine plant projects, took part in Movimento
NÓS, a coalition of eight consumer goods companies that will help approximately 300,000 POCs to reopen with a total
investment of R$370 million to support working capital, impacting indirectly more than three million people and established a partnership
with another start up Lemon Energia, aimed at providing cheaper clean energy to more than 50,000 small businesses by 2023.
|
|
o
|
In CAC, with Colmados Seguros in the Dominican Republic and Paisano Seguro in Panama, we have helped
POCs to secure space for consumers during reopening and helped creating new safe social spaces.
|
|
o
|
In LAS, Quilmes, our subsidiary in Argentina, was recognized by both the public and opinion leaders
as the company that is making the greatest efforts to face solidarity actions in the areas where our production is located.
|
|
o
|
In Canada, we worked to support our communities and customers through our Stella Artois Rally for
Restaurants campaign, aimed at providing financial relief to bars and restaurants.
|
As a recognition to the role we have
played since the outbreak of COVID-19, Ambev has received the Solidarity Award from the United Nations that recognizes impactful
work.
|
·
|
Innovation and Business Transformation: We consider innovation as one of our most important
pillars for our commercial strategy. We consider innovation not only to cover products but also our relationships with customers
and consumers. As markets mature and new trends appear, consumers demand more alternatives for the different consumption occasions.
To connect with our consumers and provide them products that satisfy their preferences, we must continue to seek flexibility adapt
quickly and deliver the best products and experience. We have a framework of five growth tools that guide our innovation efforts:
(i) new flavors & enhanced value proposition; (ii) convenience for consumers; (iii) innovation in service to our
customers; (iv) health & wellness and; (v) beyond beer.
|
Quality
of our Products
We brew a wide variety
of beers, including ales, lagers, clear, dark and full-bodied beers, amongst others, offering consumers a unique portfolio of high-quality
beers designed to satisfy different needs and tastes across different occasions. We also produce a number of non-alcoholic products,
such as soft drinks, energy drinks and juices. The quality of our products is at the forefront of our priorities. We have strict
processes, with more than 1,300 controls and more than 370 tests across our production lines, as we aim to provide to our consumers
products matching the highest possible standards. Our R&D team is also constantly working to enhance our production process
and the quality of our products.
Sustainability
Brewing quality beer
starts with the best ingredients. This requires a healthy, natural environment, as well as thriving communities. We are building
a company to last, bringing people together for a Better World, now and for the next 100 and more years. That is why sustainability
isn’t just part of our business, it is our business. Therefore, we have committed to achieving five Sustainability Goals
by 2025: (i) empowering farmers: 100% of our direct farmers will be skilled, connected,
and financially empowered; (ii) securing water access: 100% of our communities in high-stress areas will have measurably improved
water availability and quality; (iii) driving sustainable packaging: 100% of our product will be in packaging that is returnable
or made from majority recycled content; (iv) championing low carbon technology: 100% of our purchased electricity will be from
renewable sources and we will have a 25% reduction in CO2 emissions across our value chain; and (v) entrepreneurship: 100% of our
entrepreneurs will be skilled with the necessary tools to evolve.
Permanent
Cost Efficiency
Cost control is one
of the top priorities of our employees. Each of our departments must comply with its respective annual budget for fixed and variable
costs. As a means of avoiding unnecessary expenses, we have designed a management control system inspired on “zero-base budgeting”
concepts that requires every manager to build from scratch an annual budget for his/her respective department.
Financial
Discipline
Our focus is not only
on volumes and operating performance, but also on the disciplined management of our working capital and our cash flow generation.
Our objective is to maximize the return to our shareholders through a combination of payments of dividends and interest on shareholders’
equity, while at the same time keeping our investment plans and holding an adequate level of liquidity to accommodate the seasonality
of our business and cope with often volatile and uncertain financial market conditions.
ZX Ventures
and Z-Tech
Our business strategy
is also supported by ZX Ventures and Z-Tech, our innovation arms.
ZX Ventures is our
growth and innovation arm whose mandate is to invest in and develop new products and businesses that address emerging consumer
needs. We seed, launch and scale new products that deliver customer experiences, from services that step-change convenience to
rethinking delivery. ZX Ventures operations are adjacent to our core beer business including eCommerce, craft (including our brands
Colorado, Wäls and Patagonia) and specialty beer, and brand experience.
Z-Tech is our innovation
arm created in 2019 with the mission to catalyze the growth of small and medium businesses through technology, creating an environment
where those businesses and their families can thrive for the long term. Z-Tech teams make use of an agile methodology as they define
small and medium businesses’ needs, explore marketplace and payment technology solutions, validate through proof-of-concept
and pilot before scaling across the globe.
Zé Delivery
and Bees
In order to increase
convenience to our consumers, we are exploring solutions to deliver on demand cold beverages at reasonable prices directly to consumers.
Our solutions solve several pain points identified in the consumers’ buying journey: (i) late hours availability, (ii) fast
service that is time saving for consumers, (iii) reasonable prices, and (iv) cold products ready to be consumed.
|
·
|
In Brazil, our direct-to-consumer platform Zé Delivery continued
to grow exponentially, being now present in more than 200 cities across all 27 Brazilian states and reaching almost 50% of the
country’s entire population. Zé Delivery delivered more than 27 million orders in 2020.
|
|
·
|
In LAS, in Argentina, Appbar continues to grow exponentially,
growing almost 10x versus 2019.
|
|
·
|
In CAC, in Dominican Republic, Colmapp continued to expand
after the merger with the Tucerveza.do website and the Colmapp delivery into a single platform.
|
Our B2B marketplace
platform, Bees, centralizes different solutions in one 24/7 platform, creating a constant and customized touchpoint with our customers,
improving overall service level through: (i) providing portfolio suggestions based on customers’ profile and product relevance,
(ii) enhancing order tracking and real time support through the
app, (iii) allowing our business development representatives to be focused on helping customers improve their sales performance
(sell out), and (iv) increasing our total interaction time with our customers, directly connecting to our innovation strategy
and increased portfolio complexity.
|
·
|
In Brazil, we continued to roll-out Bees and currently have already
almost half of our active buyers purchasing through the platform. Continuing the expansion of our full digital strategy, we expect
to have all our distribution centers integrated in the platform by the end of 2021.
|
|
·
|
In CAC, Dominican Republic continues to lead the expansion of the
Bees platform, actively sharing know-how and best practices with other operations. The country has already reached the status of
a full digital operation, with 90% of B2B buyers already purchasing through the platform and 85% of the country’s net revenues
already coming from Bees. We are also exploring Bees marketplace in the country with eight different categories and 70 SKUs available
for customers.
|
Seasonality
Sales of beverages
in our markets are seasonal. Generally, sales are stronger during the summer and major holidays. Therefore, in the Southern Hemisphere
(Brazil, Central America and the Caribbean and Latin America South) volumes are usually stronger in the fourth calendar quarter
due to early summer and year-end festivities. In Canada, volumes are stronger in the second and third calendar quarters due to
the summer season. This is demonstrated by the table below, which shows our volumes by quarter and business segment:
|
2020 Quarterly
Volumes
(as a percentage of annual volumes)
|
|
1st Quarter
|
2nd Quarter
|
3rd Quarter
|
4th Quarter
|
Brazil
|
22.5%
|
20.8%
|
25.6%
|
31.2%
|
Beer Brazil
|
21.9%
|
21.2%
|
25.8%
|
31.1%
|
NAB
|
24.3%
|
19.4%
|
24.9%
|
31.4%
|
CAC
|
24.0%
|
18.2%
|
27.1%
|
30.6%
|
Latin America South
|
28.2%
|
16.3%
|
23.8%
|
31.7%
|
Canada
|
19.2%
|
28.9%
|
29.7%
|
22.3%
|
Total
|
23.5%
|
20.2%
|
25.6%
|
30.7%
|
Description
of the Markets Where We Operate
Brazil
Beer Brazil
The Brazilian Beer
Market
In Brazil, the two
main packaging presentations are standardized, returnable 600-milliliter glass bottles sold in bars for on-premise consumption
and 350-milliliter one-way aluminum cans, which are predominantly sold in supermarkets for off-premise consumption.
According to our estimates,
in 2020 we were the market leader of the Brazilian market in terms of beer sales volumes, mainly through our three major families
of brands: Skol, Brahma and Antarctica. Our closest competitors in Brazil are: Heineken, particularly following
its May 2017 acquisition of Brasil Kirin operations, and Cervejaria Petrópolis.
Distribution represents
an important feature in this market, as the retail channel is fragmented into approximately one million points of sale. Our distribution
is structured under two separate branches, comprising (1) our network of exclusive third-party distributors, involving 149
operations, and (2) our proprietary direct distribution system, involving 95 distribution centers located across most Brazilian
regions. We have been focusing on direct distribution in large urban regions, while strengthening our third-party distribution
system. See “—Business Overview—Business Strategy.”
Future Beverages
Some of our products
stretch beyond typical beer consumption occasions, such as the Beats family of beverages, which are sweeter beverages with
higher alcohol content, and Brahma 0.0%, a non-alcoholic beer, which, according to our estimates, is the leader in the Brazilian
non-alcoholic beer segment. Our Nutrl portfolio of seltzers in Canada and Dante Robino wines in Argentina add to our wide portfolio
of future beverages, a market that we have been assessing in different regions and countries.
NAB
The Brazilian NAB
Markets
The NAB markets in
Brazil are comprised of many different segments, including CSD, bottled water, isotonic beverages, energy drinks, coconut water,
powdered and natural juices and ready-to-drink teas. The CSD segment is the most significant to our business representing approximately
95% of the volumes of our NAB unit.
According to our estimates,
the leading CSD flavors in Brazil are (1) cola (with 52.6% of the market in 2020), (2) guaraná, (3) orange, and (4)
lime. Most CSDs in Brazil are sold in supermarkets in two-liter non-returnable PET bottles for in-home consumption. The 350-milliliter
one-way aluminum can is also an important packaging format for our business and is mainly sold in supermarkets and restaurants.
Our main competitor
in this market is The Coca-Cola Company. In addition to The Coca-Cola Company, we face competition from small regional bottlers
that produce what are usually referred to as “B Brands.” The B Brands compete mainly on price, usually being sold at
a significantly lower price than our products.
Our main CSD brands are Guaraná Antarctica,
the leader in the “non-cola” flavor segment, and Pepsi Cola. Pepsi Cola is sold under our exclusive production
and bottling agreements with PepsiCo. Our NAB portfolio also includes such brands as Gatorade in the isotonic market, H2OH!
in the non-sugar CSD market, and Lipton Iced Tea in the ready-to-drink tea market, which are also sold under license from
PepsiCo, and Fusion, a proprietary brand that is today the fourth largest brand in the energy drinks segment in Brazil. Since 2016,
when we acquired the Brazilian juice company “Do Bem”, the brand has been integrated to our portfolio, improving our
value proposition in health and wellness categories. In 2020, we launched For Me wellness shots, a functional beverage,
in a record-breaking sixty days to start this new category, and also launched Natu, our new version of Guaraná
made with 100% natural ingredients. We expanded the Sukita family with Sukita Lemon to increase our offering in the
value segment and have continued to invest in lowering the sugar content in our portfolio.
Our NAB products are
sold in Brazil through the same distribution system used for beer.
CAC
(Central America and the Caribbean)
Central America
In Guatemala,
the main packaging presentations are the returnable, 12 ounce and 1-liter glass bottles, and the 12 ounce and the 16-ounce cans.
Our main competitor in Guatemala is Cerveceria Centro Americana, the market leader, which is a private company owned by local investors.
According to our estimates, the total annual sales volume of the Guatemalan beer market was 4.0 million hectoliters in 2020.
In El Salvador, Honduras
and Nicaragua, we are currently selling imported brands, and our main packaging presentation is the returnable one-liter glass
bottle. Specifically in Nicaragua, our main competitor is Compañía Cervecera de Nicaragua, the market leader, which
is a joint venture between Guatemala’s Cerveceria Centro Americana and Florida Ice & Farm Co, an investor group from
Costa Rica.
In all of these markets,
beer is predominantly sold in returnable bottles through small retailers. We sell our Brahva, Brahva Gold, Extra,
Budweiser, Bud Light, Stella Artois, Corona, Modelo Especial, Beck, Leffe and
Hoegaarden beer brands in Central America, which are distributed through the CBC distribution system, jointly with CBC’s
CSD portfolio.
In May 2016, we entered
into an agreement with ABI pursuant to which we agreed to transfer to ABI our businesses in Colombia, Peru and Ecuador. In exchange,
ABI has agreed to transfer SAB’s Panamanian business to us. We formally began operations in Panama on December 31, 2016.
According to our estimates, we currently lead the beer market in Panama. The main packaging presentations are 285-milliliter bottles
and 355-milliliter cans and our main beer brands in Panama are Atlas Golden Light and Balboa Ice. The main competitor
in the Panamanian beer market is Baru. According to our estimates, the total annual sales volume of the Panamanian beer market
was 3.4 million hectoliters in 2020. Our Panamanian business also produces and commercializes soft drinks, under franchise, being
Pepsi, Canada Dry and Squirt the main brands distributed. In Panama, the annual sales volume of the CSD market
was 2.8 million hectoliters in 2020.
In May 2018, our Board
of Directors approved the distribution, sale and marketing of the brand Budweiser in Panama, which has helped on the strategy
of growing the market segment of beers priced higher than the core segment.
The Caribbean Beer
Market
In Cuba, our main
packaging presentation is the 12-ounce can. Our main competitor in Cuba is State Brewery. We currently sell the Bucanero,
Cristal, Mayabe and Cacique local beer brands in Cuba. According to our estimates, the total annual sales
volume of the Cuban beer market was approximately 3.2 million hectoliters in 2020.
In the Dominican Republic,
the annual sales volume of the beer market was 4.5 million hectoliters in 2020, according to our estimates. The main packaging
presentation in the Dominican beer market consists of the returnable 650-milliliter and 1-liter glass bottles, which are predominantly
sold in small retail stores. We currently lead the beer market in the Dominican Republic after our acquisition of CND, with a leading
portfolio of brands such as Presidente, Brahma Light, Presidente Light, Presidente Golden Light, Bohemia,
The One, Corona, Modelo Especial, Stella Artois and Budweiser. Our distribution system in the
Dominican Republic is comprised mainly of direct distribution operations.
In Barbados, the annual
sales volume of the beer market was 0.1 million hectoliters in 2020, according to our estimates. We are the market leader with
brands such as Banks and Deputy, which are produced locally by BHL. The main packaging presentation in Barbados is
the 250-milliliter and 275-milliliter returnable glass bottles.
The Caribbean CSD
Market
According to our estimates,
the annual sales volume of the Dominican CSD market was 7.9 million hectoliters in 2020. The main packaging presentation in the
Dominican CSD market is the returnable half-liter bottle, in either glass or PET format, which is predominantly sold in small retail
stores. The Coca-Cola Company, represented by Bepensa, has the leadership of the Dominican CSD Market, followed by Ajegroup, which
adopts a low-price strategy. We are currently the third player in that market.
Our main CSD brands
in the Dominican Republic are Red Rock, Pepsi-Cola and Seven Up, all of which are marketed under an exclusive
bottling agreement with PepsiCo. Our distribution system in the Dominican Republic is comprised of direct distribution operations
and third-party distributors.
Latin
America South
Argentina
Argentina is one of
our most important regions, second only to Brazil in terms of volume.
We serve more than
300 thousand points of sale throughout Argentina both directly and through our exclusive third-party distributors.
The Argentine Beer
Market
According to our estimates,
the annual sales volume of the Argentine beer market was 20.9 million hectoliters in 2020. With a population of approximately 45
million, Argentina is Latin America South’s largest and most important beer market.
In Argentina, 34%
of our beer volume is distributed directly by us and 66% is distributed through exclusive third-party distributors. Our main package
presentation in Argentina is the 1-liter returnable glass bottles, which accounted for 63.7% of our sales in 2020.
According to our estimates,
the on-premise consumption represented 5.9% of beer volumes in Argentina in 2020, and supermarkets sales represented 14.6% of beer
volumes. The main channels of volume consumption in Argentina are through kiosks and small grocery stores.
Our most important
beer brands in Argentina are Quilmes Clásica, Brahma and Stella Artois. According to Scentia, we are
the leading beer producers in Argentina, and our main competitor in Argentina is Compañía Cervecerías Unidas
S.A.
The Argentine CSD
Market
According to our estimates,
in 2020, annual sales volume of the Argentine CSD market was 6.1 million hectoliters. In Argentina, 36% of our CSD volume is distributed
directly by us and 64% is distributed through exclusive third-party distributors. Non-returnable bottles represented 70% of our
CSD sales in Argentina in 2020.
We are the exclusive
Pepsi bottlers in Argentina and our most important CSD brand in that country is Pepsi-Cola and Seven-Up. According
to Scentia, we were second in the Argentine CSD market in 2020, only after The Coca-Cola Company.
Bolivia
The Bolivian Beer
Market
According to our estimates,
the annual sales volume of the Bolivian beer market was 2.6 million hectoliters in 2020. The Bolivian market is strongly influenced
by macroeconomic trends and governmental regulatory and fiscal policies.
In Bolivia, 30% of
our beer volumes is directly distributed by us and 70% is distributed through exclusive third-party distributors. Our main package
presentation in Bolivia is the 620-milliliter returnable glass bottle, which accounted for 40% of our sales in 2020.
Our most important
beer brands in Bolivia are Paceña, Taquiña and Huari. According to our estimates, we are the
leading beer producer in Bolivia.
The Bolivian CSD Market
In March 2009, we,
through Quinsa, acquired from SAB 100% of Bebidas y Aguas Gaseosas Occidente S.R.L., becoming the exclusive bottler of Pepsi in
Bolivia.
According to our estimates,
in 2020, the annual sales volume of the Bolivian CSD market was 5.4 million hectoliters. Of our total CSD volumes in Bolivia in
2020, 30% was directly distributed by us and 70% was distributed through exclusive third-party distributors, while 96% of our CSD
sales in that country in 2020 were through non-returnable bottles.
Chile
According to our estimates,
the annual sales volume of the Chilean beer market was 11.1 million hectoliters in 2020. Beer consumption in Chile has increased
every year since 2009, except for 2017. Our most important beer brands in Chile are Becker, Corona, Budweiser,
Cusqueña and Stella Artois.
We are the second
beer producers in Chile, according to Nielsen, and our main competitor and the leader in the country is Compañía
Cervecerías Unidas S.A.
In 2015, we became
the exclusive distributors of the Corona brand in Chile, and since January 2016 we also started to import and distribute
Budweiser in Chile, followed by Cusqueña in 2018.
Paraguay
According to our estimates,
the annual sales volume of the Paraguayan beer market was 4.6 million hectoliters in 2020, excluding smuggling.
The market for beer
in Paraguay has traditionally distinguished itself from those in the southern cone countries in certain respects because (1) beer
has not faced significant competition from wine as an alternative alcoholic beverage; (2) the domestic beer market has faced significant
competition from imported brands, which accounted for a far higher market share in Paraguay than in neighboring countries; and
(3) the seasonality of our products is lower due to warmer conditions throughout the year.
In Paraguay, 72% of
our beer volumes is directly distributed by us and 28% is distributed through exclusive third-party distributors. Our main package
presentation in Paraguay is the 940-milimeter returnable glass bottle, which accounted for 49% of our sales in 2020.
Our most important
beer brands in Paraguay are Brahma, Pilsen and Ouro Fino, with a leader market position in the country in
2020, according to our estimates. We are also the exclusive distributor of the Budweiser brand in Paraguay.
Uruguay
The Uruguayan Beer
Market
According to our estimates,
the annual sales volume of the Uruguayan beer market was 1.0 million hectoliters in 2020. Our Latin America South business unit
manages both the beer and CSD businesses in Uruguay out of a facility based in that country.
In Uruguay, 32% of
our beer volumes is directly distributed by us and 68% is distributed through exclusive third-party distributors. Our main package
presentation in Uruguay is the 1-liter returnable glass bottle, which accounted for 56.5% of our sales in 2020.
Our most important
beer brands in Uruguay are Pilsen and Patricia, with a leader market position in 2020, according to our estimates.
The Uruguayan CSD
Market
According to our estimates,
in 2020, the annual sales volume of the Uruguayan CSD market was 3.1 million hectoliters.
In Uruguay, 44.9%
of our CSD volume is directly distributed by us and 55.1% is distributed through exclusive third-party distributors. Non-returnable
bottles accounted for 91.1% of our sales in that country in 2020. Our most important brand in Uruguay is Pepsi-Cola, with
The Coca-Cola Company being our main competitor.
Canada
The Canadian Beer
Market
Our Canada business
segment is represented by the Labatt operations, which sells domestic and ABI beer brands, a portfolio of ready-to-drink and cider
brands, and exports the Kokanee beer brand to the United States.
According to our estimates,
Labatt is the market leader in the Canadian beer market. The main packaging presentation in that country are the returnable, 341-milliliter
glass bottle, and the 355-milliliter aluminum can, which are predominantly sold in privately owned and government-owned retail
stores in addition to privately owned on-trade establishments. Our main competitor in Canada is Molson, but we also compete with
smaller brewers, such as Sleeman Breweries Ltd., or Sleeman, and Moosehead Breweries Ltd.
Our main brands in
Canada are Budweiser, Bud Light, Michelob Ultra and Busch (brewed and sold under license from ABI’s
subsidiary Anheuser-Busch, Inc., or Anheuser-Busch), along with Corona, Labatt Blue, Alexander Keith’s,
Stella Artois and Kokanee. Our distribution system in Canada is structured in different ways across the country,
as further explained below.
Other Canadian Markets
The ready-to-drink
beverages (RTD) industry in Canada grew double-digits in 2020, driven mainly by the rapid expansion of the seltzer segment. Labatt’s
RTD portfolio in Canada includes the Nutrl, Palm Bay and Mike’s brands.
Additionally, Labatt
has a joint venture with Tilray, a global player in cannabis production and distribution, that researches non-alcoholic beverages
containing THC and CBD, and also commercializes a non-alcoholic CBD beverage in Canada only.
Distribution in Ontario
In Ontario, the province
with the largest beer consumption in Canada, we own together with other brewers a distribution and retail company incorporated
in 1927 named Brewers Retail Inc., operating as The Beer Store, or TBS. In 2015, we finalized a new Master Framework Agreement,
or MFA, with the government of the Province of Ontario that specifies TBS’s role as a retailer and distributor of beer.
Under the MFA, TBS
will continue to be the primary retailer for pack sizes larger than six bottles or cans of beer. The Liquor Control Board of Ontario,
or LCBO, a chain of liquor stores owned by the government of the Province of Ontario, will continue to have the ability to sell
beer. Most LCBO stores are limited to selling pack sizes of six bottles or cans of beer or less. Under the MFA up to 450 grocery
stores may also be granted a license to sell beer in pack sizes of six bottles or cans or less. The MFA came into force on January
1, 2016 and has an initial term of ten years, subject to renewal for successive five-year terms, unless the agreement is terminated
after the initial term in accordance with the MFA.
TBS ownership is available
to all qualifying Ontario-based brewers. TBS’s 15-member Board of Directors is made up of the following members: four directors
nominated by Labatt; four directors nominated by Molson; four independent directors initially nominated by a selection committee
jointly represented by the Province of Ontario, Labatt and Molson and now nominated by a majority vote of the independent directors;
two directors nominated by larger brewer shareholders (other than Labatt and Molson) with TBS sales greater than 50,000 hectoliters
per year; and one director nominated by smaller brewer shareholders with TBS sales less than 50,000 hectoliters per year.
TBS operates as a
self-funding corporation on a break-even cash flow basis under which it charges volume-based fees for services it provides to the
brewers. The nature of TBS’s business requires compliance with laws and regulations and oversight by the Province of Ontario
and its agents. The Liquor Control Act, the Liquor License Act and the Alcohol and Gaming Regulation and Public Protection Act
are administered by the Minister of Finance or the Attorney General, which maintains control of the beverage alcohol sectors through
the Liquor Control Board of Ontario and the Alcohol and Gaming Commission of Ontario.
Distribution in Quebec
Quebec is the province
in Canada with the second largest beer consumption. In this province there are no exclusive rights for the sales of beer, and both
the on-premise and off-premise sales channels are mostly comprised of privately owned stores. The SAQ, a government-operated liquor
store, sells a select few beer brands that are not available in the private retail system.
We (as well as our
competitors) sell our products in Quebec through a direct sales and distribution system.
Distribution in the Western
Provinces
Molson and Labatt
are each a shareholder in Brewers Distributor Limited, which operates a distribution network primarily for beer in the four western
provinces of British Columbia, Alberta, Manitoba and Saskatchewan, as well as three territories (Yukon, the Northwest Territories
and Nunavut). In Alberta, some volume is also sold through a third-party wholesaler. In these Western Provincial markets, there
are both privately controlled retail stores (such as in Alberta and British
Columbia) and government-controlled retail stores (such as in British Columbia, Manitoba and Saskatchewan).
Distribution in the Atlantic
Provinces
We distribute and
sell our products in the Atlantic Provinces (including New Brunswick, Newfoundland, Nova Scotia and Prince Edward Island) through
(1) distribution and retail networks controlled by the government in the provinces of Nova Scotia, New Brunswick and Prince Edward
Island; and (2) private distributors in Newfoundland.
Beer and
CSD Production Process
The basic brewing
process for most beers is straightforward, but significant know-how is involved in quality and cost control. The most important
stages are brewing and fermentation, followed by maturation, filtering and packaging. Although malted barley (malt) is the primary
ingredient, other grains such as unmalted barley, corn, rice or wheat are sometimes added to produce different beer flavors. The
proportion and choice of other raw materials varies according to regional taste preferences and the type of beer.
The first step in
the brewing process is making wort by mixing malt with warm water and then gradually heating it to approximately 75°C in large
mash turns to dissolve the starch and transform it into a mixture, called “mash,” of maltose and other sugars. The
spent grains are filtered out and the liquid, now called “wort,” is boiled. Hops are added at this point to give a
special bitter taste and aroma to the beer, and help preserve it. The wort is boiled for one to two hours to sterilize and concentrate
it, and extract the flavor from the hops. Cooling follows, using a heat exchanger. The hopped wort is saturated with air or oxygen,
essential for the growth of the yeast in the next stage.
Yeast is a micro-organism
that turns the sugar in the wort into alcohol and carbon dioxide. This process of fermentation takes five to eleven days, after
which the wort finally becomes beer. Different types of beer are made using different strains of yeast and wort compositions. In
some yeast varieties, the cells rise to the top at the end of fermentation. Ales and wheat beers are brewed in this way. Pilsen
beers are made using yeast cells that settle to the bottom.
During the maturation
process the liquid clarifies as yeast and other particles settle. Further filtering gives the beer more clarity. Maturation varies
by type of beer and can take as long as three weeks. Then the beer is ready for packaging in kegs, cans or bottles.
CSDs are produced
by mixing water, flavored concentrate and sugar or sweetener. Water is processed to eliminate mineral salts and filtered to eliminate
impurities. Purified water is combined with processed sugar or, in the case of diet CSDs, with artificial sweeteners and concentrate.
Carbon dioxide gas is injected into the mixture to produce carbonation. Immediately following carbonation, the mixture is packaged.
In addition to these inputs, delivery of the product to consumers requires packaging materials such as PET bottles, aluminum cans,
labels and plastic closures.
For information on
our production facilities, see “—D. Property, Plant and Equipment.”
Sources
and Availability of Raw Materials
The COVID-19 pandemic had
significant changes in consumer behavior and channel dynamics as governments imposed restrictions that varied in terms of scope
and intensity in response to the virus spread. As consumption occasions moved in-home, and as consumers looked for convenience,
the demand for one-way packaging, especially cans, increased significantly, pressuring the supply chain and generating punctual
product shortages.
Beer
The main raw materials
used in our production are malt, non-malted cereals, hops and water.
Barley and Malt
Malt is widely available,
and our requirements are met by domestic and international suppliers as well as our own six malting facilities. In the case of
our beer operations in Brazil, approximately 80% of our malt needs are supplied by our own malting facilities located in the south
of Brazil, Argentina and Uruguay.
For the rest of our
needs, our most significant malt supplier is Cooperativa Agroindustrial Agraria in Brazil. Market prices for malt are volatile
and depend on the quality and the level of production of the barley crop across the world, as well as on the intensity of demand.
We purchase barley
for our malting facilities directly from South America farmers. Barley prices depend on local winter crop markets, wheat market
prices on the main boards of trade across the world and on the barley quality during the harvest.
We enter into future
contracts or financials instruments to avoid the impact of short-term volatility in barley and malt prices on our production costs.
See “Item 11. Quantitative and Qualitative Disclosures about Market Risk.”
Hops
There are two types
of hops used in our beer production: hops used to give beer its distinctive bitter flavor, which we generally import from the United
States, and hops used to give beer its distinctive aroma, which we generally import from Europe. The supply of hops is concentrated
into a few international companies, namely the Barth-Haas Group, Hopsteiner, Kalsec and HVG.
Non-malted Cereals
Corn syrup is purchased
from Ingredion and Cargill. Corn is purchased to produce grits in-house in some plants and corn grits and rice are purchased in
other plants from local suppliers and are generally widely available.
Water
Water represents a
small portion of our raw material costs. We obtain our water requirements from several sources, such as: lakes and reservoirs,
deep wells located near our breweries, rivers adjoining our plants and public utility companies. We monitor the quality, taste
and composition of the water we use, and treat it to remove impurities and to comply with our high-quality standards and applicable
regulations. As a result of advances in technology, we have continuously reduced our water consumption per hectoliter produced.
Non-alcoholic
Beverages
The main raw materials
used in our production are: concentrate (including guaraná extract), sugar, sweetener, juices, water and carbon dioxide
gas. Most of these materials are obtained from local suppliers.
Guaraná Berries
We
have a 1,070-hectare farm that provides us with 25-tons of guarana seeds (roasted grains) per year, or about 10% of our needs,
currently purchased directly from farmers and their organizations in Maués, with the remainder purchased directly from independent
farmers in the Amazon region as well as other guaraná available regions in Brazil. The focus of our own farm is to supply
Guaraná seedlings to local producers and to promote the sustainable cultivation of Guaraná in the Amazon Region.
About 40 thousand seedlings are donated each year.
Concentrates
We have a concentrate
facility in the north of Brazil which produces the concentrates to meet our requirements for the production of our proprietary
brand Guaraná Antarctica among others. The concentrate for Pepsi CSD products is purchased from PepsiCo.
Sugar
Sugar is widely available
and is purchased by our regional sourcing entity. We use sugar in our CSD products mainly in Brazil, Argentina, Bolivia, Uruguay,
and the Caribbean. We enter into derivative instruments to avoid the impact of short-term volatility in sugar prices on our production
costs. See “Item 11. Quantitative and Qualitative Disclosures about Market Risk.”
Juices
Orange, lemon, grape,
apple, and other juices used in our CSD and juices products are purchased in Brazil. We also use lemon and grapefruit juices in
our CSD products in Argentina and Uruguay. Our main suppliers are Louis Dreyfus Commodities, Cutrale, Citrus Juice, Litoral Citrus
and San Miguel.
Other
We buy all of the
fruit juice, pulp and concentrate that we use in the manufacture of our fruit flavored CSDs.
Packaging
Packaging costs are
comprised of the cost of glass and PET bottles, aluminum cans, plastic film (shrink and stretch), paper labels, plastic closures,
metal crowns and paperboard, and other materials. We enter into derivative instruments to mitigate the risks of short-term volatility
in aluminum and some other packaging materials prices on our production costs; for further information on this matter see “Item
11. Quantitative and Qualitative Disclosures About Market Risk.”. We also set a fixed price for the period in accordance
with the prevailing macroeconomic conditions for some materials.
In April 2008, we
started operating a glass bottle producing facility in Rio de Janeiro, which we expanded in November 2015. This unit’s capacity
is of approximately 255 thousand tons of glass and in 2020 such unit attended to more than 44 % of our glass needs.
We have supply contracts
with respect to most packaging materials. The choice of packaging materials varies by cost and availability in different regions,
as well as consumer preferences and the image of each brand.
Our aluminum cans
are mainly sourced regionally by global companies, while our glass containers are sourced by a variety of suppliers, both regionally
and globally. Also, in September 2020, we opened our can plant facility in the state of Minas Gerais, which has a production capacity
of 1.5 billion cans per year, the only national capacity expansion in 2020 among all players.
We obtain the labels
for our beer and CSD primarily from local suppliers; in Brazil, the majority of our requirements are met by a printing house that
belongs to FAHZ and is operated by us pursuant to a lease agreement. Plastic closures are principally purchased regionally, and
PET pre-forms are principally purchased regionally by both local and global companies. Crown caps in Brazil are mainly sourced
from our vertical operation in Manaus, Arosuco. These producers also supply some of our other Latin American operations.
Regulation
All our operations
are subject to local governmental regulation and supervision, including (1) labor laws; (2) social security laws; (3) public health,
consumer protection and environmental laws; (4) securities laws; (5) antitrust laws; and (6) foreign exchange laws. In addition,
we may also be subject to regulations aimed at (1) ensuring healthy and safe conditions in facilities for the production, bottling,
and distribution of beverages and (2) placing restrictions on beer and CSD consumption.
Environmental laws
in the countries where we operate are mostly related to (1) the conformity of our operating procedures with environmental regulation
and standards regarding, among other issues, the emission of gas and liquid effluents and (2) the disposal of one-way packaging.
Governmental restrictions
on beer consumption in the markets where we operate vary from one country to another, and in some instances, from one local region
to another. The most relevant restrictions are:
·
each country or province has a minimum legal drinking age that is established by the government; the beer legal drinking
age varies from 18 to 21 years;
·
some local and federal governments require that retail stores own special licenses for the sale of alcohol; this is the
case in some regions of Argentina, Bolivia, Chile, Panama and Canada;
·
some local and federal governments (including Bolivia, Argentina, Uruguay and Canada) prohibit the sale of alcoholic beverages
within a certain distance from schools, hospitals and other designated areas, as well as place certain restrictions on the time
of sale and consumption of these products in public places and private clubs;
·
some local governments in Canada establish a minimum price for beer sales, which is named Social Reference Price, or SRP.
There is a specific SRP for each different packaging presentation. The SRP may vary from one province to another;
·
in some provinces in Canada the off-trade is restricted to government-owned or licensed
stores. See “—Business Overview—Description of the Markets Where We Operate—Canada - Labatt”;
and
·
beer sales in the off-premise channel in Canada in the Province of Ontario are restricted to three retail channels. One
of them is the LCBO, which is government-owned. The second retail channel is TBS, which is jointly owned by Labatt and 33 other
brewers. The third retail channel is eligible grocery. The Alcohol and Gaming Commission of Ontario regulates the alcohol industry.
Many governments also
impose restrictions on beer advertisement, which may affect, among other issues, (1) the media channels used, (2) the contents
of advertising campaigns, and (3) the time and places where beer can be advertised.
Marketing
Our marketing initiatives
are concentrated in off-trade and on-trade initiatives. Off-trade initiatives comprise mass media vehicles, such as television,
radio, magazines and internet websites. On-trade initiatives include banners, and all types of enhancements to the point of sale,
such as branded coolers and decorated furniture.
Licenses
Pepsi
We have a long-term
agreement with PepsiCo whereby we have been granted the exclusive right to bottle, sell and distribute certain brands of PepsiCo’s
portfolio of CSDs in Brazil, including Pepsi-Cola, Gatorade, H2OH!, and Lipton Ice Tea. We are also,
through our subsidiaries, PepsiCo’s bottler for Argentina, Uruguay, Bolivia and Dominican Republic. In 2020, sales volumes
of PepsiCo products represented approximately 30% of our total NAB sales volumes in Brazil, nearly 47% of our total NAB sales volumes
in the Dominican Republic and 99% of our NAB sales volumes in Argentina, 96% in Bolivia and 99% in Uruguay.
Red
Bull
We have a long-term
distribution agreement with Red Bull, providing for the exclusive right to sell and distribute certain brands of Red Bull’s
portfolio in specific limited points of sale of 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.
Licensing
Agreements with ABI
Effective January
1998, Labatt entered into long-term licensing agreements with ABI whereby Labatt was granted the exclusive right and license to
manufacture, bottle, sell, distribute and market some of ABI’s brands, including the Budweiser and Bud
Light brands, in Canada, including the right to use ABI’s trademarks for those purposes. The agreements expire in January
2098 and are renewable by either party for a second term of 100 years. In 2020, the ABI brands sold by Labatt represented approximately
70% of Labatt’s total sales volumes. According to our estimates, the Budweiser brand is currently the largest selling
brand, while Bud Light is the third largest selling brand, in Canada in terms of volume.
We also have a licensing
agreement with ABI which allows us to exclusively produce, distribute and market Budweiser in Brazil. We also have certain
arrangements to sell and distribute Budweiser products in Paraguay, Guatemala, Dominican Republic, El Salvador, Nicaragua,
Uruguay and Chile.
We also have a cross-licensing
agreement with ABI through which we are allowed to produce, bottle, sell and distribute beer under the Stella Artois and
Becks brands in Latin America and Canada on an exclusive basis, and ABI is allowed to produce, bottle, sell and distribute
beer under the brand Brahma in Europe, Asia, Africa and the United States on an exclusive basis. Ambev has agreed not to directly
or indirectly produce, bottle, distribute, sell or resell (or have an interest in any of these), any other European premium branded
beer in Latin America, and ABI has agreed to be bound by the same restrictions relating to any other Latin American premium branded
beer in Europe, Asia, Africa and the United States. As a result, in June 2005 we launched Stella Artois in Brazil and, since
March 2005, ABI has been distributing Brahma beer in the United States and several countries such as the United Kingdom,
Spain, Sweden, Finland and Greece.
We also have ABI’s
subsidiary, Metal Container Corporation, as one of our can suppliers.
We have also a licensing
agreement with Grupo Modelo, S. de R.L. de C.V. ("Cervecería Modelo" - formerly Grupo Modelo, S.A.B. de C.V.),
a subsidiary of ABI, to produce, import, promote and resell Corona products (Corona Extra, Corona Light, Coronita,
Pacifico and Negra Modelo) in Latin America countries, including Brazil, as well as in Canada.
Taxation
Beer
Taxation on beer in
the countries where we operate is comprised of different taxes specific to each jurisdiction, such as an excise tax and a value-added
tax. The amount of sales tax charged on our beer products in 2020, represented as a percentage of gross sales, was: 43.8% in Brazil;
21.5% in Canada; 9.0% in Central America; 47.8% in the Dominican Republic; 21.0% in Panama; 1.8% in Cuba; 8.5% in Barbados; 26.0%
in Argentina; 35.6 % in Bolivia; 24.2% in Chile; 11.7% in Paraguay; and 29.8% in Uruguay.
NAB
Taxation on NAB in
the countries where we operate is comprised of taxes specific to each jurisdiction, such as an excise tax and a value-added tax.
The amount of taxes charged on our NAB products in 2020, represented as a percentage of gross sales, was: 36.1% in Brazil; 18.0%
in the Dominican Republic; 7.0% in Panama; 17.3% in Argentina; 28.1% in Bolivia; and 30.1% in Uruguay.
Changes
to Brazilian Taxes on Beverages
In January 2015, it
was enacted Law No. 13,097 by the Brazilian federal government, introducing a new federal taxation model for beer and
soft drinks. The law is a result of the combined efforts of the Brazilian federal government and beverage companies with a view
to creating a less complex and more predictable tax system for the industry. The new tax model came into force on May 1, 2015.
Among other changes, the new set of rules establishes that the IPI Excise Tax, the PIS Contribution and the COFINS are due by manufacturers
and wholesalers and shall be calculated based on the respective sales price (ad valorem). Under the previous legislation
(in force from 2009 to 2015), the referred taxes were due exclusively by the manufacturer at fixed amounts per liter of beer or
soft drink produced (ad rem). As to this new taxation model introduced by Law No. 13,097, Decree No. 8,442/2015 brought
temporary reductions on the tax rates applicable to beers and soft drinks, which are no longer applicable as of January 2018. Without
such reduction, PIS Contribution and COFINS rates have increased between 5% and 11% over the previously reduced rates for
breweries – except for special beers with limited production which have 75% or more of barley malt by weight on the original
extract as a source of sugar.
In 2015 the States
of São Paulo, Rio de Janeiro, Minas Gerais, Distrito Federal, Rio Grande do Sul, Ceará, Amapá, Rondônia,
Amazonas, Tocantins, Piauí, Maranhão, Rio Grande do Norte, Bahia, Pernambuco, Paraíba, Alagoas, Sergipe and
Mato Grosso do Sul increased their ICMS Value-Added Tax rate applicable to beer and soft drinks. In 2016, the States of Rio de
Janeiro and Acre also increased their respective ICMS Value-Added Tax rates, scheduled to take effect in early 2017. In 2017, the
States of Goiás and Amazonas increased their soft drinks and beer ICMS rates. In 2018, the States of Maranhão and
Pernambuco increased their non-alcoholic beverages ICMS rates and Bahia and Maranhão increased beer ICMS burden, which became
effective in early 2019. In 2019, the State of Maranhão decreased the non-alcoholic beverages ICMS Value-Added Tax rates,
which became effective in early 2020. In 2020, no Brazilian state raised ICMS Value-Added Tax rate for either beer or non-alcoholic
beverages.
In May 2018, the Brazilian
Federal Government enacted Decree No. 9,394/2018 changing the IPI taxation applicable on transactions with concentrate units, consequently
reducing the value of the IPI presumed credits registered by Ambev on acquisitions from companies located in the Manaus Free Trade
Zone from 20% to 4%. Due to the severe effects of such change, the Brazilian Federal Government enacted Decree No. 9,514/2018 to
make a gradual change of the IPI taxation, as follows: (1) taxation of 12% in the first half of 2019; (2) taxation of 8% in the
second half of 2019; and (3) taxation of 4% from 2020 onwards. In July 2019, the Brazilian Federal Government enacted Decree No.
9,897/2019 determining the application of the 8% rate until September 30, 2019 and implementing a 10% rate from October 1, 2019
to December 31, 2019, maintaining the rate of 4% effective as of January 2020. In February 2020, Decree No. 10,254/2020 was issued,
increasing the IPI rate to 8% for the specific period from July 1, 2020 to November 30, 2020. In October, 2020, a new decree (10,523/2020)
was issued to establish the 8% rate from February 2021 onwards.
C. Organizational
Structure
Our two direct controlling
shareholders, IIBV and AmBrew, both of which are subsidiaries of ABI, together with FAHZ, held in aggregate 72.1%% of our total
and voting capital stock (excluding treasury shares) as of December 31, 2020.
ABI indirectly holds
shares in us representing 61.8% of our total and voting capital stock (excluding treasury shares) as of December 31, 2020. ABI
thus has control over us, even though (1) ABI is subject to the Shareholders’ Agreement and (2) ABI is controlled by Stichting
that represents an important part of interests of BRC and the Interbrew Founding Families. For further information on these matters
see “Item 4. Information on the Company—A. History and Development of the Company—The InBev-Ambev Transactions”
and “Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders—Ambev’s Major Shareholders—The
Shareholders’ Agreement.”
We conduct the bulk
of our operations in Brazil directly. We also indirectly control Labatt and the operations conducted by our CAC and Latin America
South units. The following chart illustrates the ownership structure of our principal subsidiaries as of December 31, 2020 based
on total share capital owned.
Organizational Structure
D. Property,
Plant and Equipment
Our properties consist
primarily of brewing, soft drink production, malting, bottling, distribution and office facilities in the countries where we operate.
As of December 31,
2020, our aggregate beer and non-alcoholic beverages production capacity was 250.8 million hectoliters per year. In 2020, the total
production at the facilities set forth below was equal to 163.4 million hectoliters.
The following is a
list of our principal production facilities as of December 31, 2020:
Brazil
|
|
Plant
|
Type of Plant
|
Almirante Tamandaré, Paraná
|
Soft Drinks
|
Anápolis, Goiás
|
Mixed
|
Aquiraz, Ceará
|
Mixed
|
Camaçari, Bahia
|
Mixed
|
Cuiabá, Mato Grosso
|
Mixed
|
Estancia, Sergipe
|
Mixed
|
Guarulhos, São Paulo
|
Beer
|
Itapissuma, Pernambuco
|
Mixed
|
Jacareí, São Paulo
|
Beer
|
Jaguariúna, São Paulo
|
Mixed
|
Juatuba, Minas Gerais
|
Mixed
|
Jundiai, São Paulo
|
Soft Drinks
|
Lages, Santa Catarina
|
Beer
|
Cachoeiras de Macacu, Rio de Janeiro
|
Mixed
|
Manaus, Amazonas
|
Mixed
|
Pirai, Rio de Janeiro
|
Mixed
|
Ponta Grossa, Paraná
|
Beer
|
Rio de Janeiro, Rio de Janeiro
|
Mixed
|
São Luis, Maranhão
|
Beer
|
Sapucaia do Sul, Rio Grande do Sul
|
Soft Drinks
|
Sete Lagoas, Minas Gerais
|
Mixed
|
Teresina, Piauí
|
Mixed
|
Uberlândia, Minas Gerais
|
Beer
|
Viamão, Rio Grande do Sul
|
Mixed
|
Crown Manaus, Amazonas
|
Crown Cap
|
Glass Rio, Rio de Janeiro
|
Glass Bottles
|
Label São Paulo, São Paulo
|
Labels
|
Malt. Navegantes, Rio Grande do Sul
|
Malt
|
Malt. Passo Fundo, Rio Grande do Sul
|
Malt
|
Cans Minas, Minas Gerais
|
Cans
|
Contagem, Minas Gerais
|
Bag in box plant
|
SAZ Zitec Research Pilot Brewery, Rio de Janeiro
|
Research Plant
|
Wals, Minas Gerais
|
Beer
|
Colorado, São Paulo
|
Beer
|
Bohemia, Rio de Janeiro
|
Beer
|
Pratinha, São Paulo
|
Beer
|
Joao Pessoa, Paraíba
|
CO2 Plant
|
SD Aromas, Manaus
|
Soft Drinks Kits
|
CAC
|
|
Plant
|
Type of Plant
|
Ambev Centroamerica, Guatemala
|
Beer
|
Santo Domingo, Dominican Republic
|
Mixed
|
Hato Nuevo, Dominican Republic
|
Mixed
|
Saint Vincent
|
Mixed
|
Cuba
|
Mixed
|
Barbados
|
Mixed
|
Panama
|
Mixed
|
Latin America South
|
Plant
|
Type of Plant
|
Acheral, Argentina
|
Beer
|
Cordoba, Argentina
|
Soft Drinks
|
Corrientes, Argentina
|
Mixed
|
Manantial, Argentina
|
Soft Drinks
|
Mendoza, Argentina
|
Beer
|
Pompeya, Argentina
|
Beer
|
Quilmes, Argentina
|
Beer
|
Zarate, Argentina
|
Beer
|
Cerveceria Argentina, Argentina
|
Beer
|
Cochabamba, Bolivia
|
Beer
|
El Alto, Bolivia
|
Soft Drinks
|
Huari, Bolivia
|
Beer
|
La Paz, Bolivia
|
Beer
|
Sacaba, Bolivia
|
Soft Drinks
|
Santa Cruz, Bolivia
|
Beer
|
Santiago, Chile
|
Beer
|
Ypane, Paraguay
|
Beer
|
Minas, Uruguay
|
Beer
|
Montevideo, Uruguay
|
Mixed
|
Malt. Pampa, Argentina
|
Malt
|
Crown Coroplas, Argentina
|
Crown Cap
|
Malt Tres Arroyos, Argentina
|
Malt
|
Can Oruro, Bolivia
|
Cans
|
Glass Ypane, Paraguay
|
Glass Bottles
|
Malt Nueva Palmira, Uruguay
|
Malt
|
Malt Paysandu, Uruguay
|
Malt
|
Hop Fernandez Oro, Argentina
|
Hops Pellets
|
Zarate Research Pilot Brewery, Argentina
|
Research Plant
|
Patagonia, Argentina
|
Beer
|
Dante Robino, Argentina
|
Wine
|
Tarija, Bolivia
|
Beer
|
Canada
|
|
Plant
|
Type of Plant
|
St. John’s
|
Beer
|
Halifax
|
Beer
|
Montreal
|
Beer/RTD
|
London
|
Beer/RTD
|
Edmonton
|
Beer/RTD
|
Creston
|
Beer
|
Mill Street
|
Beer/Spirits
|
Turning Point
|
Beer/RTD/Cider
|
Archibald
|
Beer
|
Alexander Keith
|
Beer
|
Goodridge&Williams……………………………………………………………………………
|
RTD/Spirits
|
|
ITEM 4A.
|
UNRESOLVED STAFF COMMENTS
|
Not applicable.
|
ITEM 5.
|
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
|
A. Operating
Results
Introduction
The following management’s
discussion and analysis of financial condition and results of operations should be read in conjunction with our audited consolidated
financial statements included elsewhere in this annual report on Form 20-F. This annual report contains forward-looking statements
that involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward-looking statements
as a result of various factors including, without limitation, those set forth in “Cautionary Statement Regarding Forward-Looking
Information” and the matters set forth in this annual report generally.
We have prepared our
audited consolidated financial statements as of December 31, 2020, 2019 and 2018 and for the three years ended December 31,
2020 in reais and in accordance with IFRS as issued by the IASB.
The financial information
and related discussion and analysis contained in this item are in accordance with IFRS as issued by the IASB. The amounts are in
million reais, unless otherwise stated.
Impact
of Ongoing COVID-19 Pandemic
A novel strain of coronavirus,
COVID-19, was first identified in China in December 2019 and became a global pandemic in March 2020. As the pandemic progressed,
the significant changes in consumer behavior and channel dynamics that started in mid-March affected the full year results with
meaningful impact to our profitability, as governments imposed restrictions that varied in terms of scope and intensity in response
to COVID-19.
Although still in a very
volatile environment, during the whole year the countries we operate and our operations were differently affected. In some cases,
mandatory quarantines, restrictions on travel, commercial and social activities and ban on the distribution, sale and consumption
of alcoholic beverage.
The impact of the pandemic
on our operations and the restrictions imposed in response by national governments, especially since March 2020, have generated
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 higher levels of income, more mature beer market and a greater weighting
towards 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 less mature beer markets, volume has been impacted according to the market segmentation
between the on-trade and off-trade channels. In those cases, the reduction in volume is higher depending on the weighting of the
on-trade channel. In all the cases, the more severe the restrictions on the sale and consumption of our products, the greater the
reduction in volume, which is why Bolivia and Panama were among the worst-affected countries. 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 Company's total
volume.
During
2020, the implementation of the Company's strategy, the gradual reduction of restrictions in some regions and the impact of government
aid to the community drove a gradual improvement in volume performance in most of our operations, especially in Brazil. Our strategy
for 2021 will continue to be built around innovation, technology and collaboration with our ecosystem. Given that the challenges
brought by the COVID-19 pandemic remain a reality, we believe operational excellence and financial discipline will once again make
a difference as we work towards a consistent recovery of our top line and bottom line performance. As was the case in 2020, we
continue to expect the former to recover faster than the latter. The outlook for 2021 reflects our current assessment of the scale
and magnitude of the COVID-19 pandemic, which is subject to change as we continue to monitor ongoing developments.
See “Item 3.D.
Key Information—Risk Factors—Risks Relating to Our Operations—The extent of the pandemic declared by the World
Health Organization due to the spread of COVID-19, the perception of its effects or the way in which this pandemic will impact
our business, depends on future developments which are highly uncertain and unpredictable, and may result
in a material adverse effect on our business, financial condition, results of operations and cash flow”, and other risk factors
included herein and “—Trend Information” below.
Critical
Accounting Policies
The
preparation of financial statements in conformity with IFRS requires our 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 associated assumptions 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. Notes
3 and 4 to our audited consolidated financial statements include a summary of the critical accounting policies applied in the preparation
of these financial statements. 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.
Accounting policies
for the recognition of extemporaneous tax credits and debts – The accounting policy for the recognition of extemporaneous
(related to previous periods) tax credits and debits considered the account origin of the credit or debit up to September 30, 2020.
For example, “cost of products sold” is the account of origin for the extemporaneous tax credits or debits related
to the acquisition of raw materials. In the same way depreciation expenses is the account of origin of extemporaneous tax credits
or debits related to acquisitions of property, plant and equipment. Following this accounting policy, which has been applied consistently
up to the third quarter of 2020, credits referring to the exclusion of circulation of goods and services tax (“ICMS”)
from the social integration program (“PIS”) and contribution to the financing of social security (“COFINS”)
calculation base have been recognized as a reduction in sales tax expenses, with a positive effect on Net Revenue.
In the third quarter
of 2020 the Company (i) obtained final favorable decisions on: (a) lawsuits involving controlled companies claiming refunds of
the PIS and COFINS portion calculated with the inclusion of the ICMS and/or ICMS-ST relating to the period from 1990 onward, and
(b) lawsuits involving the Company and its controlled companies, specifically for the period in which the Special Beverage Regime
– (“REFRI”) was in place (2009 to 2015), and (ii) is awaiting decisions in lawsuits related to the current taxation
model (“New Tax Model”) from 2015 onwards. The amounts involved in these lawsuits, referred to in items (i.b) and (ii),
are significantly higher than those previously recognized, both for credits of the same type, as for recoveries or tax payments.
The Company changed its
accounting policy to one which better reflects the effects of the recognition of credits arising from final favorable decisions
in the lawsuits mentioned above. The previous accounting policy could have given a distorted analysis of the performance for the
year, due to the significant increase in the value of credits, so the Company changed its accounting policy to record credits and
other extemporaneous tax payments, of any nature, in Other Operating Income (expenses) and, thus is no longer following the original
accounting treatment. However, this change in accounting policy does not impact the Net Income, or any of the other balance sheet
schedules previously presented, or the amounts recorded in the financial results. The change in accounting policy did not apply
for state amnesties which are presented separately in income statement given their one-off exceptional nature, please refer to
Note 8 of our audited financial statements included elsewhere in this form.
As determined by IAS
8, the new accounting policy is applicable from October 1, 2020 and, for comparative purposes, the relevant balances of extemporaneous
credits and debits for 2019 have been reclassified from the account of origin to “Other Income and Expenses”. The balances
for the year ended December 31, 2018, were not reclassified for this change in accounting policy as the amount is deemed immaterial.
We have adopted these
new accounting standards on the effective date required and, therefore, the audited financial statements included in this annual
report (i) as of and for the year ended December 31, 2018 reflect the application of IFRS 9 and IFRS 15; (ii) as of and for the
year ended December 31, 2019 reflect the application of IFRS 16. For more information on our analysis and evaluation on the impact
of the 2019 new accounting standards, please see Notes 3 and 4 of our audited financial statements included elsewhere in this annual
report.
The following standards issued by the
International Accounting Standards Board became effective for annual periods beginning on January 1, 2018:
|
·
|
IFRS 9 Financial Instruments, which replaces IAS 39 Financial Instruments: Recognition
and Measurement for periods beginning after January 1, 2018, introduces new requirements for the classification of financial
assets, that depends on the entity’s business model and the contractual characteristics of the cash flow of the financial
instruments; defines a new expected-loss impairment model that will require more effective recognition; and introduces a substantially-reformed
model for hedge accounting, with enhanced disclosures about risk management activity. The new hedge accounting model represents
a significant revision of the policy and aligns the accounting treatment with the risk management activities. IFRS 9 also removes
the volatility in the result caused by changes in the credit risk of liabilities determined to be measured at fair value. We have
applied IFRS 9 Financial Instruments as of the effective date, without restatement of the comparative information for the period
beginning January 1, 2017. Consequently, the classification and measurement of the financial instruments for the comparative periods
follow the requirements under IAS 39. We performed an impact assessment and concluded that IFRS 9 Financial Instruments does not
impact materially our financial position, financial performance or risk management activities.
|
|
·
|
IFRS 15 Revenue from Contracts with Customers requires that the revenue recognition be done
depict the transfer of goods or services to customers on amounts that reflect the consideration to which we expect to be entitled
in exchange for those goods or services. The new standard for periods beginning on after January 1, 2018 result in more and enhanced
disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively (for example, service
revenue and contract modifications) and improve guidance for multiple-element arrangements. We have applied IFRS 15 Revenue from
Contracts with Customers as of the effective date, January 1, 2018, in accordance with the modified retrospective application.
Under this approach, the cumulative effect of initially applying IFRS 15 must be recognized as an adjustment to the opening balance
of equity, in Retained earnings, at the date of initial application without the restatement of prior periods. On the implementation
date, the adjustment to the opening balance of equity resulted in a decrease of the Retained earnings by R$355,383, to reflect
the changes in accounting policies related to certain rebates granted to customers that, in accordance whit the IFRS 15, should
be tied to the transaction price underlying 2017 revenue.
|
The following standards
issued by the International Accounting Standards Board became effective for annual periods beginning on January 1, 2019:
|
·
|
IFRS 16 Leases replaces the current lease accounting requirements and introduces significant
changes in the accounting. This change removes the distinction between operating and finance leases under IAS 17 Leases and related
interpretations and requires a lessee to be recognized as right-of-use asset and a liability classified according to the contract
period. Having adopted the standard as of January 1, 2019, we have adopted the retrospectively presentation for the consolidated
financial statements. The impact to the financial statements is demonstrated in the recognition of right-of-use assets and lease
liabilities in the balance sheet, initially measured at the present value of future lease payments, recognition of depreciation
expenses of right-of-use assets in the income statement, recognition of interest expenses in the financial result on the lease
liabilities in the income statement, and the segregation of the payment of the leases by a principal portion presented within the
financing activities and an interest component presented within the operational activities in the cash flows. The new lease definitions
have been applied to all identified contracts in effect on the date of adoption of the standard. IFRS 16 determines that the contract
contains a lease if it transmits to the lessee the right to control the use of the identified asset for a period of time by exchange
of counter payments. We have carried out an inventory of the contracts, evaluating whether or not they contain a lease in accordance
with IFRS 16. This analysis identified impacts mainly related to the leasing operations of real estate from third parties, trucks,
cars, forklifts and servers. Short-term (12 months or less) and low value (US$5,000 or less) leases were not subject to this analysis,
as permitted by the standard. For these contracts, we will continue to recognize a lease expense on a straight-line basis, if applicable.
When measuring lease liabilities, we discounted lease payments using the incremental borrowing rates. The weighted average rate
applied is of 12.6% until December 31, 2018.
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Financial statements
in hyperinflationary economies
Hyperinflation accounting
as prescribed by IAS 29 stipulates that non-monetary assets and liabilities, equity and income statement of subsidiaries operating
in hyperinflationary economies must be adjusted to reflect changes in the general purchasing power of the local currency applying
a general price index. The financial statements of an entity whose functional currency is the currency of a hyperinflationary economy,
whether they are based on a historical cost approach or the current cost approach, must be stated in terms of the unit of measurement
current in force at the end of the reporting period and translated into Brazilian real at the period closing exchange rate.
In July 2018, the
Argentine peso underwent a severe devaluation resulting in the three-year cumulative inflation of Argentina exceeding 100%,
thereby triggering the requirement to transition to hyperinflation accounting as prescribed by IAS 29.
Goodwill
Goodwill arises on
acquisitions of subsidiaries, associates and joint arrangements. Goodwill is determined as the excess (1) of the consideration
paid; (2) the amount of any non-controlling interests in the acquiree (when applicable); and (3) the fair value, at acquisition
date, of any previous equity interest in the acquiree, over the fair value of the net identifiable assets acquired as at the date
of acquisition. All business combinations are accounted for using the purchase method.
In conformity with
IFRS 3 Business Combinations, goodwill is carried at cost and is not amortized, but tested for impairment at least annually, or
whenever there are indications that the cash generating unit (“CGU”) to which the goodwill has been allocated could
be impaired. Impairment losses recognized on goodwill are not reversed. Gains and losses on the disposal of an entity include the
carrying amount of goodwill relating to the entity sold.
Goodwill is expressed
in the functional currency of the CGU or joint operation to which it relates and translated to reais using the year-end
exchange rate.
Regarding associates
and joint ventures, goodwill is included in the carrying amount of the investment in the associate/joint ventures.
If our interest in
the net fair value of the identifiable assets, liabilities and contingent liabilities recognized exceeds the costs of the business
combination such excess is recognized immediately in the income statement.
Expenditure on internally
generated goodwill is expensed as incurred. Goodwill includes the effects of the predecessor basis of accounting.
Business
Combinations Between Entities Under Common Control
Business combinations
between entities under common control have not been addressed by IFRS’s. IFRS 3 is the standard that shall be applied to
business combinations, however it explicitly excludes business combinations between entities under common control from its scope.
Predecessor
basis of accounting
In accordance with
IAS 8, Management has adopted the predecessor basis of accounting, which is consistent with United States Generally Accepted Accounting
Principles (“USGAAP”) and United Kingdom Generally Accepted Accounting Principles (“UKGAAP”), the predecessor
basis of accounting to record the carrying amount of the asset received, as recorded by the parent company.
Under
the predecessor basis of accounting, when accounting for a transfer of assets between entities under common control, the entity
that receives the net assets or the equity interests (the acquirer) shall initially record the assets and liabilities transferred
at their parent book value as at the transfer date. If the book value of the assets and liabilities transferred by the parent is
different from the historical cost recorded by the controlling entity of the entities under common control (the ultimate parent),
the financial statements of the acquirer shall reflect the assets and liabilities transferred at the same cost of the ultimate
parent, in as a counter-entrypart to shareholders' equity against the carrying value adjustments.
Swap
of assets
For transactions between
entities under common control that involve the disposal or transfer of assets from the subsidiary to its parent company (i.e. above
the level of the consolidated financial statements) the Company assesses the existence of: (i) any conflicts of interest; and (ii)
the economic substance and purpose of the transaction. Having fulfilled these assumptions, the Company adopted as a policy the
concepts of IAS 16 in order to provide adequate visibility and a fair impact on the amount of the distributable results to our
shareholders, specially the non-controlling interests. This policy also includes assets acquired through the swapping of non-cash
assets, or swaps with a combination of cash and non-cash assets. The assets subject to the swap may be of equal or different nature.
The cost of such asset is measured at fair value, unless: (i) the swap transaction is not commercial in nature; or (ii) the fair
value of the asset received (and the asset assigned) cannot be reliably measured. The acquired asset is measured in this way even
if the assignor entity cannot immediately remove the asset from its books. If the acquired asset is not measurable at fair value,
its cost is determined based on the book value of the assigned asset.
Whenever there is
a distribution of assets that are not recorded as cash, the asset, before its distribution, is recorded at its fair value in the
income account. This procedure is applicable to the distributions in which the assets are equal in nature and therefore can be
treated equitably. However, similarly to IFRIC 17, in the absence of a specific accounting practice for transactions under common
control, we apply these procedures as part of our accounting practices. We also apply the same procedure to sales (products, supplies,
etc.) to our controlling entity, where the positive result of the sale is recognized in the income account.
Joint
Arrangements
Joint arrangements
are all entities over which we share control with one or more parties. Joint arrangements are classified either as joint operations
or joint ventures depending on the contractual rights and obligations of each investor.
Employee
Benefits
Post-employment
benefits
Post-employment benefits
include pensions managed in Brazil by Instituto Ambev de Previdência Privada - (“IAPP”), post-employment
dental benefits and post-employment medical benefits are managed by Fundação Zerrenner. Usually, pension plans are
funded by payments made by both the Company and its participants, considering the recommendations of independent actuaries. Post-employment
dental benefits and post-employment medical benefit obligations are funded using the returns on the assets of the Fundação
Zerrenner’s plan assets. If necessary, the Company may contribute some of its profits to Fundação Zerrenner.
The Company manages
defined benefit and/or defined contribution plans and/or medical and dental assistance plans for the employees of its companies
located in Brazil and its subsidiaries located in the Dominican Republic, Barbados, Panama, Uruguay, Bolivia, Argentina and Canada.
The
Company maintains both funded and unfunded plans.
Defined
Contribution Plans
A defined contribution
plan is a pension plan under which we pay fixed contributions into a fund. We have no legal or constructive obligations to pay
further contributions if the fund does not hold sufficient assets to pay all employees for the benefits relating to employee service
in the current and prior periods.
The contributions
of these plans are recognized as expense in the period they are incurred.
Defined
Benefit Plans
Typically, defined
benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more
factors such as age, years of service and compensation level.
For defined benefit
plans, expenses are assessed separately for each plan using the projected credit unit method. The projected credit unit method
takes into account that each period of service as giving rise to an additional unit of benefit and measures each such unit separately.
Based on this method, the cost of providing pensions is charged to the income statement over the period of service of the employee.
The amounts charged to the income statement consist of current service costs, interest costs, past service costs and the effect
of any settlements and curtailments. The obligations of the plan recognized in the balance sheet are measured at the present value
of the estimated future cash outflows using a discount rate equivalent to the government´s bond rates with maturity terms
similar to those of the respective obligation and the fair values of the plan assets.
Past service costs
arise from the introduction of a new plan or changes to an existing plan. They are recognized immediately in the income statement,
at the earlier of: (i) when the settlement/curtailment occurs; or (ii) when the Company recognizes the related restructuring or
termination costs, unless those changes are conditional upon the employee’s continued employment, for a specific period of
time (the period in which the rights are acquired). In such cases, the past services costs are amortized using the straight-line
method over the period in during which the rights were acquired. Actuarial gains and losses consist of the effects of differences
between the previous actuarial assumptions and what has actually occurred, and the effects of changes in actuarial assumptions.
Actuarial gains and losses are fully recognized in carrying value adjustments.
Re-measurements, comprising
of actuarial gains and losses, the effect of the asset ceiling and the return on plan assets, both excluding net interest, are
recognized in full in the period in which they occur in the statement of comprehensive income. Re-measurements are not reclassified
to profit or loss in subsequent periods.
When the amount of
the defined benefit obligation is negative (an asset), we recognize those assets (prepaid expenses), to the extent of the value
of the economic benefit available to us either from refunds or reductions in future contributions.
Other
Post-Employment Obligations
We and some of our
subsidiaries provide post-employment medical benefits, the reimbursement of certain medication expenses and other benefits to certain
retirees. These benefits are not granted to new retirees. The expected costs of these benefits are recognized over the period of
employment, using an accounting methodology similar to that for defined benefit plans, including actuarial gains and losses.
Termination
Benefits
Termination benefits
are recognized as expenses at the earlier of: (1) when we are demonstrably committed, without a realistic possibility of withdrawal,
to a formal detailed plan to terminate employment before the normal retirement date, and (2) when we recognize costs for a restructuring.
Deferred
and Current Income Tax and Social Contribution
Income tax and social
contribution for the year comprises current tax and deferred tax. Income tax and social contribution are recognized in the income
statement, unless they relate to items recognized directly in comprehensive income or other equity accounts. In these cases, the
tax effect is also recognized directly in comprehensive income or equity account (except interest on shareholder’s equity
– see Note 3(i) to our consolidated financial statements).
The current tax expense
is the expectation of payment on the taxable income for the year, using tax rates enacted, or substantially enacted, at the balance
sheet date, and any adjustment to tax payable in respect of previous years.
Deferred taxes are
recognized using the balance sheet liability approach. This means that a deferred tax liability or asset is recognized for all
taxable and tax deductible temporary differences between the tax and accounting basis of assets and liabilities. Under this method,
a provision for deferred taxes is also calculated on the differences between the fair value of assets and liabilities acquired
in a business combination and their tax basis. IAS 12 prescribes that no deferred tax liability on goodwill recognition, and no
deferred tax asset/liability is recorded: (1) at the initial recognition of an asset or liability in a transaction other than
a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss and (2) on differences
related to investments in subsidiaries to the extent that they are not reversed in the foreseeable future. The amount of deferred
tax provided is based on the expectation of the realization or settlement of the temporary difference, using currently or substantially
enacted tax rates.
Deferred tax assets
and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate
to income taxes levied by the same tax authority on the same taxable entity, or on different taxable entities which intend either
to settle current tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously.
The deferred tax asset
is recognized only to the extent that it is probable that future taxable profits will be available. The deferred income tax asset
is reduced to the extent that it is no longer probable that the future taxable benefit will occur.
Our aggregate weighted
nominal tax rate applicable for the years ended December 31, 2020, 2019 and 2018 was 30.3%, 28.9% and 30.1%, respectively. For
the years ended December 31, 2020, 2019 and 2018, our IFRS effective tax rate was 13.1%, 5.8% and 13.5%, respectively.
The main events that
impacted the effective tax rate in 2020 were:
|
·
|
government subsidies for sales taxes: we have state tax incentives within certain local
manufacturing that when reinvested are not taxed for income tax purposes, which explains the impact in the effective tax rate.
The amounts above are impacted by fluctuations in production volumes, pricing and eventual fluctuations in state taxation rates;
|
|
·
|
deductible interest on net equity: under Brazilian law, companies have the option to distribute
interest on equity, or JCP, calculated based on the long-term interest rate, or TJLP, which are deductible for income tax purposes
under the applicable legislation; in 2020 we distributed approximately R$ 6.509,5 million as interest on equity, of which R$ 2.213,2
million was deductible, resulting in a tax impact of approximately R$ 2.213,2 million;
|
|
·
|
results from intercompany transactions: we make adjustments to reflect the tax scenario
in countries in which some of Ambev’s subsidiaries are located and with whom Ambev has intercompany loan agreements. The
non-taxability of the income arising from those countries is reflected in the effective tax rate; and
|
|
·
|
foreign income tax complement from offshore subsidiaries: in accordance with Law No. 12,973,
we make adjustments to reflect the application of tax credits in relation to profits generated from consolidated and non-consolidated
subsidiaries abroad, outside of Brazil.
|
Financial Instruments
and Hedge Accounting
We use financial instruments
to implement our risk management strategy and policies. Derivatives are generally used to mitigate the impact of foreign currencies,
interest rates, equity prices and commodity prices on our performance. Our financial risk management policy prohibits the use of
derivatives when not related to the company’s core business.
Exceptional
Items
Exceptional items
are those that in Management’s judgment need to be disclosed separately. In determining whether an event or transaction is
special, Management considers quantitative as well as qualitative factors such as the frequency or predictability of occurrence,
and the potential impact on the variations in profit or loss. These items are disclosed in the income statement or separately disclosed
in the notes to the financial statements. Transactions that may give rise to exceptional items are principally restructuring activities,
amnesties, acquisitions of subsidiaries, impairment losses, and gains or losses on disposal of assets and investments.
Year Ended
December 31, 2020 Compared to Year Ended December 31, 2019
In the periods discussed
below, we conducted our operations through four business segments as follows:
|
·
|
Brazil, which includes the beer sales division and the NAB sales division;
|
|
·
|
Central America and the Caribbean, which includes our direct operations in the Dominican
Republic, Saint Vincent, Antigua, Dominica, Cuba, Guatemala (which also serves El Salvador, Honduras and Nicaragua), Barbados and
Panama;
|
|
·
|
Latin America South, which includes our operations in Argentina, Bolivia, Paraguay, Uruguay
and Chile; and
|
|
·
|
Canada, represented by Labatt’s operations, which includes domestic sales in Canada
and some exports to the U.S. market.
|
The table below sets
forth certain of our operating highlights for the years presented:
|
Consolidated
Financial Highlights
|
|
2020(2)
|
2019(1)(2)
|
% Change
|
|
(in R$ million, except volume amounts,
percentages and per share amounts)
|
Sales volume—’000 hectoliters
|
165,797.9
|
163,243.0
|
1.4%
|
Net sales
|
58,379.0
|
52,005.1
|
12.3%
|
Net revenue per hectoliter—R$/hl
|
352.1
|
318.6
|
10.5%
|
Cost of sales
|
(27,066.1)
|
(21,678.2)
|
24.9%
|
Gross profit
|
31,312.9
|
30,326.9
|
3.3%
|
Gross margin (%)
|
53.6%
|
58.3%
|
470bps
|
Sales, marketing and distribution expenses
|
(14,619.6)
|
(12,647.5)
|
15.6%
|
Administrative expenses
|
(2,948.5)
|
(2,680.0)
|
10.0%
|
Other operating income/(expenses) net
|
2,679.4
|
1,472.7
|
81.9%
|
Exceptional items
|
(452.0)
|
(397.2)
|
13.8%
|
Income from operations
|
15,972.2
|
16,074.9
|
(0.6%)
|
Operating margin (%)
|
27.4%
|
30.9%
|
350 bps
|
Net income
|
11,731.9
|
12,188.4
|
(3.7%)
|
Net margin (%)
|
20.1%
|
23.4%
|
330bps
|
|
(1)
|
The financial information for 2018 and 2017 have been restated to reflect the impact of adoption
of IFRS 16 Leases on January 1, 2019 in accordance with the full retrospective application. For more information on changes in
accounting policies, see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Critical
Accounting Policies”.
|
|
(2)
|
The Company changed its accounting policy used to account for extemporaneous (related to previous
periods) tax credits and debits in 2020. See Note 3 to our audited consolidated financial statements. The year ended December 31,
2019 has been restated for comparative purposes. The years ended December 31,2018, 2017 and 2016 derived from our historical financial
statements and were not restated for this change in accounting policy as amounts deemed immaterial.
|
Margin
Analysis
The following table
sets forth certain line items of our income statement expressed as percentages of net sales for the years ended December 31,
2020 and 2019:
|
Year Ended
December 31,
|
|
2020
|
2019
|
|
(%)
|
(%)
|
Net sales
|
100.0
|
100.0
|
Cost of sales
|
(46.4)
|
(41.7)
|
Gross profit
|
53.6
|
58.3
|
Sales, marketing and distribution expenses
|
(25.0)
|
(24.3)
|
Administrative expenses
|
(5.1)
|
(5.2)
|
Other operating income/(expenses) net
|
4.6
|
2.8
|
Exceptional items
|
(0.8)
|
(0.8)
|
Income from operations
|
27.4
|
30.9
|
Selected Financial
Data by Business Segment
The following table
sets forth selected financial data by business segment for the years ended December 31, 2020 and 2019:
|
Year Ended
December 31,
|
|
2020
|
2019
|
|
Brazil
|
CAC
|
LAS
|
Canada
|
Total
|
Brazil
|
CAC
|
LAS
|
Canada
|
Total
|
|
(in R$ million)
|
Net sales
|
30,196.5
|
7,319.3
|
11,560.8
|
9,302.4
|
58,379.0
|
28,129.9
|
6,757.9
|
10,028.7
|
7,088.6
|
52,005.1
|
Cost of sales
|
(14,112.9)
|
(3,307.5)
|
(5,937.4)
|
(3,708.3)
|
(27,066.1)
|
(12,096.3)
|
(2,934.1)
|
(3,998.0)
|
(2,649.8)
|
(21,678.2)
|
Gross profit
|
16,083.6
|
4,011.8
|
5,623.4
|
5,594.1
|
31,312.9
|
16,033.6
|
3,823.8
|
6,030.7
|
4,438.8
|
30,326.9
|
Sales, marketing, distribution and administrative expenses
|
(9,315.6)
|
(1,598.9)
|
(3,233.3)
|
(3,420.3)
|
(17,568.1)
|
(8,585.7)
|
(1,494.0)
|
(2,540.5)
|
(2,707.3)
|
(15,327.5)
|
Other operating income/ (expenses)
|
2,887.2
|
(23.5)
|
(159.9)
|
(24.4)
|
2,679.4
|
1,421.0
|
85.8
|
(18.0)
|
(16.1)
|
1,472.7
|
Exceptional items
|
(173.8)
|
(70.5)
|
(145.7)
|
(62.0)
|
(452.0)
|
(328.2)
|
(17.1)
|
(51.9)
|
0.0
|
(397.2)
|
Income from operations
|
|
|
|
|
|
8,540.7
|
2,398.5
|
3,420.3
|
1,715.4
|
16,074.9
|
Net
Sales
Net sales increased
by 12.3% in 2020, to R$58,379.0 from R$52,005.1 million in 2019, as shown in tables set forth below:
|
Net Sales
Year Ended December 31,
|
|
2020
|
2019
|
|
|
Sales
|
% of Total
|
Sales
|
% of Total
|
% Change
|
|
(in R$ million, except percentages)
|
Brazil
|
30,196.5
|
51.7%
|
28,129.9
|
54.1%
|
7.3%
|
Beer Brazil
|
25,953.0
|
44.5%
|
23,765.5
|
45.7%
|
9.2%
|
NAB
|
4,243.5
|
7.3%
|
4,364.4
|
8.4%
|
(2.8)%
|
CAC
|
7,319.3
|
12.5%
|
6,757.9
|
13.0%
|
8.3%
|
Latin America South
|
11,560.8
|
19.8%
|
10,028.7
|
19.3 %
|
15.3%
|
Canada
|
9,302.4
|
15.9%
|
7,088.6
|
13.6 %
|
31.2%
|
Total
|
58,379.0
|
100.0%
|
52,005.1
|
100.0%
|
12.3%
|
|
|
|
|
|
|
|
Sales Volumes
Year Ended December 31,
|
|
2020
|
2019
|
|
|
Volume
|
% of Total
|
Volume
|
% of Total
|
% Change
|
|
(in thousands of hectoliters, except percentages)
|
Brazil
|
111,285.4
|
67.1%
|
106,806.7
|
65.4%
|
4.2%
|
Beer Brazil
|
84,791.7
|
51.1%
|
80,263.7
|
49.2%
|
5.6%
|
NAB
|
26,493.7
|
16.0%
|
26,542.9
|
16.3%
|
(0.2)%
|
CAC
|
11,451.2
|
6.9%
|
13,859.5
|
8.5%
|
(17.4)%
|
Latin America South
|
33,062.4
|
19.9%
|
32,991.1
|
20.2%
|
0.2%
|
Canada
|
9,998.9
|
6.0%
|
9,585.7
|
5.9%
|
4.3%
|
Total
|
165,797.9
|
100.0%
|
163,243.0
|
100.0%
|
1.6%
|
|
Net Revenue
per Hectoliter
Year Ended December 31,
|
|
2020
|
2019
|
% Change
|
|
(in R$, except percentages)
|
Brazil
|
271.3
|
263.4
|
3.0%
|
Beer Brazil
|
306.1
|
296.1
|
3.4%
|
NAB
|
160.2
|
164.4
|
(2.6)%
|
CAC
|
639.2
|
487.6
|
31.1%
|
Latin America South
|
349.7
|
304.0
|
15.0%
|
Canada
|
930.3
|
739.5
|
25.8%
|
Total
|
352.1
|
318.6
|
10.5%
|
Brazilian Operations
Total net sales from
our Brazilian operations increased by 7.3% in 2020, to R$30,196.5 from R$28,129.9 million in 2019.
Our net sales of beer
in Brazil increased by 9.2% in 2020, to R$25,953.0 from R$23,765.5 million in 2019. This variation is a consequence of a 5.6% increase
in volume sold, coupled with an increase in net revenue per hectoliter in 2020. Despite the impacts generated by the COVID-19 pandemic,
we were able to grow volumes in the full year as a result of the implementation of our commercial strategy, the success of our
innovations and our flexibility and adaptability to changes in the market.
Our net sales of NAB
in Brazil decreased by 2.8% in 2020, to R$ 4,243.5 from R$ 4,364.4 million in 2019 mainly due to the restrictions imposed by local
governments on people circulation in response to COVID-19 that impacted consumption occasions.
CAC Operations
Net sales from our
CAC operations increased by 8.3% in 2020, to R$7,319.3 from R$6,757.9 million in 2019, mainly driven by the restrictions imposed
by local governments on people circulation in response to the COVID-19, with a significant impact in our largest countries in the
region, Dominican Republic and Panama only partially offset by our revenue management initiatives that had a positive impact in
net revenue per hectoliter. Reported variation increased due to currency translation impacts as local currencies appreciated in
relation to the Brazilian real during the period.
Latin America South Operations
Net sales from our
Latin America South operations increased by 15.3% in 2020, to R$11,560.8 from R$10,028.7 million in 2019, mainly due to the high
inflation in Argentina and to currency translation impacts as local currencies appreciated in relation to the Brazilian real
during the period.
Canada Operations
Net sales from our
Canadian operations increased by 31.2% in 2020, to R$9,302.4 from R$7,088.6 million in 2019. The result was mainly due to the positive
volumes in the region driven by market share gains in the premium segment partially offset by a negative net revenue per hectoliter
impacted by the channel and package mix that resulted from the restrictions imposed by local governments on people circulation
in response to the COVID-19. Reported variation increased mainly due to currency translation impacts as local currency appreciated
in relation to the Brazilian real during the period.
Cost
of Sales.
Cost of sales increased
24.9% 2020, to R$27,066.1 from R$21,678.2 million in 2019. As a percentage of our net sales, total cost of sales increased
to 46.4% in 2020 from 41.7% in 2019.
The table below sets
forth information on cost of sales per hectoliter for the periods presented:
|
Cost of
Sales per Hectoliter
Year Ended December 31,
|
|
2020
|
2019
|
% Change
|
|
(in R$, except percentages)
|
Brazil
|
126.8
|
113.3
|
12.0%
|
Beer Brazil
|
140.8
|
125.1
|
12.6%
|
NAB
|
82.0
|
77.5
|
5.7%
|
CAC
|
288.8
|
211.7
|
36.4%
|
Latin America South
|
179.6
|
121.2
|
48.2%
|
Canada
|
370.9
|
276.4
|
34.2%
|
Total
|
163.2
|
132.8
|
22.9%
|
Brazilian Operations
Total cost of sales
for our Brazilian operations increased by 16.7% in 2020, to R$14,112.9 from R$12,096.3 million in 2019. On a per hectoliter basis,
our Brazilian operations’ cost of sales increased by 12.0% in 2020, to R$126.8 from R$113.3 in 2019.
Cost of sales for
our Brazilian beer operations increased by 19.0% in 2020, to R$11,941.7 from R$10,037.9 million in 2019, mainly explained by volume
growth and the increased weight of aluminum cans in the sales packaging mix.
Cost of sales for
our Brazilian NAB segment increased by 5.5% in 2020, to R$2,171.2 from R$2,058.4 million in 2019, mainly due to input costs. The
cost of sales per hectoliter increased by 5.7% in 2020, totaling R$82.0 from R$77.5 in 2019, mainly as result of the same factors.
CAC Operations
Cost of sales for
our CAC operations increased by 12.7% in 2020, to R$3,307.5 from R$2,934.1 million in 2019 despite our lower volumes sold in the
region in 2020, mainly driven by the restrictions imposed by local governments on people circulation in response to the COVID-19,
with a significant impact in our largest countries in the region, Dominican Republic and Panama. Reported variation increased due
to currency translation impacts as local currencies appreciated in relation to the Brazilian real during the period.
Latin America South Operations
Cost of sales for
our Latin America South operations increased by 48.5% in 2020, to R$5,937.4 from R$3,998.0 million in 2019 mainly due to the high
inflation in Argentina and the increased weight of aluminum cans in the sales packaging mix and also impacted by currency translation
as local currencies appreciated in relation to the Brazilian real during the period.
Canada Operations
Cost of sales for
our Canadian operations increased by 39.9% in 2020, to R$3,708.3 from R$2,649.8 million in 2019, mainly due to the increased weight
of aluminum cans in the sales packaging mix. Reported variation increased mainly due to currency translation impacts as local currency
appreciated in relation to the Brazilian real during the period.
Gross
Profit
As a result of the
foregoing, gross profit increased by 3.3% in 2020, to R$31,312.9 from R$30,326.9 million in 2019. The table below sets forth
the contribution of each business segment to our consolidated gross profit:
|
Gross Profit
|
|
2020
|
2019
|
|
Amount
|
% of Total
|
Margin
|
Amount
|
% of Total
|
Margin
|
|
(in R$ million, except percentages)
|
Brazil
|
16,083.6
|
51.4%
|
53%
|
16,033.6
|
52.9%
|
57%
|
Beer Brazil
|
14,011.3
|
44.7%
|
54%
|
13,727.6
|
45.3%
|
58%
|
NAB
|
2,072.3
|
6.6%
|
49%
|
2,306.0
|
7.6%
|
53%
|
CAC
|
4,011.8
|
12.8%
|
55%
|
3,823.8
|
12.6%
|
57%
|
Latin America South
|
5,623.4
|
18.0%
|
49%
|
6,030.7
|
19.9%
|
60%
|
Canada
|
5,594.1
|
17.9%
|
60%
|
4,438.8
|
14.6%
|
63%
|
Total
|
31,312.9
|
100.0%
|
54%
|
30,326.9
|
100.0%
|
58%
|
Sales,
Marketing, Distribution and Administrative Expenses
Our sales, marketing,
distribution and administrative expenses increased by 14.6% in 2020, to R$17,568.1 from R$15,327.5 million in 2019. An analysis
of sales and marketing and administrative expenses for each business segment is set forth below.
Brazilian Operations
Total sales, marketing,
distribution and administrative expenses in Brazil increased by 8.5% in 2020, to R$9,315.6 from R$8,585.7 million in 2019.
Sales, marketing,
distribution and administrative expenses for our Brazilian beer operations increased by 9.4% in 2020, to R$7,933,2 from R$7,252.5
million in 2019, primarily due to the higher volumes and the cost of last mile delivery.
Sales, marketing,
distribution and administrative expenses for the NAB segment in Brazil increased by 3.7% in 2020, to R$1,382.4 from R$1,333.2 million
in 2019 mainly due to higher distribution costs related to positive volume performance in northern regions of the country.
CAC Operations
Sales, marketing,
distribution and administrative expenses for our CAC operations increased by 7.0% in 2020, to R$1,598.9 from R$1,494.0 million
in 2019, mainly due to the disciplined execution of our cost saving initiatives. Reported variation increased due to currency translation
impacts as local currencies appreciated in relation to the Brazilian real during the period.
Latin America South Operations
Sales, marketing,
distribution and administrative expenses for our Latin America South operations increased by 27.3% in 2020, to R$3,233.3 from R$2,540.5
million in 2019 driven by the high inflation in Argentina, despite effective management of our expenses in the region, and also
by currency translation as local currencies appreciated in relation to the Brazilian real during the period.
Canada Operations
Sales, marketing,
distribution and administrative expenses for our Canadian operations increased by 26.3% in 2020, to R$3,420.3 from R$2,707.3 as
a result of the disciplined execution of our cost saving initiatives that were more than offset by currency translation as local
currency appreciated in relation to the Brazilian real during the period.
Other
Net Operating Income (Expense)
Other net operating
income increased by 81.9% in 2020, to R$2,679.4 from R$1,472.7 million in 2019.This result is mainly explained by the recognition
of tax credits related to a 2017 Brazilian Supreme Court decision that declared unconstitutional the inclusion of the ICMS in the
PIS and COFINS calculation basis.
Exceptional Items
Exceptional items
amounted to a R$452.0 million expense in 2020 compared to a R$397.2 million expense recorded in 2019. The expenses recorded
in 2020 were mainly due to exceptional expenses incurred in relation to the COVID-19 pandemic, including the actions taken to ensure
the health and safety of our employees, such as the acquisition of hand-sanitizer, masks and additional cleaning of our facilities,
as well as donations to the broader community, and restructuring expenses primarily linked to centralization and sizing projects
in Brazil and Latin America South.
Income from Operations
As a result of the
foregoing, income from operations decreased by 0.6% in 2020, to R$ 15,972.2 from R$16,074.9 million in 2019.
Net Finance
Result
Our
net finance result decreased by 21.7% in 2020, to an expense of R$2,434.5 from R$3,109.5 million in 2019. This result is mainly
explained by the recognition of tax credits related to a 2017 Brazilian Supreme Court decision that declared unconstitutional the
inclusion of the ICMS state tax in the taxable basis of the PIS and the COFINS federal taxes.
Our total debt, including
current and non-current interest-bearing loans and borrowing, increased by R$1,729.5 million in 2020, while our cash and cash equivalents
less bank overdrafts and current investment securities increased by R$6,875.0 million in 2020.
Income
Tax Expense
Our consolidated income
tax and social contribution on profits totaled R$1,762.5 in 2020 from R$754.7 million in 2019. The effective tax rate in 2020
was 13.1%, compared to 5.8% in the previous year. Such increase in our effective tax rate in 2020 was primarily due to an
increase in taxable income and a reduction in the interest on equity (IOC) deductibility benefit.
Net
Income
As a result of the
foregoing, net income decreased by 3,7% in 2020, to R$ 11,731.9 from R$12,188.4 million in 2019.
Year Ended
December 31, 2019 Compared to Year Ended December 31, 2018
In the periods discussed
below, we conducted our operations through four business segments as follows:
|
·
|
Brazil, which includes the beer sales division and the NAB sales division;
|
|
·
|
Central America and the Caribbean, which includes our direct operations in the Dominican
Republic, Saint Vincent, Antigua, Dominica, Cuba, Guatemala (which also serves El Salvador, Honduras and Nicaragua), Barbados and
Panama;
|
|
·
|
Latin America South, which includes our operations in Argentina, Bolivia, Paraguay, Uruguay
and Chile; and
|
|
·
|
Canada, represented by Labatt’s operations, which includes domestic sales in Canada
and some exports to the U.S. market.
|
The table below sets
forth certain of our operating highlights for the years presented:
|
Consolidated
Financial Highlights
|
|
2019 (2)
|
2018(1)(2)
|
% Change
|
|
(in R$ million, except volume amounts,
percentages and per share amounts)
|
Sales volume—’000 hectoliters
|
163,243.0
|
158,716.9
|
2.9%
|
Net sales
|
52,005.1
|
50,231.3
|
3.5%
|
Net revenue per hectoliter—R$/hl
|
318.6
|
316.5
|
0.7%
|
Cost of sales
|
(21,678.2)
|
(19,249.4)
|
12.6%
|
Gross profit
|
30,326.9
|
30,981.9
|
-2.1%
|
Gross margin (%)
|
58.3%
|
61.7%
|
340bps
|
Sales, marketing and distribution expenses
|
(12,647.5)
|
(12,328.5)
|
2.6%
|
Administrative expenses
|
(2,680.0)
|
(2,363.4)
|
13.4%
|
Other operating income/(expenses)
|
1,472.7
|
947.3
|
55.5%
|
Exceptional items
|
(397.2)
|
(86.4)
|
359.7%
|
Income from operations
|
16,074.9
|
17,150.9
|
-6.3%
|
Operating margin (%)
|
30.9%
|
34.1%
|
320bps
|
Net income
|
12,188.4
|
11,347.7
|
7.4%
|
Net margin (%)
|
23.4%
|
22.6%
|
(80bps)
|
(1)
The financial information for 2018 and 2017 have been restated to reflect the impact of adoption of IFRS 16 - Leases on January
1, 2019 in accordance with the full retrospective application. For more information on changes in accounting policies, see “Item
5. Operating and Financial Review and Prospects—A. Operating Results—Critical Accounting Policies”.
(2) The Company changed
its accounting policy used to account for extemporaneous (related to previous periods) tax credits and debits in 2020. See Note
3 to our audited consolidated financial statements. The year ended December 31, 2019 has been restated for comparative purposes.
The years ended December 31, 2018, 2017 and 2016 derived from our historical financial statements and were not restated for this
change in accounting policy as amounts deemed immaterial.
Margin
Analysis
The following table
sets forth certain line items of our income statement expressed as percentages of net sales for the years ended December 31,
2019 and 2018:
|
Year Ended
December 31,
|
|
2019
|
2018
|
|
(%)
|
(%)
|
Net sales
|
100.0
|
100.0
|
Cost of sales
|
(41.7)
|
(38.3)
|
Gross profit
|
58.3
|
61.7
|
Sales, marketing and distribution expenses
|
(24.3)
|
(24.5)
|
Administrative expenses
|
(5.2)
|
(4.7)
|
Other operating income/(expenses)
|
2.8
|
1.9
|
Exceptional items
|
(0.8)
|
(0.2)
|
Income from operations
|
30.9
|
34.1
|
Selected Financial
Data by Business Segment
The following table sets forth selected financial
data by business segment for the years ended December 31, 2019 and 2018:
|
Year Ended
December 31,
|
|
2019
|
2018
|
|
Brazil
|
CAC
|
LAS
|
Canada
|
Total
|
Brazil
|
CAC
|
LAS
|
Canada
|
Total
|
|
(in R$ million)
|
Net sales
|
28,129.9
|
6,757.9
|
10,028.7
|
7,088.6
|
52,005.1
|
26,814.2
|
5,813.9
|
10,753.9
|
6,849.3
|
50,231.3
|
Cost of sales
|
(12,096.3)
|
(2,934.1)
|
(3,998.0)
|
(2,649.8)
|
(21,678.2)
|
(10,014.8)
|
(2,559.1)
|
(4,261.7)
|
(2,413.8)
|
(19,249.4)
|
Gross profit
|
16,033.6
|
3,823.8
|
6,030.7
|
4,438.8
|
30,326.9
|
16,799.4
|
3,254.8
|
6,492.2
|
4,435.5
|
30,981.9
|
Sales, marketing, distribution and administrative expenses
|
(8,585.7)
|
(1,494.0)
|
(2,540.5)
|
(2,707.3)
|
(15,327.5)
|
(8,127.4)
|
(1,470.9)
|
(2,580.4)
|
(2,513.2)
|
(14,691.9)
|
Other operating income/ (expenses)
|
1,421.0
|
85.8
|
(18.0)
|
(16.1)
|
1,472.7
|
965.0
|
20.0
|
(24.6)
|
(13.1)
|
947.3
|
Exceptional items
|
(328.2)
|
(17.1)
|
(51.9)
|
0.0
|
(397.2)
|
(43.7)
|
62.4
|
(88.3)
|
(16.8)
|
(86.4)
|
Income from operations
|
8,540.7
|
2,398.5
|
3,420.3
|
1,715.4
|
16,074.9
|
9,593.3
|
1,866.3
|
3,798.9
|
1,892.4
|
17,150.9
|
Net
Sales
Net sales increased
by 3.5% in 2019, to R$52,005.1 million from R$50,231.3 million in 2018, as shown in tables set forth below:
|
Net Sales
Year Ended December 31,
|
|
2019
|
2018
|
|
|
Sales
|
% of Total
|
Sales
|
% of Total
|
% Change
|
|
(in R$ million, except percentages)
|
Brazil
|
28,129.9
|
54.1%
|
26,814.2
|
53.4%
|
4.9%
|
Beer Brazil
|
23,765.5
|
45.7%
|
23,008.5
|
45.8%
|
3.3%
|
NAB
|
4,364.4
|
8.4%
|
3,805.7
|
7.6%
|
14.7%
|
CAC
|
6,757.9
|
13.0%
|
5,813.9
|
11.6%
|
16.2%
|
Latin America South
|
10,028.7
|
19.3%
|
10,753.9
|
21.4%
|
-6.7%
|
Canada
|
7,088.6
|
13.6%
|
6,849.3
|
13.6%
|
3.5%
|
Total
|
52,005.1
|
100.0%
|
50,231.3
|
100.0%
|
3.5%
|
|
|
|
|
|
|
|
Sales Volumes
Year Ended December 31,
|
|
2019
|
2018
|
|
|
Volume
|
% of Total
|
Volume
|
% of Total
|
% Change
|
|
(in thousands of hectoliters, except percentages)
|
Brazil
|
106,806.7
|
65.4%
|
101,642.9
|
64.0%
|
5.1%
|
Beer Brazil
|
80,263.7
|
49.2%
|
77,784.2
|
49.0%
|
3.2%
|
NAB
|
26,542.9
|
16.3%
|
23,858.8
|
15.0%
|
11.2%
|
CAC
|
13,859.5
|
8.5%
|
13,159.8
|
8.3%
|
5.3%
|
Latin America South
|
32,991.1
|
20.2%
|
33,971.2
|
21.4%
|
(2.9)%
|
Canada
|
9,585.7
|
5.9%
|
9,942.9
|
6.3%
|
(3.6)%
|
Total
|
163,243.0
|
100.0%
|
158,716.9
|
100.0%
|
2.9%
|
|
Net Revenue
per Hectoliter
Year Ended December 31,
|
|
2019
|
2018
|
% Change
|
|
(in R$, except percentages)
|
Brazil
|
263.4
|
263.8
|
-0.2%
|
Beer Brazil
|
296.1
|
295.8
|
0.1%
|
NAB
|
164.4
|
159.5
|
3.1%
|
CAC
|
487.6
|
441.8
|
10.4%
|
Latin America South
|
304.0
|
316.6
|
-4.0%
|
Canada
|
739.5
|
688.9
|
7.4%
|
Total
|
318.6
|
316.5
|
0.7%
|
Brazilian Operations
Total net sales from
our Brazilian operations increased by 4.9% in 2019, to R$ 28,129.9
million from R$ 26,814.2 million in 2018.
Our net sales of beer
in Brazil increased by 3.3% in 2019, to R$ 23,765.5 million from R$ 23,008.5 million
in 2018. The growth is a consequence of a 3.2% increase in sales volume driven by industry expansion resulting from a slight improvement
in the consumer environment, coupled with a 0.1% increase in net revenue per hectoliter in 2019, reaching R$ 296.1 that year as
a result of a price increase. Despite an overall growth, the Brazilian beer market is still under the continued effects of (1)
a high unemployment rate; (2) the slow growth of disposable income; and (3) low consumer confidence.
Our net sales of NAB
in Brazil increased by 14.7% in 2019, to R$ 4,364.4 million from
R$ 3,805.7 million in 2018 mainly due to a 11.3% increase in sales volume driven by industry expansion driven in part by a
slight improvement in the consumer environment, coupled with a 3.1% increase in net revenue per hectoliter in 2019, reaching R$
164.4 that year as a result of our revenue management initiatives and price increase. Despite an overall growth, the Brazilian
NAB market is still under the continued effects of (1) a high unemployment rate; (2) the slow growth of disposable income; and
(3) low consumer confidence.
CAC Operations
Net sales from our
CAC operations increased by 16.2% in 2019, to R$6,757.9 million from R$5,813.9 million in 2018, mainly driven by (1) a 5.3%
increase in sales volume, primarily reflecting better sales in most of the Central America and the Caribbean countries where we
operate, resulting from favorable macroeconomic conditions and (2) higher net revenue per hectoliter. Net revenue per hectoliter
increased by 10.4% in 2019, reaching R$487.6 that year, as the effect of our price increases was amplified by currency translation
due to the appreciation of local currencies in relation to the Brazilian real during the period.
Latin America South Operations
Net sales from our
Latin America South operations decreased by 6.7% in 2019, to R$10,028.7 million from R$10,753.9 million in 2018, mainly due to
(1) the negative currency translation due to the weakening of the Argentine peso over the period, and (2) a 2.9% decrease
in volume sold, which was primarily driven by the adverse macroeconomic conditions in Argentina that had a negative impact on consumption
in such country. Net revenue per hectoliter decreased by 4.0% in 2019, reaching R$304.0 that year, as the positive impact of our
revenue management initiatives was largely offset by the impact of the Argentine peso devaluation.
Canada Operations
Net sales from our
Canadian operations increased by 3.5% in 2019, to R$7,088.6 million from R$6,849.3 million in 2018. The result was mainly
due to (1) the positive impact from currency translation reflecting the appreciation of the Canadian dollar when compared to the
real over the period, (2) an increase in net revenue per hectoliter by 7.4%, reaching R$739.5 in 2019, and (3) a favorable
brand mix, which was partially offset by a 3.6% decrease in sales volume reflecting the overall contraction of the Canadian beer
industry in 2019 driven in part by unfavorable weather conditions and the growth of other categories of beverages.
Cost
of Sales
Cost of sales increased
12.6% in 2019, to R$21,678.2 million from R$19,249.4 million in 2018. As a percentage of our net sales, total cost of sales
increased to 41.7% in 2019 from 38.3% in 2018.
The table below sets
forth information on cost of sales per hectoliter for the periods presented:
|
Cost of
Sales per Hectoliter
Year Ended December 31,
|
|
2019
|
2018
|
% Change
|
|
(in R$, except percentages)
|
Brazil
|
113.3
|
98.5
|
14.9%
|
Beer Brazil
|
125.1
|
105.6
|
18.4%
|
NAB
|
77.5
|
75.5
|
2.8%
|
CAC
|
211.7
|
194.5
|
8.9%
|
Latin America South
|
121.2
|
125.5
|
(3.4)%
|
Canada
|
276.4
|
242.8
|
13.9%
|
Total
|
132.8
|
121.3
|
9.5%
|
Brazilian Operations
Total cost of sales
for our Brazilian operations increased by 20.8% in 2019, to R$12,096.3 million from R$10,014.8 million in 2018. On a per hectoliter
basis, our Brazilian operations’ cost of sales increased by 14.9% in 2019, to R$113.3 from R$98.5 in 2018.
Cost of sales for
our Brazilian beer operations increased by 22.2% in 2019, to R$10,037.9 million from R$8,214.2 million in 2018, mainly explained
by (1) depreciation of the real in 2018, impacting our costs in 2019, and (2) an increase in hedged commodities prices on
the purchase of raw materials, especially barley in 2018, impacting costs in 2019. The impact of fluctuations of the local currency
against the dollar and of commodity prices are typically postponed to the subsequent period as our policy is to hedge operational
transactions reasonably expected to occur within a designated period of approximately 12 months from the current month. On a per
hectoliter basis, cost of sales for our Brazilian beer operations increased by 18.4%, to R$125.1 in 2019 from R$105.6 in 2018,
mainly as result of the same factors.
Cost of sales for
our Brazilian NAB segment increased by 14.3% in 2019, to R$2,058.4 million from R$1,800.6 million in 2018, mainly due to (1) increased
costs associated with higher sales volumes, and (2) depreciation of the real in 2018, impacting our costs in 2019, partially
offset by lower sugar prices in 2018, also impacting our costs in 2019. The cost of sales per hectoliter increased by 2.8% in 2019,
totaling R$77.5 from R$75.5 in 2018, mainly as result of the same factors.
CAC Operations
Cost of sales for
our CAC operations increased by 14.7% in 2019, to R$2,934.1 million from R$2,559.1 million in 2018 in line with the corresponding
increase in our net sales over the same period, due mainly to (1) increased costs associated with higher sales volumes, (2) increased
temporary costs to supply the Panamanian market with no disruption, as our current infrastructure in Panama was unable to support
the strong sales volume growth since 2017 leading to production capacity restraints in the country, and (3) the currency translation
impact due to the strengthening of local currencies, primarily the peso, in the Dominican Republic, and the dollar, in Panama,
in relation to the Brazilian real during the period. On a per hectoliter basis, our cost of sales per hectoliter for our
CAC operations increased by 8.9% in 2019, to R$211.7 from R$194.5 in 2018, mainly as a result of the same factors.
Latin America South Operations
Cost of sales for
our Latin America South operations decreased by 6.2% in 2019, to R$3,998.0 million in 2019 from R$4,261.7 million in 2018 mainly
due to (1) the impact of currency translation reflecting the depreciation of the Argentine peso over the period, and (2)
the reduced costs associated with lower sales volume. Such impacts were partially offset by higher inflation
in Argentina in 2019, and depreciation of the Argentine peso in 2018, impacting our costs in 2019. On a per hectoliter basis,
our cost of sales for our Latin America South operations decreased by 3.4% in 2019, to R$121.2 from R$125.5 in 2018, mainly as
a result of the same factors.
Canada Operations
Cost of sales for
our Canadian operations increased by 9.8% in 2019, to R$2,649.8 million from R$2,413.8 million in 2018, mainly due to (1)
the negative impact of currency translation reflecting the strengthening of the Canadian dollar in relation to the Brazilian real
over the period, (2) an increase in hedged commodity prices, especially aluminum in 2018, impacting costs in 2019, which was
partially offset by a 3.6% decrease in sales volume over the period. Cost of goods sold per hectoliter increased by 13.9% in 2019,
to R$276.4 in 2019 from R$242.8 in 2018, mainly as a result of the same factors.
Gross
Profit
As a result of the
foregoing, gross profit decreased by 2.1 % in 2019, to R$ 30,326.9 million from R$30,981.9 million in 2018. The table below
sets forth the contribution of each business segment to our consolidated gross profit:
|
Gross Profit
|
|
2019
|
2018
|
|
Amount
|
% of Total
|
Margin
|
Amount
|
% of Total
|
Margin
|
|
(in R$ million, except percentages)
|
Brazil
|
16,033.6
|
52.9%
|
57%
|
16,799.4
|
54.2%
|
63%
|
Beer Brazil
|
13,727.6
|
45.3%
|
58%
|
14,794.3
|
47.8%
|
64%
|
NAB
|
2,306.0
|
7.6 %
|
53%
|
2,005.1
|
6.5%
|
53%
|
CAC
|
3,823.8
|
12.6%
|
57%
|
3,254.8
|
10.5%
|
56%
|
Latin America South
|
6,030.7
|
19.9%
|
60%
|
6,492.2
|
21.0%
|
60%
|
Canada
|
4,438.8
|
14.6%
|
63%
|
4,435.5
|
14.3%
|
65%
|
Total
|
30,326.9
|
100.0%
|
58%
|
30,981.9
|
100.0%
|
62%
|
Sales,
Marketing, Distribution and Administrative Expenses
Our sales, marketing,
distribution and administrative expenses increased by 4.3% in 2019, to R$15,327.5 million from R$14,691.9 million in 2018. An
analysis of sales and marketing and administrative expenses for each business segment is set forth below.
Brazilian Operations
Total sales, marketing,
distribution and administrative expenses in Brazil increased by 5.6% in 2019, to R$8,585.7 million from R$8,127.4 million in 2018.
Sales, marketing,
distribution and administrative expenses for our Brazilian beer operations increased by 2.9% in 2019, to R$7,252.5 million from
R$7,050.4 million in 2018, primarily due to (1) increased administrative expenses, driven by higher variable compensation accruals,
(2) inflation-increases in distribution expenses, and (3) higher depreciation, which were partially offset by lower sales and marketing
expenses due to efficiency gains.
Sales, marketing,
distribution and administrative expenses for the NAB segment in Brazil increased by 23.8% in 2019, to R$1,333.2 million from R$1,077.0
million in 2018, mainly due to (1) higher sales and marketing expenses, reflecting the volume growth and our continued investment
in our brands, and (2) slightly higher distribution expenses, mainly driven by inflation, (3) higher depreciation, and (4) an increase
in administrative expenses, mainly due to higher variable compensation accruals.
CAC Operations
Sales, marketing,
distribution and administrative expenses for our CAC operations increased by 1.6% in 2019, to R$1,494.0 million from R$1,470.9
million in 2018, reflecting (1) the currency translation effects driven by the appreciation of local currencies, primarily the
Dominican peso, and the U.S. dollar, in Panama, in relation to real over the period, and (2) higher depreciation.
This was partially offset by lower distribution, sales and marketing, and administrative expenses in local currencies, due to efficiency
gains in sales, marketing and administrative expenses.
Latin America South Operations
Sales, marketing,
distribution and administrative expenses for our Latin America South operations decreased by 1.5% in 2019, to R$2,540.5 million
from R$2,580.4 million in 2018, primarily driven by the currency translation effect resulting from the depreciation of the Argentine
peso over the period partially offset by higher inflation in the region.
Canada Operations
Sales, marketing,
distribution and administrative expenses for our Canadian operations increased by 7.7% in 2019, to R$2,707.3 million from R$2,513.2
million in 2018, mainly as a result of (1) the currency translation effect resulting from the appreciation of the Canadian Dollar
over the period, (2) higher administrative expenses, due to higher variable compensation accruals, partially offset by lower distribution
and sales and marketing expenses, resulting from efficiency gains.
Other
Net Operating Income (Expense)
Other
Net Operating Income increased by 55.5% in 2019, to R$ 1.472,7 million from R$ 947.3 million in 2018, mainly explained by the recognition
of tax credits related to a 2017 Brazilian supreme court decision that declared unconstitutional the inclusion of the ICMS in the
PIS and COFINS calculation basis recognized in 2019, only partially offset by a decline in government grants related to state vat
long-term tax incentives in Brazil, due to revenue geographic mix and the expiration of a tax incentive in the state of Santa Catarina.
Exceptional
Items
Exceptional items
amounted to a R$397.2 million expense in 2019 compared to a R$86.4 million expense recorded in 2018. The expenses recorded
in 2019 were mainly (i) due to an amnesty program in the State of Mato Grosso, in connection with requirements imposed in the context
of the final validation of fiscal incentives granted by such state in the past, without the formal acceptance of other states;
and (ii) by restructuring expenses primarily linked to centralization and sizing projects in Brazil and LAS, with blueprint review
due to optimization of Full Time Equivalent (FTE), such as the centralization of processes in our shared services center.
Income from Operations
As a result of the
foregoing, income from operations decreased by 6.3% in 2019, to R$16,074.9 million from R$17,150.9 million in 2018.
Net
Finance Result
Our net finance result
decreased by 22.8% in 2019, to R$3,109.5 million from R$4,030.3 million in 2018. This result is mainly explained by (1) higher
interest income, driven by our cash balance, mainly in Brazilian reais, US dollars and Canadian dollars, and the recovery
of a tax claim, and (2) a positive impact resulting from the application of hyperinflationary accounting as prescribed by IAS 29,
since the effect of the adjustment for cumulative inflation, from January 1, 2019, of non-monetary assets on the balance sheet
of our operations in Argentine was reported in a dedicated account in the finance results.
The above effects
were partially offset by (1) higher losses on derivative instruments, mainly driven by the carry cost of our currency hedges, primarily
linked to the exposure of our cost of goods sold in Argentina, and (2) higher losses on non-derivative monetary financial instruments
related to non-cash expenses due to exchange rate variation on intercompany loans held in local currency, mainly Brazilian reais
and the Argentine peso.
Our total debt, including
current and non-current debt, decreased by R$1,040.8 million in 2019, while our cash and cash equivalents less bank overdrafts
and current investment securities increased by R$438.4 million in 2019.
Income
Tax Expense
Our consolidated income
tax and social contribution on profits totaled R$754.7 million in 2019 from R$1,773.9 million in 2018. The effective tax rate
in 2019 was 5.8%, compared to 13.5% in the previous year. Such decrease in our effective tax rate in 2019 was primarily due
to a higher tax benefit resulting from a higher payment of interest on shareholders’ equity.
Net
Income
As a result of the
foregoing, net income increased by 7.4% in 2019, to R$ 12,188.4 million from R$ 11,347.7 million in 2018.
B. Liquidity
and Capital Resources
Sources
and Uses
The information in
this section refers to 2020 and 2019. Our primary sources of liquidity have historically been cash flows from operating activities
and borrowings. Our material cash requirements have included the following:
|
·
|
Opex expenses, such as raw and packaging material, sales & marketing investments and overheads;
|
|
·
|
payments of dividends and interest on shareholders’ equity;
|
|
·
|
increases in ownership of our consolidated subsidiaries or companies in which we have equity investments;
|
|
·
|
investments in companies participating in the brewing, NAB and malting industries; and
|
|
·
|
investments in companies that address emerging consumer’s needs, such as ZX Ventures, Ztech,
Future Beverages and technology.
|
Our cash and cash
equivalents and current investment securities at December 31, 2020 and 2019 were R$18,790.3 million and R$ 11,915.3 million.
We believe that cash
flows from operating activities, available cash and cash equivalents and current investment securities, along with our derivative
instruments and our access to borrowing facilities, will be sufficient to fund our capital expenditures, debt service and dividend
payments going forward.
During
the 2020 COVID-19 pandemic, the market faced 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. As a consequence, Ambev raised R$ 3,6 billion in new
debt to improve its liquidity. As volume and profitability partially recovered towards the end of 2020, more than 50% of the loans
were already settled. As the scenario and the market conditions remain uncertain, Ambev may enter into new debts to protect its
liquidity.
Cash Flows
Ambev
entered the second quarter of 2020 with two main priorities: (i) ensure our solid financial position by preserving liquidity in
the short and long term and (ii) navigate the “new normal” brought by COVID-19 pandemic, protecting our people and
adapting to changes while continuing to invest in what the Company believed would be a competitive advantage going forward: consumer
centricity, client service level, digital transformation, innovation and strengthening our ties with the broader ecosystem.
We
managed to protect our liquidity, while working with our suppliers, wholesalers and customers. What was already a robust liquidity
profile was further strengthened as we accessed the credit markets in select countries to enhance our liquidity position.
Also,
the Company revisited its cost structure and expenses, reprioritizing trade spend given changes in channel mix (by
redirecting certain trade spent for the off-trade), renegotiating commercial contracts and reassessing the calendarization of its
spend (postponing certain marketing campaigns), outsourcing less and leveraging more internal capabilities (internalizing
activities such as marketing campaigns and promotion of livestream concerts), and reducing discretionary expenses (including travel-related
expenses).
On
the other side, the Company continued to invest in the future, preserving key sales and marketing investment behind the renovation
of its portfolio and behind innovation. Even though we reviewed our capital investment plans, Ambev still invested a significant
amount of money behind the safety of our people, the quality of our products, our commercial priorities and big bets for the future,
and technology-related initiatives.
Despite
the strong volatility on a quarterly basis, full year cash flow from operating activities grew 2.6%, and we managed to further
strengthen our solid liquidity position, which proved critical in the very volatile operating environment of 2020, which we expect
to continue into 2021.
Operating
Activities
Cash flows from our
operating activities increased by 2.6% in 2020, to R$18,855.8 million from R$18,381.3 million in 2019, mainly as a result of the
increase in trade and other payables given a higher spend led by prices, FX and a strong fourth quarter in 2020 in beer production
perspective.
Investing
Activities
Cash flows used in
our investing activities increased by 40.5% in 2020, to R$6,799.6 from R$4,838.6 million in 2019, mainly explained by the increase
in net proceeds of debt securities.
Financing
Activities
Cash flows used in
our financing activities decreased by 30.0% in 2020, to R$8,602.0 from R$12,283.5 million cash outflow in 2019, mainly driven by
larger proceeds from borrowing in order to increase our liquidity position.
The table below shows
the profile of our debt instruments:
|
Maturity
Schedule of Debt Portfolio as of December 31, 2020
|
Debt Instrument
|
2021
|
2022
|
2023
|
2024
|
2025
|
Thereafter
|
Total
|
|
(in R$ million, except percentages)
|
BNDES Currency Basket Debt Floating Rate:
|
|
|
|
|
|
|
|
Currency Basket Debt Floating Rate
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
UMBNDES + Average Pay Rate
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
International Debt:
|
|
|
|
|
|
|
|
Other Latin America Currency Floating Rate
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
Average Pay Rate
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Other Latin America Currency Fixed Rate
|
436.3
|
95.3
|
9.7
|
7.2
|
14.2
|
27.2
|
590.0
|
Average Pay Rate
|
8.11%
|
8.11%
|
8.11%
|
8.11%
|
8.11%
|
8.11%
|
-
|
US$ Fixed Rate
|
4.9
|
-
|
-
|
-
|
-
|
-
|
4.9
|
Average Pay Rate
|
4.19%
|
-
|
-
|
-
|
-
|
-
|
-
|
US$ Floating Rate
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Average Pay Rate
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
CAD Fixed Rate
|
64.9
|
54.8
|
51.1
|
42.8
|
24.7
|
104.3
|
342.6
|
Average Pay Rate
|
3.50%
|
3.50%
|
3.50%
|
3.50%
|
3.50%
|
3.50%
|
-
|
CAD Floating Rate
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Average Pay Rate
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Reais Denominated Debt Floating Rate – TJLP & TR:
|
|
|
|
|
|
|
|
Notional Amount
|
11.6
|
12.3
|
12.3
|
13.4
|
14.7
|
96.9
|
161.2
|
TJLP & TR + Average Pay Rate
|
9.33%
|
9.33%
|
9.33%
|
9.33%
|
9.33%
|
9.33%
|
-
|
Reais Debt – ICMS Fixed Rate:
|
|
|
|
|
|
|
|
Notional Amount
|
36.7
|
34.1
|
20.7
|
3.0
|
5.6
|
35.5
|
135.7
|
Average Pay Rate
|
4.54%
|
4.54%
|
4.54%
|
4.54%
|
4.54%
|
4.54%
|
-
|
Reais Debt –Fixed Rate:
|
|
|
|
|
|
|
|
Notional Amount
|
1,333.1
|
337.0
|
278.2
|
169.1
|
195.0
|
393.1
|
2,705.5
|
Average Pay Rate
|
5.42%
|
5.42%
|
5.42%
|
5.42%
|
5.42%
|
5.42%
|
-
|
Reais Debt – Floating Rate:
|
|
|
|
|
|
|
|
Notional Amount
|
851.3
|
1.1
|
-
|
-
|
-
|
-
|
852.4
|
Average Pay Rate
|
3.90%
|
3.90%
|
-
|
-
|
-
|
-
|
-
|
Total Debt
|
2,738.8
|
534.6
|
372.0
|
235.6
|
254.2
|
657.1
|
4,792.2
|
Borrowings
Most of our borrowings
are for general use, based upon strategic capital structure considerations. Although seasonal factors affect the business,
they have little effect on our borrowing requirements. We accrue interest based on different interest rates, the most significant
of which are: (1) fixed, for the 2021 debentures; (2) Long-Term Interest Rate (Taxa de Juros de Longo Prazo), or
the TJLP, for loans of the Brazilian Economic and Social Development Bank (Banco Nacional de Desenvolvimento Econômico
e Social), or the BNDES; (3) the Interest Rate Benchmark (Taxa Referencial), or TR, for Bank Credit Notes (Cédula
de Crédito Bancário) and (4) floating for international loans. For further information, see Note 23 of our
audited consolidated financial statements.
The following table
sets forth our net cash consolidated position as of December 31, 2020 and 2019:
|
Net Cash
Consolidated Position
As of December 31,
|
|
2020
|
2019
|
|
LC(1)
|
FC(2)
|
Total
|
LC(1)
|
FC(2)
|
Total
|
|
(in R$ million)
|
Short-term debt
|
(2,232.7)
|
(506.1)
|
(2,738.8)
|
(474.3)
|
(178.9)
|
(653.1)
|
Long-term debt
|
(1,622.1)
|
(431.4)
|
(2,053.5)
|
(1,881.9)
|
(527.7)
|
(2,409.7)
|
Total
|
(3,854.8)
|
(937.4)
|
(4,792.3)
|
(2,356.2)
|
(706.6)
|
(3,062.8)
|
Cash and cash equivalents (net of bank overdrafts)
|
|
|
17,090.3
|
|
|
11,900.7
|
Current Investment securities
|
|
|
1,700.0
|
|
|
14.6
|
Net cash position
|
|
|
13,998.0
|
|
|
8,852.5
|
|
(1)
|
LC refers to our local currency indebtedness.
|
|
(2)
|
FC refers to our foreign currency indebtedness.
|
Short-term
Debt
As of December 31,
2020, our short-term debt totaled R$2,738.8 million, 18.5% of which was denominated in foreign currencies. As of December 31, 2019,
our short-term debt totaled R$653.1 million, 27.4% of which was denominated in foreign currencies.
Long-term
Debt
As of December 31,
2020, our long-term debt, excluding the current portion of long-term debt, totaled R$ 2,053.5 million, of which R$ 1,622.1 million
was denominated in local currency. As of December 31, 2019, our long-term debt, excluding the current portion of long-term debt,
totaled R$2,409.7 million, of which R$1,881.9 million was denominated in local currency.
The table below shows
a breakdown of our long-term debt by year:
|
As of December
31, 2020
|
Long-term Debt Maturity in:
|
(in R$
million)
|
2022
|
534.6
|
2023
|
372.0
|
2024 and Later
|
1,146.9
|
Total
|
2,053.5
|
In accordance with
our foreign currency risk management policy, we have entered into forward and cross-currency interest rate swap contracts in order
to mitigate currency and interest rate risks. See “Item 11. Quantitative and Qualitative Disclosures About Market Risk”
for our policy with respect to mitigating foreign currency and interest rate risks through the use of financial instruments and
derivatives.
On October 30, 2015,
Ambev issued R$1.0 billion in Brazilian debentures with a maturity date of October 30, 2021, or the 2021 debentures, to qualified
investors as defined by applicable CVM regulations. The 2021 debentures bear interest at a rate of 14.476% per annum, payable semi-annually
in arrears. This rate is subject to upper or downward adjustments in accordance with upgrades or downgrades to the credit rating
of the Company, respectively, as set forth in the respective indenture. The 2021 debentures are unsecured and unsubordinated obligations
of Ambev (except for statutorily preferred credits set forth in Brazilian bankruptcy laws). The 2021 debentures are denominated
and payable in reais. The net proceeds of the offering were used for capital expenditure investments and, therefore, the
2021 debentures enjoy certain Brazilian federal income tax incentives pursuant to Law No. 12,431/2011.
On April 14, 2020,
Ambev completed the first issuance of commercial promissory notes, in a single series, in the total amount of R$ 850,000,000.00,
under the terms of CVM Ruling 566. The notes were publicly distributed with restricted efforts, according to CVM Ruling No. 476,
with a maturity of 365 days. The proceeds were used to fund the Company's working capital and interests under the notes correspond
to 100% of the daily average rates of DI - Interbank Deposits of one day plus 2.60% per year.
As of December 31,
2020, our local currency long-term debt borrowings consisted primarily of the 2021 debentures and BNDES debts. Long-term local
currency also includes long-term plant expansion and other loans from governmental agencies and special BNDES credit lines and
programs, such as the Fund for Financing the Acquisition of Industrial Machinery and Equipment (FINAME), the Enterprise Financing
Program (FINEM) and leasing of furniture, vehicles, machinery and equipment.
Secured
Debt
Certain loans provided
by the BNDES are secured by some of our facilities and some of our equipment (mainly coolers).
Sales
Tax Deferrals and Other Tax Credits
Many states in Brazil
offer tax benefits programs to attract investments to their regions. We participate in ICMS Value-Added Tax Credit Programs offered
by various Brazilian states which provide (1) tax credits to offset ICMS Value-Added Tax payables and (2) ICMS Value-Added Tax
deferrals. In return, we are required to meet certain operational requirements including, depending on the state, production volume
and employment targets, among others. All of these conditions are included in specific agreements between Ambev and the state governments.
In the event that we do not meet the program’s targets, future benefits may be withdrawn. The total amount deferred (financing)
as of December 31, 2020 was R$135.6 million with a current portion of R$36.7 million, and R$98.9 million as non-current.
Percentages deferred typically range from 50% to 80% over the life of the program. Balances deferred generally accrue interest
and are partially inflation indexed, with adjustments generally set at 60% to 80% of a general price index. The grants (tax waivers)
are received over the lives of the respective programs. In the years ended December 31, 2020 and 2019, we recorded R$1,489.42
million and R$1,842.2 million, respectively, of tax credits as gains on tax incentive programs.
Capital
Investment Program
In 2020, consolidated
capital expenditures on property, plant and equipment and intangible assets totaled R$ 4,692.7 million consisting of R$ 3,114.9
million for our Brazil business segment, R$ 492.3 million for our CAC business segment, R$ 621.8 million related to
investments in our Latin America South operations and R$ 463.7 million related to investments in Canada. These expenditures primarily
included investments in capacity expansion, quality controls, automation, modernization and replacement of packaging lines, innovations,
warehousing for direct distribution, coolers, expenditures for the replacement of bottles and crates, market assets from former
dealers, and continued investments in information technology.
In 2019, consolidated
capital expenditures on property, plant and equipment and intangible assets totaled R$5,069.4 million consisting of R$3,176.5 million
for our Brazil business segment, R$578.4 million for our CAC business segment, R$1,025.0 million related to investments
in our Latin America South operations and R$289.5 million related to investments in Canada. These expenditures primarily included
investments in capacity expansion, quality controls, automation, modernization and replacement of packaging lines, innovations,
warehousing for direct distribution, coolers, expenditures for the replacement of bottles and crates, market assets from former
dealers, and continued investments in information technology.
C. Research
and Development
Although the COVID-19
pandemic has created significant challenges for our business, it has also accelerated consumer trends that we have been investing
on, primarily reinforcing the need for an innovative, consumer-centric mindset and advancing our business transformation enabled
by technology. Innovation has become one of the main pillars of our business and front and center to our commercial strategy and
despite a detailed revision of our discretionary expenses in order to ensure our liquidity, research and development is and continued
to be seen as fundamental for us to continue providing our consumers with innovations.
We maintain an innovation,
research and development center in the city of Rio de Janeiro, State of Rio de Janeiro, at the Universidade Federal do Rio de
Janeiro (UFRJ). This new center (ZITEC – Zone Innovation and Technology Center) replaces the previous R&D structure
based in Guarulhos. ZITEC commenced operations in the final months of 2017, ramping up activities in 2018, in order to accelerate
product innovation by developing new liquids and the most modern packaging to assure continuous product differentiation and yearly
increases in quality and efficiency. One of the main features of the development center is the prototype laboratory, which enables
the creation of complete prototypes, supporting the process of creating new products. ZITEC made it possible for Ambev to reduce
the time to launch innovations, from eight to four months. In 2020, continuing with our innovation driven strategy, we launched
Berrió and Esmera, two brands made with local crop productions from in the States of Piauí and
Goiás, respectively, Andes Origens and the most successful innovation in Ambev’s history, Brahma
Duplo Malte. Another objective of the development center is to carry out studies of consumer perception and behavior, in order
to capture future trends. The investment made in the center in the last three years was approximately R$180 million, including
the installation, in 2018, of solar panels that produce enough energy to supply 100% of the center’s operations and the renovations,
in 2019, of production lines in the prototype laboratory.
D. Trend
Information
Our
strategy for 2021 will continue to be built around innovation, technology and collaboration with our ecosystem. Given that the
challenges brought by the COVID-19 pandemic remain a reality, we believe operational excellence and financial discipline will once
again make a difference as we work towards a consistent recovery of our top line and bottom line performance. As was the case in
2020, we continue to expect the former to recover faster than the latter.
In
2021 we will face more significant transactional FX as well as commodity headwinds, both of which will put pressure on our EBITDA
margin. Our average hedge rate for the BRL versus the USD for 2021 is 5.29 (+31.9%). As a result, we expect our cost of goods sold
excluding depreciation and amortization per hectoliter to increase in the low-twenties in Brazil Beer.
Volume
growth coupled with improved NR/Hl performance, thanks to the implementation of our commercial strategy and better mix, will be
two of the key drivers for us to partially offset the cost headwinds.
With
respect to our business in LAS, our focus will be on growing the category through premiumization and smart affordability initiatives,
together with further developing our technology platforms to better serve our customers and consumers. In CAC, we continue to see
an opportunity to drive per capita consumption through innovation, as well as drive growth of our core plus and premium brands.
Finally, in Canada, we aim to maintain commercial momentum behind our core plus and premium brands, while also continue tapping
into different consumer occasions with our beyond beer portfolio based on our category expansion framework.
The outlook for
2021 reflects our current assessment of the scale and magnitude of the COVID-19 pandemic, which is subject to change as we continue
to monitor ongoing developments.
For detailed information
regarding the latest trends in our business, see “—A. Operating Results—Year Ended December 31, 2020 Compared
to Year Ended December 31, 2019” and “Item 4. Information on the Company—B. Business Overview—Description
of the Markets Where We Operate.”
E. Off-balance
Sheet Arrangements
We have a number of
off-balance sheet items which have been disclosed elsewhere in this annual report, under “Item 4. Information on the Company—B.
Business Overview—Beer and CSD Production Process—Sources and Availability of Raw Materials,” under “Item
4. Information on the Company—B. Business Overview—Beer and CSD Production Process—Packaging” and under
“Item 17. Financial Statements,” Note 29 to our consolidated financial statements, “Collateral and contractual
commitments with suppliers, advances from customers and other.” Off-balance sheet items include future commitments of R$
17,768.4 million as of December 31, 2020, as set forth in the table below:
Contractual
Obligation
|
As of December
31, 2020
|
|
(in R$ million)
|
Purchase commitments with respect to property, plant and equipment
|
446.7
|
Purchase commitments with respect to raw materials
|
2,128.5
|
Purchase commitments with respect to packaging materials
|
13,611.5
|
Other commitments
|
1,581.9
|
Total
|
17,768.4
|
F. Commitments
and Contingencies (Tabular Disclosure of Contractual Obligations)
The following table
and discussion provide additional disclosure regarding our material contractual obligations and commercial commitments as of December 31,
2020:
|
Payments
Due by Period
|
Contractual
Obligations*
|
Total
|
Less Than
1 Year
|
1-3 Years
|
3-5 Years
|
More Than
5 Years
|
|
(in R$ million)
|
Short-term and long-term debt
|
3,063.5
|
2,485.9
|
218.7
|
70.7
|
288.3
|
Leases liabilities
|
2,715.0
|
532.7
|
956.4
|
566.2
|
659.7
|
Trade and other payables
|
25,565.7
|
21,082.4
|
3,931.1
|
294.8
|
257.4
|
Sales tax deferrals
|
1,950.0
|
127.1
|
343.5
|
125.0
|
1,354.4
|
Total contractual cash commitments**
|
33,294.3
|
24,228.1
|
5,449.7
|
1,056.7
|
2,559.8
|
|
*
|
Contractual obligations referred to in the table above do not include tax payments to be made by the
Company, except payments made in connection with tax benefits.
|
|
**
|
The long-term debt amounts presented above differ from the amounts presented in the Note Interest-Bearing
Loans and Borrowings in the financial statements in that they include our best estimates on future interest payable (not yet accrued)
in order to better reflect our future cash flow position as presented in the Note Financial Instruments and Risks.
|
The above table does
not reflect contractual commitments discussed above in “Off-Balance Sheet Arrangements.”
We are subject to
numerous commitments and contingencies with respect to tax, labor, distributors and other claims. To the extent that we believe
it is probable that these contingencies will be realized, they have been recorded in the balance sheet. We have estimated the total
exposures of possible (but not probable) losses, which are not recorded as liabilities, to be R$81.547,1 million as of December 31,
2020. These are not considered commitments. Our estimates are based on reasonable assumptions and management assessments, but should
the worst-case scenario develop, subjecting us to losses in all cases, our expected net impact on the income statement would be
an expense for this amount.
|
ITEM 6.
|
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|
A. Directors
and Senior Management
The Board of Directors
oversees Ambev’s executive officers. The Board of Directors is currently comprised of eleven effective members and two alternate
members, and provides the overall strategic direction of Ambev. Directors are elected at general shareholders’ meetings for
a three-year term, re-election being permitted. Day-to-day management is delegated to the executive officers of Ambev, of which
there are currently thirteen. The Board of Directors appoints executive officers for a three-year term, re-election being permitted.
The Shareholders’ Agreement regulates the election of directors of Ambev by the controlling shareholders. See “Item
7. Major Shareholders and Related Party Transactions—A. Major Shareholders—Ambev’s Major Shareholders—The
Shareholders’ Agreement—Management of Ambev.”
Directors
The following table
sets forth information with respect to the current directors of Ambev:
Board of
Directors(1)
|
Name
|
Age
|
Position
|
Director
Since(2)
|
Term Expires(3)
|
Victorio Carlos De Marchi
|
82
|
Co-Chairman and Director
|
1999
|
2023
|
Carlos Alves de Brito
|
60
|
Co-Chairman and Director
|
2006
|
2023
|
Milton Seligman
|
69
|
Director
|
2018
|
2023
|
Roberto Moses Thompson Motta
|
63
|
Director
|
1999
|
2023
|
Fabio Colletti Barbosa (4)
|
66
|
Director
|
2021
|
2023
|
Fernando Mommensohn Tennenbaum (4)
|
44
|
Director
|
2021
|
2023
|
Lia Machado de Matos (4)
|
44
|
Director
|
2021
|
2023
|
Nelson José Jamel
|
49
|
Director
|
2017
|
2023
|
Antonio Carlos Augusto Ribeiro Bonchristiano
|
53
|
Director (Independent)
|
2014
|
2023
|
Marcos de Barros Lisboa
|
56
|
Director (Independent)
|
2014
|
2023
|
Claudia Quintella Woods (4)
|
45
|
Director (Independent)
|
2021
|
2023
|
Michel Dimitrios Doukeris
|
47
|
Director (Alternate)
|
2018
|
2023
|
Carlos Eduardo Klutzenschell Lisboa
|
51
|
Director (Alternate)
|
2018
|
2023
|
|
(1)
|
Victorio Carlos De Marchi, Co-Chairman of the Board of Directors of Ambev, was appointed by FAHZ,
the former controlling shareholder of Antarctica, while Carlos Alves de Brito was appointed by ABI and is also the Chief Executive
Officer of ABI. ABI appointed five directors: Milton Seligman, Roberto Moses Thompson Motta, Nelson José Jamel, Fernando
Mommensohn Tennenbaum and Lia Machado de Matos in addition to the alternate directors Michel Dimitrios Doukeris and Carlos Eduardo
Klutzenschell Lisboa. FAHZ also appointed Fabio Colletti Barbosa. The three independent directors Antonio Carlos Augusto Ribeiro
Bonchristiano, Marcos de Barros Lisboa and Claudia Quintella Woods were appointed jointly by ABI and FAHZ.
|
|
(2)
|
Directors first elected to our board of directors prior to 2013 were originally appointed as directors
of Old Ambev. Directors first elected to our Board of Directors on or after 2013 were originally elected as directors of Ambev
S.A.
|
|
(3)
|
Annual Shareholders’ General Meeting held in April 2023.
|
|
(4)
|
Directors elected by the board of directors in March 2021 pursuant to our bylaws to replace directors
who previously resigned.
|
The following are
brief biographies of each of Ambev’s directors:
Victorio Carlos
De Marchi. Mr. De Marchi is Co-Chairman of the Board of Directors of Ambev. He also serves as president of the Operations,
Finance and Compensation Committee and the Related Parties and Antitrust Conducts Committee of Ambev. Mr. De Marchi joined
Antarctica in 1961 and held various positions during his tenure, including Chief Executive Officer from 1998 to April 2000. Mr.
De Marchi is currently a member of the board of directors and a Vice President of FAHZ, the president of the deliberative council
of Instituto Ambev de Previdência Privada, a member of the board of Instituto de Estudos para o Desenvolvimento
Industrial, a member of the board of directors of ITAUSA S.A., a member of the deliberative council of Instituto Brasileiro
de Ética Concorrencial, the president of the deliberative council of Centro de Informações sobre Saúde
e Álcool and a member of the board of Diálogos pelo Brasil of FIESP- Federação das Indústrias
de São Paulo. Mr. De Marchi has a degree in economics from Faculdade
de Economia, Finanças e Administração de São Paulo and a law degree from Faculdade de Direito
de São Bernardo do Campo.
Carlos Alves de
Brito. Mr. Brito is Co-Chairman of the Board of Directors of Ambev. Since December 2005, he also serves as Chief Executive
Officer of ABI. He joined Brahma in 1989 and has held various management positions during his tenure. He served as Chief Operating
Officer of Ambev from 1999 to 2003, as Chief Executive Officer for Latin America in 2004 and as Chief Executive Officer for North
America in 2005. Mr. Brito holds a degree in mechanical engineering from the Universidade Federal do Rio de Janeiro
and an MBA from Stanford University.
Milton Seligman.
Mr. Seligman is a member of the Board of Directors of Ambev. He served as Corporate Affairs Officer of the Company from 2004 until
2013 and was also a member of the board of directors of Tenedora CND S.A. from 2013 to 2016. He is currently the managing partner
of Milton Seligman e Associados Consultoria e Participações Ltda., president of the board of directors of
Instituto Sonho Grande, consultant member of Fundação Brava, consultant member of Fundação
Lemann, member of the board of directors of FAHZ, fellow of the INSPER Management and Public Policy Center and Global Fellow of
the Brazil Institute at the Woodrow Wilson International Center for Scholars, in Washington D.C. Mr. Seligman has a degree in electrical
engineering from Universidade Federal de Santa Maria.
Roberto Moses Thompson
Motta. Mr. Thompson is a member of the Board of Directors and the Operations, Finance and Compensation Committee of Ambev.
He currently is a member of the board of directors of Anheuser Busch InBev, StoneCo Ltd.
and Restaurant Brands International. Mr. Thompson is also co-founder and board member of 3G Capital (private equity entity formed
by the indirect controlling shareholders of the Company) and a former board member of Lojas
Americanas S.A. and of São Carlos Empreendimentos. He holds a degree in engineering from Pontifícia
Universidade Católica do Rio de Janeiro, and an MBA from the Wharton School of the University of Pennsylvania where
he is member of the Graduate Executive Board.
Fabio Colletti
Barbosa. Mr. Barbosa is a member of the Board of Directors and the Related Parties and Antitrust Conducts Committee of Ambev.
Mr. Barbosa is currently a member of the board of directors of the United Nations Foundation, Itaú-Unibanco, Cia Brasileira
de Metalurgia e Mineração, Cia. Hering and Natura. He is also member of the Investment Committee and partner of Gávea
Investimentos and the chair of Fundação Itaú para Educação e Cultura. Mr. Barbosa holds a degree
in business administration from Fundação Getulio Vargas and a MBA from the Institute for Management Development
(Switzerland).
Claudia Quintella
Woods. Ms. Woods is a member of the Board of Directors of Ambev. She is also the General Manager of Uber in Brazil since 2019.
Ms. Woods was previously the CEO of Webmotors, a leading online marketplace for cars from 2018 until 2019 and Director and Superintendent
of Banco Original from 2014 to 2018. She holds a bachelor degree from Bowdoin College, a MBA from COPPEAD/Universidade Federal
do Rio de Janeiro and a certificate from Harvard Business School.
Fernando M. Tennenbaum.
Mr. Tennenbaum is a member of the Board of Directors and of the Operations, Finance and Compensation Committee of Ambev. Mr. Tennenbaum
is Anheuser-Busch InBev SA/NV Chief Financial Officer since April 29, 2020. He joined our
Company in 2004 and has held various roles in the finance function (including Treasury, Investor Relations and M&A). He most
recently served as the Vice President of Finance (South America Zone) of ABI and Ambev’s Chief Financial and Investor Relations
Officer. He is a dual citizen of Brazil and Germany and holds a degree in industrial
engineering from Escola Politécnica da Universidade de São Paulo and a corporate MBA from Ambev.
Lia Machado de
Matos. Ms. Matos is a member of the Board of Directors of Ambev. Since 2016 she is the Chief Strategy Officer of Stone Co.
Prior to that, Ms. Matos was a Family Office Director for Varbra from 2012 through 2016 and previously she served in several positions
at McKinsey from 2006 through 2012, including Associate Partner. Ms. Matos holds a degree in Physics from the Universidade Federal
do Rio de Janeiro and a PhD in physics and electrical engeneering from the Massachusetts Institute of Technology.
Nelson José
Jamel. Mr. Jamel is a member of the Board of Directors of Ambev. He joined the Company in 1997 and has held various positions
in the Company. From 2009 to 2015, he served as Chief Financial and Investor Relations Officer of the Company. From 2016 to 2019,
he served as Vice President for North America Zone of ABI, initially as Finance VP and since 2017 as Finance and Solutions VP.
Currently he is the Chief People Officer of ABI. Mr. Jamel holds a degree in production engineering from Universidade Federal do
Rio de Janeiro and a M.Sc in production engineering from the Universidade Federal do Rio de Janeiro.
Antonio Carlos
Augusto Ribeiro Bonchristiano. Mr. Bonchristiano is an independent member of the Board of Directors of Ambev. He currently
is the Co-Chief Executive Officer of GP Investments and also serves as a member of the board of directors of Rimini Street, FoodFirst
Global Restaurants, BR Properties S.A. and Advisory Board da Bodleian Library, University of Oxford. Mr. Bonchristiano has a degree
in politics, philosophy and economics from the University of Oxford.
Marcos de Barros
Lisboa. Mr. Barros Lisboa is an independent member of the Board of Directors of Ambev. He has also acted as executive officer
of Unibanco S/A and vice-president of Operational Insurance, Controls and Support of Itaú Unibanco S/A, both companies with
main activities in the financial segment. Further, between 2003 and 2005, he acted as Secretary of Economic Politics of Federal
Revenue Office (Ministério da Fazenda). He is currently a member of the board of directors of Cerradinho Bioenergia
S.A. Mr. Barros Lisboa has a degree and a masters’ degree in economics from Universidade Federal do Rio de Janeiro
and a Ph.D. in economics from the University of Pennsylvania. Since the end of the 80s, he has developed activities in the faculty
of several teaching institutions in Brazil and abroad.
Michel Dimitrios
Doukeris. Mr. Doukeris is an alternate member of the Board of Directors of Ambev. Since he joined the Company in 1996, he held
various positions, including Global Chief Sales Officer of ABI and Operations General Manager for the APAC Zone (Asia Pacific)
of ABI. Currently he is Chief Executive Officer for the North America Zone at ABI. Mr. Doukeris holds a degree in chemical engineering
from Universidade Federal Santa Catarina and a master’s degree in marketing from Fundação Getulio
Vargas. He has also completed post-graduate programs in marketing and marketing strategy from the Kellogg School of Management
and Wharton Business School in the United States.
Carlos Eduardo
Klutzenschell Lisboa. Mr. Klutzenschell Lisboa is an alternate member of the Board of Directors of Ambev. He joined the Company
in 1993 and, since then, has held several positions in the Company. He served as Marketing Vice-President between 2005 and 2011,
as President of BU Austral at Latin America South Zone of Ambev between 2011 and 2012, and as President of Labatt, our operation
in Canada, between 2013 and 2014. Mr. Klutzenschell Lisboa held the positions of Global Vice President for Global Brands at ABI,
between 2014 and 2016, and of Zone President of Latin America South Zone of Ambev, between 2016 and 2018. Currently he serves as
Zone President of Middle Americas Zone of ABI.
Executive
Officers
The following table
sets forth information with respect to the current executive officers of Ambev:
Name
|
Age
|
Position
|
Executive
Officer Since
|
Term Expires(1)
|
Jean Jereissati Neto
|
46
|
Chief Executive Officer
|
2019
|
2021
|
Lucas Machado Lira
|
44
|
Chief Financial, Investor Relations and Shared Services Officer
|
2020
|
2021
|
Leticia Rudge Barbosa Kina
|
44
|
Legal and Compliance Vice President Officer
|
2019
|
2021
|
Ricardo Morais Pereira de Melo
|
49
|
People and Management Vice President Officer
|
2016
|
2021
|
Eduardo Braga Cavalcanti de Lacerda
|
44
|
Commercial Vice President Officer
|
2018
|
2021
|
Mauricio Nogueira Soufen
|
47
|
Industrial Vice President Officer
|
2016
|
2021
|
Paulo André Zagman
|
44
|
Logistics Vice President Officer
|
2019
|
2021
|
Ricardo Gonçalves Melo
|
50
|
Corporate Affairs Vice President Officer
|
2019
|
2021
|
Rodrigo Figueiredo de Souza
|
45
|
Procurement Vice President Officer
|
2015
|
2021
|
Eduardo Eiji Horai
|
35
|
Information Technology Vice President Officer
|
2020
|
2021
|
Daniel Cocenzo
|
46
|
Sales Vice President Officer
|
2020
|
2021
|
Daniel Wakswaser Cordeiro
|
36
|
Marketing Vice President Officer
|
2020
|
2021
|
Pablo Firpo
|
40
|
Non-Alcoholic Beverages Vice President Officer
|
2020
|
2021
|
|
(1)
|
The term of office will be unified until December 31, 2021.
|
The following are
brief biographies of each of Ambev’s executive officers:
Jean Jereissati
Neto. Mr. Jereissati is Ambev’s Chief Executive Officer. He joined Ambev in 1998 and has held various positions at Ambev
and ABI, including Chief Executive Officer of the Central America and Caribbean business unit of Ambev, Chief Executive Officer
of China’s operations of ABI, Chief Executive Officer of Asia and Pacific North zone of ABI and Chief Sales and Marketing
Officer of Ambev. Mr. Jereissati holds a degree in business administration from Fundação Getulio Vargas and
a Corporate MBA from Ambev.
Lucas Machado Lira.
Lucas Lira is our Chief Financial, Investor Relations and Shared Services Officer. He joined the Company in 2005 and, since then,
has held leadership positions in the legal and finance areas, including Global Vice-President of Finance and M&A at ABI, Head
of Investor Relations department, Corporate & Compliance Legal Officer, PMO – Supply Chain and Legal Manager HILA and
M&A. Lira holds a degree in law from Universidade Federal de Minas Gerais – UFMG and a LL.M. from Columbia University
School of Law.
Leticia Rudge Barbosa
Kina. Ms. Kina is Ambev’s Legal and Compliance Vice President Officer. She joined the Company in 2002 and has held several
positions, including Legal Manager and Tax, Corporate and Litigation Officer. Ms. Kina holds a law degree from Pontifícia
Universidade Católica de Campinas and a degree in economics from Universidade Estadual de Campinas, in addition
to a Corporate MBA from Ambev, specialization in tax law from Universidade de São Paulo and a corporate reputation
course from Stanford.
Ricardo Morais
Pereira de Melo. Mr. Melo is Ambev’s People and Management Vice President Officer. Since he joined the Company in 1996,
he has held various sales positions, including Sales Manager, Commercial Manager in Salvador and in São Paulo, Regional
Sales Executive Officer in the Northeast and in Rio de Janeiro, as well as Sales Vice President of Ambev operations in Canada and
Sales Strategy Vice President at ABI, in the United States. Mr. Melo holds a degree in civil engineering from Universidade Católica
de Pernambuco and a Corporate MBA from Ambev.
Eduardo Braga Cavalcanti
de Lacerda. Mr. Lacerda is Ambev’s Commercial Vice President Officer. Since 2001, when he joined the Company as a trainee,
he has held various positions, including as the Budget and Business Performance Officer of ABI, as head of Mergers and Acquisitions
in Europe for ABI, as Financial Officer in Europe for ABI and as Chief Executive Officer of the Central America and Caribbean business
unit of Ambev. Mr. Lacerda holds a degree in business administration from Pontifícia Universidade Católica do
Rio de Janeiro.
Mauricio Nogueira
Soufen. Mr. Soufen is Ambev’s Industrial Vice President Officer. Since he joined the Company in 1996 as a Production
Supervisor, he has held positions of Brewery Manager in Scotia and Belgium, where he was the only foreigner ever to lead the historical
Stella Artois brewery, in Leuven. When Mr. Soufen returned to Brazil, he served as Regional Officer for the North/Central-West
region and as Officer of our Engineering Center based in Jacareí, State of São Paulo. Along with the title of brewmaster,
Mr. Soufen holds a degree in mechatronics engineering from Escola Politécnica da Universidade de São Paulo
and an MBA from MIT - Sloan School of Management.
Paulo André
Zagman. Mr. Zagman is Ambev’s Logistics Vice President Officer. Since 2002, when he joined the Company, he has held several
positions, including Chief People Officer and Chief Logistics Officer in Latin America South zone of Ambev. Mr.
Zagman holds a degree in civil engineering from Pontifícia Universidade Católica do Rio de Janeiro and a specialist
degree in supply chain and logistics from Massachusetts Institute of Technology and Stanford Graduate School of Business Executive
Education.
Ricardo Gonçalves
Melo. Mr. Gonçalves Melo is Ambev’s Corporate Affairs Vice President Officer. Since 1991, when he joined the Company,
he has held several positions, including Tax Manager, Litigation Legal Manager, People Manager – Production and Legal Officer.
Mr. Gonçalves Melo holds a law degree from Universidade do Estado do Rio de Janeiro and a MBA from Coordenação
dos Programas de Pós-Graduação e Pesquisa de Engenharia. In addition, he concluded an executive program
with the INSEAD-Wharton Alliance.
Rodrigo Figueiredo
de Souza. Mr. Figueiredo is Ambev’s Procurement Vice President Officer. Since 1997, when he joined the Company, he has
held various positions in the Company and ABI, including Logistics Executive Officer in Latin America North zone of ABI, Vice-President
of Supply Chain in Russia and Ukraine and Vice-President of Logistics in Europe. Mr. Figueiredo holds a degree in civil engineering
from Escola Politécnica da Universidade de São Paulo, an executive MBA from INSEAD-Wharton Alliance and a
Corporate MBA from Ambev.
Eduardo Eiji Horai.
Mr. Horai is Ambev’s Information Technology Vice President Officer. Before joining the Company on January 1, 2020, he served
as Solutions Architecture and Customer Solutions senior manager and officer for Latin America at Amazon Web Services and was also
part of the Enterprise Architecture department at Toyota Motor Europe - Belgium. Mr. Horai holds a degree in computer science from
Universidade de Campinas - UNICAMP and a degree in innovation and entrepreneurship from the Vlerick Leuven-Gent Management
School.
Daniel Cocenzo.
Mr. Cocenzo is Ambev’s Sales Vice President Officer. Since 1999, when he joined the Company, he has held various positions,
including Premium and High-End Executive Officer of Ambev, People and Management Officer for the Central America and Caribbean
business unit of Ambev, Sales Officer in Dominican Republic and Regional Sales Officer in Rio de Janeiro and Espírito Santo.
Mr. Cocenzo holds a degree in business administration from Pontifícia Universidade Católica do Rio de Janeiro,
an MBA from IBMEC and a Corporate MBA from Ambev.
Daniel Wakswaser
Cordeiro. Mr. Wakswaser is Ambev’s Marketing Vice President Officer. He joined the Company as a trainee in 2008 and has
held several positions in Ambev and ABI. Wakswaser created and led the digital strategy area at Ambev, at the start of 2010. He
was also involved in the creation of ZX ventures globally, and also led, in Brazil, the acquisition and integration of breweries
Colorado and Wäls. In the recent years, he held leadership roles in Brazil, Europe and the United States, including Global
Vice President of Adjacencies, Global Marketing Vice President of Consumer Connections & Capabilities, Craft & Specialties
Beer Director in Europe and Craft Beer Officer in Brazil. Wakswaser holds a degree in marketing from ESPM.
Pablo Firpo.
Mr. Firpo is the Non-Alcoholic Beverages Vice President Officer of Ambev. Since 2002, when he joined the Company as a trainee,
he held various positions at the Company and ABI in marketing organization, including Marketing Manager at Quilmes (a Company’s
subsidiary in Argentina), Marketing Head in Chile, Marketing Officer for Core Brands at the Company’s Latin America South
zone and Global Communications Officer for Budweiser. In 2017 he became the Non-Alcoholic Beverages Vice President Officer at the
Company’s BU Rio de la Plata and held such position until the beginning of 2020. Mr. Firpo has a bachelor’s degree
in economics from Universidad del CEMA, in Argentina.
B. Compensation
The aggregate remuneration
of all members of the Board of Directors and Executive Officers of Ambev in 2020 for services in all capacities amounted to R$70.7
million (fixed and variable remuneration and share-based payment), as presented below:
|
Management’s
Remuneration
Year Ended December 31, 2020
|
|
(in
R$ million, except where otherwise indicated)
|
|
|
Fixed
Remuneration
|
Variable
Remuneration
|
|
|
|
|
|
Number
of Members
|
Fees
|
Direct
and Indirect Benefits
|
Remuneration
for Sitting on Committees
|
Others
|
Bonus
|
Profit
Sharing
|
Remuneration
for Attending Meetings
|
Commissions
|
Others
|
Post-Employment
Benefits
|
Termination
Benefits
|
Share-based
Payment
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Board
of Directors
|
13.0
|
5.8
|
-
|
-
|
1.2
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
5.8
|
12.8
|
Fiscal
Council
|
6.0
|
1.7
|
-
|
-
|
0.3
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
2.1
|
Executive
Officers
|
11.6
|
15.4
|
-
|
-
|
2.9
|
-
|
-
|
-
|
-
|
-
|
0.7
|
-
|
36.8
|
55.8
|
Total
|
30.6
|
22.9
|
-
|
-
|
4.4
|
-
|
-
|
-
|
-
|
-
|
0.7
|
-
|
42.7
|
70.7
|
In addition, the executive
officers and members of the Board of Directors received some additional benefits provided to all Ambev employees and their beneficiaries
and covered dependents, such as health and dental care. Such benefits were provided through FAHZ. These executive officers and
directors also received benefits pursuant to Ambev’s pension and stock ownership plans. For a description of these plans,
see Notes 24 and 25 to our audited consolidated financial statements.
On various dates in
2020, pursuant to the terms and conditions of our stock option plan, we acquired from our directors and executive officers a total
of 334,562 shares of Ambev for R$6.2 million. Such amounts were calculated and paid taking into consideration the closing market
price on the day of the transaction.
The table below sets
forth the minimum, maximum and average individual compensation figures attributable to our directors, executive officers and Fiscal
Council members for each of the indicated periods:
|
Management's Remuneration
Year Ended December 31,
|
|
2020
|
2019
|
2018
|
|
(in R$ million, except where otherwise indicated)
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|
Number of
Members
|
Minimum
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Average
|
Maximum
|
Number of
Members
|
Minimum
|
Average
|
Maximum
|
Number of
Members
|
Minimum
|
Average
|
Maximum
|
Board of Directors
|
13,0
|
0,3
|
1,5
|
7,9
|
13,0
|
0,3
|
1,8
|
9,0
|
13,0
|
0,5
|
1,7
|
8,7
|
Fiscal Council
|
6,0
|
0,2
|
0,3
|
0,5
|
5,7
|
0,2
|
0,3
|
0,4
|
5,6
|
0,2
|
0,3
|
0,4
|
Executive Officers
|
11,6
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1,7
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4,8
|
16,5
|
10,9
|
3,1
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5,6
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14,2
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10,7
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2,1
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3,8
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12,2
|
Ambev
Stock Ownership Plans
Under the Ambev Stock
Option Plan dated as of July 30, 2013, or the Plan, senior employees and management of either Ambev or its direct or indirect subsidiaries
are eligible to receive stock options for Ambev common shares, including in the form of ADSs. As of December 31, 2020, there were
outstanding rights under the Plan providing for the acquisition of 127.2 million Ambev common shares by approximately 560 people
(including executive management and employees).
The Plan establishes
the general conditions for granting options, the criteria for defining the strike price and other general terms and conditions
of these stock options. Restrictions apply to the divestment of the shares acquired through the Plan, which also defines the various
duties and responsibilities of the Board of Directors as Plan Administrator.
Pursuant to the Plan,
the Board of Directors is conferred with ample powers for the organization and management of the Plan in compliance with its general
terms and conditions. The Board of Directors grants stock options and establishes the terms and conditions applicable to each grant
through Stock Option Programs, or the Programs, which may define the relevant beneficiaries, the applicable number of Ambev common
shares covered by the grant, the respective strike price, the exercise periods and the deadline for exercising the options, as
well as the rules regarding option transfers and possible restrictions on the acquired shares, in addition to penalties. Additionally,
targets may be set for Ambev’s performance, with the Board of Directors also being empowered to define specific rules for
Ambev employees who are transferred to other countries or to other companies of the group, including to ABI.
Beneficiaries to whom
stock options are granted must sign Stock Option Agreements, or the Agreements, with Ambev, according to which those beneficiaries
have the option to purchase lots of Ambev common shares in compliance with the terms and conditions of the Plan, the corresponding
Program and such Agreement.
There are currently
three models of stock options that may be granted under the Plan. Under the first model, beneficiaries, in accordance with their
internal category, may choose among allocating (1) 30% or 100%, (2) 40% or 100%, and (3) 60% or 100% of the amounts received
by them as profit sharing during the year to the immediate exercise of options, thereby allowing them to acquire the corresponding
amount of Ambev shares. Under this model, a substantial part of the shares acquired is to be delivered only within five years from
the corresponding option grant date. During such five-year period, the beneficiary must remain employed at Ambev or any other company
of its group. Under the second model, the beneficiary may exercise the options granted only after a period of up to five years
from the corresponding grant date. Vesting of the options granted under the second model is not subject to company performance
measures; however, the right to exercise such options may be forfeited in certain circumstances, including the beneficiary’s
resignation or dismissal prior to the options’ vesting. Under the third model, the beneficiaries, in accordance with their
internal category, may choose among allocating (1) 20% or 100%, (2) 30% or 100%, and (3) 50% or 100%, of the amounts received by
them as profit sharing during the year to the immediate exercise of options, thereby allowing them to acquire the corresponding
amount of Ambev shares. The totality of the shares acquired is to be delivered to the beneficiary within forty-five days from the
corresponding exercising date (which shall not be later than forty-five days from the option grant date). The beneficiaries are
under a five-year lock-up period.
Before our adoption
of the three stock options models, as described above, six Programs were approved by the Board of Directors from 2006 to 2009 that
allowed their beneficiaries to choose between allocating 50%, 75% or 100% of the amounts received by them as profit sharing during
the year to the immediate exercise of options, thereby permitting them to acquire the corresponding amount of Ambev shares. Company
performance measures applied in order for those stock options to vest and the right to exercise them could be forfeited in certain
circumstances, including the beneficiary’s resignation or dismissal prior to the options’ vesting. Rights for the acquisition
of a significant number of Ambev shares under this previous stock option model remain outstanding.
As a means of creating
a long term incentive (wealth incentive) for certain senior employees and members of management considered as having “high
potential,” share appreciation rights in the form of phantom stocks have been granted to those employees, pursuant to which
the beneficiary shall receive two separate lots of phantom stock – Lot A and Lot B – subject to lock-up periods of
five and ten years, respectively. On the fifth or tenth anniversary of the granting of such lots, as the case may be, a beneficiary
still employed with us shall receive, in cash, the amount corresponding to the B3 closing price of the relevant Ambev shares (or
NYSE closing price in the case of ADSs), on the trading session immediately preceding such anniversary, with each phantom stock
corresponding to one share (or ADS, as the case may be). Such share appreciation rights shall not give the beneficiary the right
to actually receive any Ambev shares or ADSs; those securities shall merely serve as basis for the calculation of the cash incentive
to be received by such beneficiary. Although not subject to performance measures, the right to receive the cash incentive deriving
from the phantom stocks may be forfeited in certain circumstances, including the beneficiary’s resignation or dismissal prior
to the relevant anniversary of the share appreciation right.
We implemented a Share
Based Payment Plan, or the Share Plan, dated as of April 29, 2016, which was amended on April 24, 2020 at the annual general shareholders’
meeting. Under the Share Plan, employees and management of Ambev or its direct or indirect subsidiaries are eligible to receive
Ambev shares, including in the form of ADRs. The shares which are subject to the Share Plan are designated as Restricted Shares.
Pursuant to the Share
Plan, the Board of Directors is conferred with ample powers for the organization and management of the Share Plan in compliance
with its general terms and conditions. The Board of Directors may appoint a committee to assist its members in the management of
the Share Plan. The Board of Directors or the committee establishes the terms and conditions applicable to each Share Based Payment
Programs, or the Share Plan Programs, which defines the relevant beneficiaries, the applicable number of Restricted Shares subject
to the Share Plan Program, the Restricted Shares’ transfer procedure and vesting periods, and any possible penalties.
Under the Share Plan,
up to 3.0% of the shares corresponding to Ambev’s corporate capital may be granted in total in an amount that may vary according
to Ambev internal policies. The delivery of the Restricted Shares is free of charges. Such Restricted Shares shall vest within
up to three or five years from the corresponding grant date, depending on the Share Based Payment Programs, provided that the beneficiary
remains employed at Ambev during such vesting period.
Beneficiaries of the
Share Plan must sign a Share Based Payment Agreement, or the Share Based Agreements, with Ambev, according to which, those beneficiaries
have the right to receive a maximum number of Ambev Shares or ADRs, as applicable, provided that the terms and conditions set forth
in the Share Plan, Share Plan Programs and in the Share Based Agreements are complied with.
The Restricted Shares
may entitle beneficiaries to receive additional shares with the same vesting conditions as compensation for dividends and interest
on shareholders’ equity paid during the vesting period on the Restricted Shares. The right to receive the Restricted Shares
and the additional shares may be totally or partially forfeited in certain circumstances, including the beneficiaries’ resignation
or dismissal during the vesting period.
Pursuant to the outstanding
programs under the Plan or the Share Plan, following the lock-up or vesting periods, as applicable, in the event beneficiaries
intend to sell the Ambev shares or ADRs, beneficiaries must first offer such shares or ADRs to Ambev.
ABI Exceptional
Stock Option Grants
To encourage its and
its subsidiaries’ employees to help with its deleveraging efforts, ABI granted a series of stock options to its executives,
including Ambev executives, that had their vesting subject to, among other things, ABI’s net debt-to-EBITDA ratio falling
below 2.5 before December 31, 2013. Such condition had been complied with at that date. Specific forfeiture rules relating to these
ABI option grants apply in case of employment termination. Such grants were confirmed on April 28, 2009 by ABI’s annual general
shareholders’ meeting. Though the exercise of these ABI exceptional stock options will not cause any dilution to Ambev, we
record an expense in connection with them on our income statement.
On November 25, 2008,
ABI’s board of directors had approved a grant of approximately 28 million of these exceptional stock options to several executives,
including approximately 7 million options granted to Ambev executives. Each option gave its beneficiary the right to purchase one
existing common share of ABI at an exercise price of EUR 10.32, which corresponded to their fair value at the time of granting
of the options. On the date hereof, all of these options have been duly exercised. The other half had a term of 15 years as from
granting and became exercisable on January 1, 2019.
Ambev
Pension Plan
Ambev’s pension
plans for employees in Brazil are administered by the IAPP. The IAPP operates both a defined benefit pension plan (closed to new
participants since May 1998) and a defined contribution plan, which supplements benefits that the Brazilian government’s
social security system provides to our employees. The defined contribution plan covers substantially all new employees. The IAPP
was established solely for the benefit of our employees and its assets are held independently. The IAPP is managed by a Governing
Board (Conselho Deliberativo), which has three members, two of whom are appointed by Ambev, and one member represents active
and retired employees. The IAPP also has an Executive Board (Diretoria Executiva) containing three members, all of whom
are appointed by IAPP’s Council Board. The IAPP also has a Fiscal Council with three members, two of whom appointed by Ambev
and one member represents active and retired employees.
Any employee upon
being hired may opt to join the defined contribution plan. When pension plans members leave Ambev before retirement, but having
contributed at least three years to the IAPP plan, they have some options such as: (a) having their contributions refunded, (b)
transferring their contributions to a bank or insurance company, (c) keeping their investment in IAPP to be paid in installments,
and (d) continuing to IAPP for future retirement under the existing terms. In the event the employee leaves the Company prior to
completing three years as a participant, such employee will only be entitled to refund his/her contributions to the plan.
As of December 31,
2020, we had 8.776 participants in our pension plans, including 406 participants in the defined benefit plan, 7.317 participants
in the defined contribution plan, and 1.053 retired or assisted participants.
Plan assets are comprised
mainly of equity securities, government and corporate bonds and real estate properties. All benefits are calculated and paid in
inflation-indexed reais.
Labatt provides pension
plan benefits in the defined contribution model and in the defined benefit model to its employees, as well as certain post-retirement
benefits.
For information on
amount recorded by us on December 31, 2020 as liabilities for pension plan benefits, see Note 24 to our audited consolidated financial
statements, included elsewhere in this annual report on Form 20-F.
Profit-Sharing
Plan
Employees’ performance-based
variable payments are determined on an annual basis taking into account the achievement of corporate, department or business-unit
and individual goals, established in accordance with the profit-sharing plan.
The distribution of
these payments is subject to a three-tier system in which Ambev must first achieve performance targets approved by the Board of
Directors in accordance with the profit-sharing plan. Following that, each department or business segment must achieve its respective
targets. Finally, individuals must achieve their respective performance targets.
For employees involved
in operations, we have a collective award for production sites and distribution centers with outstanding performances. The bonus
award at the distribution centers and production sites is based on a ranking between the different distribution centers and production
sites (as the case may be), which, based on their relative ranking, may or may not receive the bonus.
Our expenses under
these programs amounted to R$57.2 million for the year ended December 31, 2020, R$271.6 million for the year ended December 31, 2019,
and R$286.0 million for the year ended December 31, 2018.
C. Board
Practices
During 2020, our management
held individual and group meetings with shareholders, investors and analysts to talk about the performance of our business and
our opportunities for growth both in the short-term as well as in the future. We also participated in conferences and non-deal
road shows in Brazil, the United States and Europe. We hosted quarterly conference calls, transmitted simultaneously on the Internet,
to clarify financial and operating results as well as answered questions from the investment community.
Fiscal
Council (Conselho Fiscal)
Ambev’s Fiscal
Council is a permanent body. At our annual general shareholders’ meeting held on April 24, 2020, the following members of
the Fiscal Council were appointed for a term expiring upon the annual general shareholders’ meeting of 2021: José
Ronaldo Vilela Rezende, Elidie Palma Bifano and Vinicius Balbino Bouhid, and, as alternates, Emanuel Sotelino Schifferle, Eduardo
Rogatto Luque and Carlos Tersandro Fonseca Adeodato (the latter of whom serves as alternate only to Vinicius Balbino Bouhid). All
of them are “independent” members as per Rule 10A-3(c)(3) of the Sarbanes-Oxley Act of 2002.
The responsibilities
of the Fiscal Council include supervision of management, performing analyses and rendering opinions regarding our financial statements
and performing other duties in accordance with the Brazilian Corporation Law and its charter. None of the members of the Fiscal
Council is also a member of the Board of Directors or of any committee of the Board.
Minority holders representing
at least 10% of our common shares are entitled to elect one member and respective alternate to the Fiscal Council without the participation
of the controlling shareholders. CVM’s interpretation is that such right is applicable as long as at least 10% of our shares
are held by minority shareholders, regardless of the equity percentage held by the minority shareholders attending the shareholders’
meeting having in the agenda the election of the Fiscal Council members.
We have relied on
the exemption provided for under Rule 10(c)(3) of the Sarbanes-Oxley Act of 2002, which enables us to have our Fiscal Council perform
the duties of an audit committee for the purposes of such Act, to the extent permitted by Brazilian law. We do not believe that
reliance on this exemption would materially adversely affect the ability of our Fiscal Council to act independently and to satisfy
the other requirements of such Act.
The Board
of Directors
Most of our Board
members have been in office for several years and were elected or reelected to the Board of Directors of Ambev at the Company’s
extraordinary general shareholders’ meeting held on April 24, 2020 for a term expiring at the annual general shareholders’
meeting to be held in 2023. These Board members use their extensive knowledge of our business to help ensure that we reach our
long-term goals, while maintaining our short-term competitiveness. Another objective of the Board of Directors is to encourage
us to pursue our short-term business goals without compromising our long-term sustainable growth, while at the same time trying
to make sure that our corporate values are observed.
Under our bylaws,
at least two members of the Board of Directors shall be independent directors. For the applicable director independence criteria,
see “Item 10. Additional Information—B. Memorandum and Articles of Association—Board of Directors.”
Ambev’s Chairman
of the Board of Directors and the Chief Executive Officer are separate positions that must be held by different individuals.
The Board of Directors
is supported in its decision-making by the following committees:
Operations,
Finance and Compensation Committee
The Operations, Finance
and Compensation Committee is the main link between the policies and decisions made by the Board of Directors and Ambev’s
management team. The Operations, Finance and Compensation Committee’s responsibilities include:
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·
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to present medium and long-term planning proposals to the Board of Directors;
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·
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to analyze and issue an opinion on the decisions of the Board of Directors regarding the compensation
policies for the Board of Directors and Executive Management, including their individual compensation packages, to help ensure
that the members of the Board and executive management are being adequately motivated to reach an outstanding performance in consideration
for proper compensation;
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·
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to monitor the investors relations strategies and the performance of our rating, as issued by the
official rating agencies;
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·
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to monitor the evaluation of the executive officers, senior management and their respective succession
plans;
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·
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to analyze, monitor and propose to the Board of Directors suggestions regarding legal, tax and
relevant regulatory matters;
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·
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to analyze and monitor our annual investment plan;
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·
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to analyze and monitor growth opportunities;
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·
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to analyze and monitor our capital structure and cash flow; and
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·
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to analyze and monitor the management of our financial risk, as well as budgetary and treasury
policy.
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The current members
of the Committee are Messrs. Victorio Carlos De Marchi (Chairman), Fernando Mommensohn Tennenbaum
and Roberto Moses Thompson Motta. The members of this committee are elected by the Board of Directors.
Related
Parties and Antitrust Conducts Committee
The responsibilities
of the Related Parties and Antitrust Conducts Committee responsibilities are to assist the Board of Directors with the following
matters:
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·
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related party transactions;
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·
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any general conflict of interest situations that may arise between the Company and related parties;
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·
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compliance, by the Company, with legal, regulatory and statutory provisions concerning related
party transactions;
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·
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compliance, by the Company, with legal, regulatory and statutory provisions concerning antitrust
matters; and
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·
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other matters the Board of Directors may consider relevant and in the interest of the Company.
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The current members
of the Related Parties and Antitrust Conducts Committee are Messrs. Victorio Carlos De Marchi (Chairman), Fabio Colletti Barbosa,
Marcos de Barros Lisboa, Everardo de Almeida Maciel and Carlos Emmanuel Joppert Ragazzo. The members of this committee are elected
by the Board of Directors.
Differences
Between United States and Brazilian Corporate Governance Practices
In November 2003,
the SEC approved corporate governance rules that had been adopted by the NYSE pursuant to the Sarbanes-Oxley Act of 2002. According
to those governance rules, foreign private issuers that are listed on the NYSE must disclose the significant differences between
their corporate governance practices and those required by the NYSE’s regulations for U.S. companies.
In November 2016,
the Brazilian Corporate Governance Code, which provides for corporate governance practices guidelines for publicly-held companies,
was released by a workgroup formed by several entities, such as ABRAPP, ABRASCA, ANBIMA, ABVCAP, AMEC, APIMEC, B3, BRAIN, IBGC,
IBRI and Instituto IBMEC, after the contribution and comments made by the CVM. In June 2017, the CVM approved a new rule, which
establishes that companies must inform whether they adhere to the principles and practices set forth in the Brazilian Corporate
Governance Code, or otherwise justify the reasons for non-compliance with such principles and practices. Our report on the Brazilian
Code of Corporate Governance, prepared in accordance with such rules, is available on our website at http://ri.ambev.com.br/. Additionally,
the B3 and the IBGC-Brazilian Institute of Corporate Governance have issued guidelines for corporate governance best practices.
The principal differences
between the NYSE corporate governance standards and our corporate governance practices are as follows:
Independence
of Directors and Independence Tests
NYSE corporate governance
standards require listed companies to have a majority of independent directors and set forth the principles by which a listed company
can determine whether a director is independent. “Controlled companies,” such as Ambev, need not to comply with these
requirements. Nonetheless, our bylaws require that (i) the majority of the members of our Board of Directors must be external directors
(i.e. with no current employment or managerial relationship with the company) and (ii) at least two of our directors be independent.
In addition, our bylaws set forth that directors elected by a separate ballot vote of minority shareholders holding at least 10%
of our capital stock shall be deemed independent.
As of the date of
this annual report on Form 20-F, all of our directors, including the independent ones, had been appointed by our controlling shareholders.
The Brazilian Corporation
Law and the CVM establish rules in relation to certain qualification requirements and restrictions, compensation, duties and responsibilities
of a company’s officers and directors.
Executive
Sessions
NYSE corporate governance
standards require non-management directors of a listed company to meet at regularly scheduled executive sessions without management.
According to the Brazilian
Corporation Law, up to one-third of the members of the Board of Directors can also hold executive officer positions. However, none
of our directors holds an executive officer position in us at this time and, accordingly, we believe we would be in compliance
with this NYSE corporate governance standard if we were a U.S. company.
Nominating/Corporate
Governance and Compensation Committees
NYSE corporate governance
standards require that a listed company have a nominating/corporate governance committee and a compensation committee each composed
entirely of independent directors with a written charter that addresses certain duties. “Controlled companies” such
as Ambev need not to comply with this requirement.
In addition, we are
not required under the Brazilian Corporation Law to have, and accordingly we do not have, a nominating committee or corporate governance
committee. According to the Brazilian Corporation Law, Board committees may not have any specific authority or mandate since the
exclusive duties of the full Board of Directors may not be delegated. The role of the corporate governance committee is generally
performed by either our Board of Directors or our executive officers.
Audit
Committee and Audit Committee Additional Requirements
NYSE corporate governance
standards require that a listed company have an audit committee composed of a minimum of three independent members that satisfy
the independence requirements of Rule 10A-3 under the Exchange Act, with a written charter that addresses certain duties.
We maintain a permanent
Fiscal Council, which is a body contemplated by the Brazilian Corporation Law that operates independently from our management and
from our registered independent public accounting firm. Its principal function is to examine the annual and quarterly financial
statements and provide a formal report to our shareholders. We are relying on the exemption provided by Rule 10A-3(c)(3) and believe
that our reliance on this exemption will not materially affect the ability of the Fiscal Council to act independently and to satisfy
the other requirements of Rule 10A-3.
Shareholder
Approval of Equity Compensation Plans
NYSE corporate governance
standards require that shareholders of a listed company must be given the opportunity to vote on all equity compensation plans
and material revisions thereto, subject to certain exceptions.
Under Brazilian Corporation
Law, shareholder pre-approval is required for the adoption and revision of any equity compensation plans. Our existing stock ownership
and share based payment plans were approved by our extraordinary general shareholders’ meetings held on July 30, 2013 and
on April 29, 2016. An amendment to the share based payment plan was approved by the annual general shareholders’ meeting
held on April 24, 2020.
Corporate
Governance Guidelines
NYSE corporate governance
standards require that a listed company must adopt and disclose corporate governance guidelines that address certain minimum specified
standards, which include, director qualification standards, director responsibilities, director access to management and independent
advisors, director compensation, director orientation and continuing education, management succession and annual performance evaluation
of the Board.
We believe the corporate
governance guidelines applicable to us under the Brazilian Corporation Law are consistent with the guidelines established by the
NYSE. We have adopted and observe our Manual on Disclosure and Use of Information and Policies for Trading with Securities issued
by Ambev which deals with the public disclosure of all relevant information as per CVM’s guidelines, as well as with rules
relating to transactions involving the dealing by our management and controlling shareholders in our securities.
Code
of Business Conduct
NYSE corporate governance
standards require that a listed company must adopt and disclose a code of business conduct and ethics for directors, officers and
employees and promptly disclose any waivers of the code for directors or officers. Each code of business conduct and ethics should
address the following matters: (1) conflicts of interest; (2) corporate opportunities; (3) confidentiality; (4) fair dealing; (5)
protection and proper use of company assets; (6) compliance with laws, rules and regulations (including insider trading laws);
and (7) encouraging the reporting of any illegal or unethical behavior.
We have adopted a
Code of Business Conduct that applies to all directors, officers and employees. Our Code of Business Conduct is available on our
website at http://ri.ambev.com.br/. The information included on our website or that might be accessed through our website is not
included in this annual report and is not incorporated into this annual report by reference. There are no waivers to our Code of
Business Conduct.
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ITEM 7.
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MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
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A. Major
Shareholders
Introduction
Ambev has only one
class of shares (i.e, voting common shares), including in the form of ADSs (evidenced by ADRs), with each ADS representing one
Ambev common share. The Ambev common shares and ADSs are registered under the Exchange Act. As of March 5, 2021, Ambev had 15,734,907,799
shares outstanding. As of March 5, 2021, there were 1,460,123,966 Ambev ADSs outstanding (representing 1,460,123,966 Ambev
shares, which corresponds to 9.3% of the total Ambev shares outstanding). The Ambev shares held in the form of ADSs under the Ambev
ADS facilities are deemed to be the shares held in the “host country” (i.e, the United States) for purposes of the
Exchange Act. In addition, as of March 5, 2021, there were 136 registered holders of Ambev ADSs.
On December 19, 2019,
our Board of Directors authorized us or our subsidiaries to enter into equity swap transactions, or First Swap Agreements. The
First Swap Agreements must be liquidated within 18 months from our Board of Directors’ approval and may cause an exposure
of up to 80 million common shares (which may be, partially or totally, referenced in ADRs), also limited to R$1.5 billion.
On May 13, 2020, our
Board of Directors authorized us or our subsidiaries to enter into additional equity swap transactions, or Second Swap Agreements,
without prejudice of the regular liquidation of the First Swap Agreements still in force, if applicable. The Second Swap Agreements
must be liquidated within 18 months from our Board of Directors’ approval and may cause an exposure of up to 65 million common
shares (which may be, partially or totally, referenced in ADRs), limited to R$1 billion.
On December 9, 2020,
our Board of Directors authorized us or our subsidiaries to enter into additional equity swap transactions, or Third Swap Agreements,
without prejudice of the regular liquidation of the First and Second Swap Agreements still in force, if applicable. The Third Swap
Agreements must be liquidated within 18 months from our Board of Directors’ approval and may cause an exposure of up to 80
million common shares (which may be, partially or totally, referenced in ADRs), limited to R$1.2 billion.
The Third Swap Agreements
considered together with the outstanding balances of the First and Second Swap Agreements to be liquidated do not reach the threshold
set forth in CVM Instruction No. 567/2015.
Control
Our two direct controlling
shareholders, IIBV and AmBrew, both of which are subsidiaries of ABI, together with FAHZ, held in aggregate 72.1% our total and
voting capital stock (excluding treasury shares) as of March 5, 2021.
ABI indirectly holds
shares in us representing 61.8% of our total and voting capital stock (excluding treasury shares) as of March 5, 2021. ABI thus
has control over us, even though (1) ABI is subject to the Shareholders’ Agreement and (2) ABI is controlled by Stichting
that represents an important part of interests of BRC and the Interbrew Founding Families. For further information on these matters
see “Item 4. Information on the Company—A. History and Development of the Company—The InBev-Ambev Transactions”
and “—Ambev’s Major Shareholders—The Shareholders’ Agreement.”
In March 2021, our
board of directors approved a buyback program for the repurchase of up to 5,700,000 Ambev shares to cover the delivery of shares
under our share-based compensation plans or to be held in treasury, cancelled or subsequently transferred in private or public
transactions.
In 2021, as of March
5, we acquired 6,981 Ambev shares in connection with preemptive rights related to stock ownership plans at a total cost of R$0.1
million.
In 2020, we acquired
2,937,533 Ambev shares in connection with preemptive rights related to stock ownership plans at a total cost of R$ 47.4 million.
In 2019, we acquired
5,823,194 Ambev shares in connection with preemptive rights related to stock ownership plans at a total cost of R$107.8 million.
In 2018, we acquired
3,791,412 Ambev shares in connection with preemptive rights related to stock ownership plans at a total cost of R$84.3 million.
In 2017, we acquired
7,830,472 Ambev shares in connection with preemptive rights related to stock ownership plans at a total cost of R$141.9 million.
For a further description
of our share buyback programs, see “Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers.”
Ambev’s
Major Shareholders
The following table
sets forth information as of March 5, 2021, with respect to any person known to us to be the beneficial owner of 5% or more of
our outstanding shares:
Shareholder
|
Amount
and Percentage
of Common Shares
|
The Bank of New York Mellon – ADR Department(1)
|
1,460,123,966
|
9.3%
|
Interbrew International B.V
|
8,441,956,047
|
53.6%
|
AmBrew S.A
|
1,286,955,302
|
8.2%
|
FAHZ(2)
|
1,609,987,301
|
10.2%
|
|
(1)
|
Represents the number of shares held in the form of ADSs. The Bank of New York Mellon is the depositary
of Ambev shares in accordance with the deposit agreement entered into with Ambev and the owners of Ambev ADSs.
|
|
(2)
|
Mr. Victório Carlos De Marchi, who is a FAHZ-appointed director
of Ambev, is also member of Advisory Board of FAHZ.
|
For a description
of our major shareholders’ voting rights, see “—The Shareholders’ Agreement”.
The
Shareholders’ Agreement
The Shareholders’
Agreement, effective since July 2, 2019, was executed on April 16, 2013 by IIBV, AmBrew and FAHZ, as well as Ambev, as intervening
party. The Shareholders’ Agreement may be terminated at any time upon FAHZ ceasing to hold at least 1,501,432,405 of Ambev’s
common shares (adjusted for any future share dividends, stock-splits and reverse stock-splits) or if FAHZ decides to early terminate
it. Among other matters, the Shareholders’ Agreement governs the voting of the Ambev common shares subject to the agreement
and the voting by Ambev of the shares of its majority-owned subsidiaries.
Management of Ambev
The Shareholders’
Agreement establishes that Ambev will be managed by a Board of Directors and by an Executive Committee. Ambev’s Board of
Directors shall have one Chairman or two (2) Co-Chairmen.
Presently, under the
Shareholders’ Agreement, FAHZ is entitled to appoint two directors and their respective alternates to the Board of Directors
of Ambev, provided it holds at least 1,501,432,405 Ambev common shares (adjusted for any future share dividends, stock-splits and
reverse stock-splits). One of the FAHZ-appointed directors shall have the right to also be appointed as a member of Ambev’s
Operations, Finance and Compensation Committee and of the Related Parties and Antitrust Conducts Committee, as well as any other
committee that may be established by Ambev’s Board of Directors. Furthermore, the shareholders shall use their best efforts
to allow one of the FAHZ-appointed directors to participate as an observer in meetings of Ambev’s Fiscal Council, whenever
such body is installed in lieu of the audit committee required by the Sarbanes-Oxley Act of 2002.
FAHZ may remove a
director that it has appointed to the Board of Directors of Ambev, and also has the right to appoint the respective replacement
or a new alternate, if the originally appointed alternate is confirmed for the vacant position.
The foregoing provisions
of the Shareholders’ Agreement regarding Ambev’s management bodies do not apply to the management bodies of Ambev’s
majority-owned subsidiaries.
Preliminary Meetings and
Exercise of Voting Rights
On matters submitted
to a vote of the shareholders or their representatives on the Board of Directors of Ambev or its majority-owned subsidiaries, FAHZ,
IIBV and AmBrew agreed to endeavor to first reach a consensus with respect to voting their common shares of each of Ambev and its
majority-owned subsidiaries, and agreed on the manner to direct their representatives to vote on the matter being submitted. The
Shareholders’ Agreement provides that the parties should hold a preliminary meeting in advance of all meetings of shareholders
or the Board of Directors of Ambev or of its majority-owned subsidiaries, with the purpose of discussing and determining a consensus
position to be taken by the parties in such meetings.
If the parties fail
to reach a consensus with respect to a particular matter, the position to be adopted by the parties to the Shareholders’
Agreement will be determined by the shareholder or group of shareholders holding a majority of Ambev common shares. The following
matters are not subject to the foregoing rule: (1) election of members to the Board of Directors or to any committee of the Board
of Directors, which shall follow the specific election procedure described above under “—Management of Ambev”
and (2) matters that require unanimous approval by FAHZ, IIBV and AmBrew, as follows:
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any amendment to the bylaws of Ambev and/or any of its majority-owned subsidiaries with the purpose
of changing: (1) the corporate purpose of those companies with a view to causing them to cease the production, commercialization
and distribution of beverages, (2) the allocation of Ambev’s results of operations, as set forth in its bylaws, or other
similar provisions in the bylaws of Ambev’s majority-owned subsidiaries that are meant to provide financial support to FAHZ,
(3) the minimum mandatory dividend of 40% of Ambev’s adjusted net income, and/or (4) any other provision that affects FAHZ’s
rights under the Shareholders’ Agreement; and
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the transformation of Ambev into a different form of legal entity.
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FAHZ, IIBV and AmBrew,
as well as any member appointed by them to our Board of Directors or any of its majority-owned subsidiaries, are not required to
observe decisions reached at preliminary meetings when deciding on the following matters:
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analysis and approval of management accounts of Ambev and its majority-owned subsidiaries;
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analysis and approval of the financial statements and management reports of Ambev and its majority-owned
subsidiaries;
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any matters or actions typified as abuse of control, as set forth in the first paragraph of Section
117 of the Brazilian Corporation Law; and
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actions and practices relating to management’s diligence, loyalty and other related duties,
as established in Sections 153 to 158 of the Brazilian Corporation Law.
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Transfer of Shares
Under the Shareholders’
Agreement, the following rules shall apply:
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in the event of a transfer of Ambev common shares subject to the Shareholders’ Agreement
(1) by IIBV and/or AmBrew, where such transfer results in these entities jointly holding a total equity interest in Ambev represented
by less than 50% plus one Ambev common share, and/or (2) by FAHZ upon making one and only one eligible transfer of at least 1,501,432,405
Ambev common shares (adjusted for any future share dividends, stock-splits and reverse stock-splits) to a single buyer and subject
to the first offer obligations described below, then, in either of those cases, the Ambev common shares subject to those transfers
shall remain bound by the Shareholders’ Agreement. Only in those two cases shall a third party acquiring the Ambev common
shares in those transfers be able to adhere to the Shareholders’ Agreement in order for the transfer to be effective;
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at any time FAHZ may elect to release its Ambev common shares subject to the Shareholders’
Agreement for the exclusive purpose of selling them in the stock market or over-the-counter market, provided that (1) it maintains
at least 1,501,432,405 Ambev common shares (adjusted for any future share dividends, stock-splits and reverse stock-splits) subject
to the Shareholders’ Agreement, and (2) it observes the first offer obligations described below; and
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in the event FAHZ intends to execute the above-referenced one and only one eligible transfer or
release, it shall first offer the Ambev common shares to the remaining parties to the Shareholders’ Agreement for their average
quoted market price on the 20 trading sessions immediately prior to the date of the relevant first offer (or the last 40 trading
sessions if no Ambev common shares were negotiated in at least half of the 20 immediately preceding trading sessions). The offerees
will have five days, as of the first offer date, to accept or refuse the offer, and, if expressly or tacitly refused (or in the
event the offerees fail to timely pay the applicable purchase price), then FAHZ may either proceed with such transfer or release
its Ambev common shares from the Shareholders’ Agreement and thereafter sell them to third parties within ten days.
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Specific Performance
The obligations of
the parties under the Shareholders’ Agreement will be subject to specific performance under applicable Brazilian law.
B. Related
Party Transactions
Overview
We have executed and
may in the future execute related party transaction with certain of our significant shareholders or other related parties and certain
of their affiliates. These transactions include, but are not limited to: (1) the purchase and sale of raw material with affiliated
entities, (2) entering into distribution, cross-licensing, transfer pricing, indemnification, service and other agreements with
affiliated entities, (3) import agreements with affiliated entities, and (4) royalty agreements with affiliated entities. These
transactions have been entered into only on an arm’s length basis in accordance with our best interests and customary market
practices at the time of their execution. In addition, the Related Parties and Antitrust Conducts Committee is responsible for
assisting the Board in reviewing, analyzing and deciding on these transactions to help ensure that their terms are reasonable and
that they comply with all applicable laws and regulations, as well as our corporate governance and best practices principles. See
“Item 6. Directors, Senior Management and Employees—C. Board Practices—The Board of Directors—Related Parties
and Antitrust Conducts Committee.” Set forth below is a discussion of our material related party transactions. For further
information on our related party transactions, see Note 32 to our audited consolidated financial statements.
On January 22, 2020,
our Canadian subsidiary Labatt entered into an agreement with Cervecería Modelo, which is indirectly controlled by Anheuser-Busch
InBev SA/NV. The agreement governs the import, licensing and distribution of the Corona products manufactured by Modelo in the
Canadian market. The price to be paid by Labatt consists of cost plus a mark-up that was determined independently, following the
rules of the Policy on Transactions with Related Parties and the Bylaws of the Company. No member of our Board of Directors related
to Cervecería Modelo and/or to AB InBev participated in the discussions concerning the transaction nor in its approval by
the Board.
Ambev
and FAHZ
Medical,
Dental and Social Assistance
One of the activities
of FAHZ, as described in its bylaws, is to provide medical and dental assistance and other benefits both to active and certain
of our employees, retired employees and executive officers (including their dependents).
Label
Production
We have
entered into a lease agreement with FAHZ, pursuant to which we have leased and are operating FAHZ’s assets used to produce
our labels in the total amount of R$11.5 thousand, maturing on Dec
31, 2022, with an option to extend the agreement for one additional year
Lease
on Commercial Properties
We have a lease of
two commercial properties from FAHZ involving annual lease payments in the amount of R$4.6 million. This lease agreement expired
on January 2020, and the previous terms and conditions will remain valid until an agreement for renewal is reached by the parties.
Ambev
and ABI
Licensing
Agreements
See “Item 4.
Information on the Company—B. Business Overview—Licenses—Licensing Agreements with ABI.”
Quilmes
Perpetual Licensing Agreement
In September 2017,
we entered into an agreement with ABI, pursuant to which our subsidiary Cervecería y Maltería Quilmes S.A., or Quilmes,
agreed to transfer to a third-party, Compañia Cervecerías Unidas S.A. or its affiliates, or CCU, certain Argentinean
brands (Norte, Iguana and Baltica) and related business assets as well as payment of US$50 million. In exchange, ABI has agreed
to transfer to Quilmes the brewery of Cerveceria Argentina Sociedad Anonima Isenbeck, an Argentinean subsidiary of ABI. In addition,
at closing ABI will license to Quilmes in perpetuity the Budweiser brand, among other North American brands, in Argentina upon
ABI’s recovery of the distribution rights to such brands from CCU. The transaction was subject to certain conditions precedent
and closed on May 2, 2018. Rothschild acted as our exclusive financial advisor. For additional information, see Note 1(b) to our
audited consolidated financial statements as of and for the year ended December 31, 2020.
Renegotiation
of Tenedora’s shareholders agreement
We and ELJ currently
own 85% and 15% of the shares of Tenedora, respectively, which in turns owns Cervecería Nacional Dominicana, S.A. On July
2, 2020, we and ELJ amended the Tenedora’s Shareholders Agreement (the “Shareholders Agreement”) to extend our
partnership and change some of the terms of the put and call options provided therein. Pursuant to this amendment, ELJ's put option
currently covers two different tranches: (i) Tranche A, corresponding to 12.11% of the shares, is subject to a put option exercisable
in 2022, 2023 and 2024; and (ii) Tranche B, corresponding to 2.89% of the shares, is subject to a put option starting in 2026.
Our call option relating to Tranche A shares may be exercised starting in 2021 and our call option relating to the Tranche B shares
may be exercised starting in 2029. The terms and conditions of these options are further described in Note 28 (Item IV (d)) to
our audited consolidated financial statements.
C. Interests
of Experts and Counsel
Not applicable.
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ITEM 8.
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FINANCIAL INFORMATION
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A. Consolidated
Financial Statements and Other Financial Information
Consolidated
Financial Statements
See “Item 17.
Financial Statements.”
Legal
Proceedings
We are subject to
numerous claims with respect to tax, labor, civil and other matters (consisting of antitrust, environmental and other proceedings
that do not fit in the other categories). Such proceedings involve inherent uncertainties including, but not limited to, as a result
of court rulings, negotiations between affected parties and governmental actions, and, consequently, our management cannot at this
stage estimate with certainty how and when these matters will be resolved.
To the extent that
we believe contingencies arising from these proceedings will probably be materialized, they have been recorded in the balance sheet.
We have estimated the total exposures of possible (but not probable) losses, which are not recorded as liabilities, to be R$81.5
billion as of December 31, 2020. Our estimates are based on reasonable assumptions and management assessments, but should the worst-case
scenario develop, subjecting us to losses in all cases classified as possible (but not probable), our net impact on our results
of operations would be an expense for this amount. Except as set forth herein, there are no legal proceedings to which we are a
party, or to which any of our properties are subject which, either individually or in the aggregate, may have a material adverse
effect on our results of operations, liquidity or financial condition. For more information, see Notes 26 and 30 to our audited
consolidated financial statements.
Tax
Matters
As of December 31,
2020, we had several tax claims pending against us, including judicial and administrative proceedings. Most of these claims relate
to ICMS Value-Added Tax and IPI Excise Tax. As of December 31, 2020, we had made provisions of R$ 340.8 million in connection with
those tax proceedings for which we believe there is a probable chance of loss.
Among the pending
tax claims, there are claims filed by us against Brazilian tax authorities alleging that certain taxes are unconstitutional. Such
tax proceedings include claims for income taxes, ICMS Value-Added Tax, IPI Excise Tax and taxes on revenues, such as the Social
Integration Program Contribution (Programa de Integração Social), or the PIS and the Social Security Funding
Contribution (Contribuição para Financiamento da Seguridade Social), or COFINS. As these claims are contingent
on obtaining favorable judicial decisions, the corresponding assets which might arise in the future are only recorded once it becomes
certain that we will receive the amounts previously paid or deposited.
As of December 31,
2020, we were party to tax proceedings with a total estimated possible risk of loss of R$ 78.2 billion. Approximately 66% (R$ 53.9
billion) of this figure is related to controversies related to payment of income tax and social contribution, and approximately
29% (R$ 23.3 billion) is related to controversies involving the payment of ICMS value-added and IPI Excise taxes, and the remainder
relates to controversies involving other taxes. The most significant proceedings are discussed below.
ICMS Value-Added
Tax, IPI Excise Tax and Taxes on Net Sales
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. With respect to IPI, our subsidiaries have been registering IPI excise tax presumed credits upon the
acquisition of exempted goods manufactured therein. Since 2009, we have been receiving a number of tax assessments from the RFB
relating to the disallowance of such credits.
We have also been
receiving charges from the RFB 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) PIS/COFINS amounts allegedly due on Arosuco’s remittance
to Ambev subsidiaries.
In April 2019, the
Brazilian Federal Supreme Court, or STF, announced its judgment on Extraordinary Appeal No. 592.891/SP, with binding effects, deciding
on the rights of taxpayers registering IPI excise tax presumed credits on acquisitions of raw materials and exempted inputs originating
from the Manaus Free Trade Zone. As a result of this decision, we 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. Our management estimates the
possible losses related to these proceedings to be approximately R$4.8 billion as of December 31, 2020. We have not recorded any
provision in connection with these assessments.
In 2014 and 2015,
we received tax assessments from the RFB relating to IPI excise tax allegedly due over remittances of manufactured goods to other
related factories. The cases are being challenged at both administrative and judicial levels. In 2020, Ambev received a final partial
favorable decision at the administrative level in one of the cases. At the judicial level, the case is still in the initial stage.
Our management estimates the possible losses related to these assessments to be approximately R$1.6 billion as of December 31,
2020. We have not recorded any provision in connection with these assessments.
Over the years, we
have also received tax assessments charging alleged ICMS differences considered due in the tax substitution system when the price
of the products sold by us is above the fixed price table basis established by certain Brazilian states, cases in which the tax
authorities understand that the calculation basis should be based on a value-added percentage over the actual prices, not the fixed
table price. We are currently challenging these charges at both the administrative and judicial levels of the courts. Our management
estimates the amount related to these assessments to be approximately R$8.6 billion as of December 31, 2020, classified as a possible
loss and, therefore, for which we have made no provision. We have recorded provisions in the total amount of R$7.6 million in relation
to certain proceedings where we consider the chances of loss to be probable due to specific procedural issues.
In 2015, we received
a tax assessment issued by the State of Pernambuco charging ICMS differences due to an alleged non-compliance with the State Tax
Incentive Program (PRODEPE) as a result of the rectification of our monthly reports. The state tax authorities decided that we
were not able to use our tax incentives due to such rectifications. In 2017, we received a final favorable decision nullifying
the assessment due to formal mistakes of the tax auditor. However, in September 2018, we received a new tax assessment with respect
to the same matter. In June 2020, Ambev received the first level administrative decision, which was partially favorable to the
Company in the sense of recognizing the miscalculation of the tax incentive credit by the tax authorities. The favorable portion
of the aforementioned decision is final and unappealable. With regard to the unfavorable portion, Ambev filed an administrative
appeal and the judgement is pending. There are other assessments related to this same State Tax Incentive Program. Our management
estimates the possible losses related to these assessments to be approximately R$0.6 billion as of December 31, 2020. We have recorded
a provision in the total amount of R$5 million in relation to one proceeding it considers the chances of loss to be partially probable.
In addition to the
ICMS matters, we are currently challenging tax assessments issued by the states of São Paulo, Rio de Janeiro, Minas Gerais,
among others, questioning the legality of ICMS tax credits arising from transactions with companies that have tax incentives granted
by other states. The cases are being challenged at both the administrative and judicial level of the courts. On August 2020, the
STF issued a binding decision (Extraordinary Appeal No. 628.075) ruling that tax credits granted by the states in the context of
the "ICMS tax war" shall be considered unlawful. The decision also recognized that the states should abide by the tax
incentives validation process provided for in Complementary Law No. 160/17. This decision is subject to appeal and does not change
the likelihood of loss in Ambev´s tax assessments. Our management estimates the possible losses related to these assessments
to be approximately R$2.0 billion as of December 31, 2020. We have not recorded any provision in connection therewith.
We have also received
tax assessments from the state of Amazonas charging alleged differences in ICMS due to questions about the calculation basis applied
in our sales transactions to our subsidiaries. The cases are being challenged at the administrative level. Our management estimates
the possible losses related to these assessments to be approximately R$0.5 billion as of December 31, 2020. We have not recorded
any provisions in connection therewith.
Profits Generated Abroad
Since 2005, we and
certain of our subsidiaries have been receiving a number of assessments from Brazilian federal tax authorities relating to profits
of our foreign subsidiaries. The cases are being challenged at both the administrative and judicial levels of the courts in Brazil.
The administrative
proceedings have resulted in partially favorable decisions, which are still subject to review by the administrative court. In the
judicial proceedings, we have received favorable injunctions that suspend the enforceability of the tax credit, as well as favorable
first level decisions, which remain subject to review by the second-level judicial court.
As of December 31,
2020, our management estimates the exposure of approximately R$7.3 billion as a possible risk and, accordingly has not recorded
a provision for such amount. We have recorded provisions of approximately R$53 million for proceedings where we consider the chance
of loss to be probable.
Disallowance on Income Tax
Deduction
In January 2020, Arosuco
(one of our subsidiaries) received a tax assessment from the RFB regarding the disallowance of the income tax reduction benefit
provided for in the Provisional Measure No. 2199-14/2001 and an administrative defense was filed. In October 2020, the first level
administrative Court rendered an unfavorable decision to Arosuco. Arosuco filed an appeal against the aforementioned decision and
awaits judgment by the Lower Administrative Court. As of December 31, 2020, our management estimates the exposure of approximately
R$2.0 billion, as a possible risk, and, accordingly, has not recorded a provision for such amount.
Goodwill - InBev Holding
In December 2011,
we received a tax assessment from the RFB related to the goodwill amortization resulting from Inbev Brasil’s merger referred
to under “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Ambev and ABI—Special
Goodwill Reserve.” At the administrative level, decisions partially favorable to Ambev were rendered by both the Lower and
Upper Administrative Court. Ambev filed judicial proceedings to discuss the unfavorable portion of the decisions of Administrative
Courts and requested injunctions to suspend the enforceability of the remaining tax credit. The injunctions were granted.
In June 2016, we received
a new tax assessment charging the remaining value of the goodwill amortization from 2011 to 2013, related to Inbev Brasil’s
merger with Ambev, and filed a defense. Partially favorable decisions were rendered by the first level administrative court and
the Lower Administrative Court. We filed a special appeal for analysis of the case by the Administrative Upper House, and the judgment
is pending. For the unfavorable portion of the decision which became final at the administrative level, we filed a judicial proceeding
requesting an injunction to suspend the enforceability of the remaining tax credit. The injunction was granted. We have not recorded
any provisions for this matter and our management estimates possible losses in relation to this assessment to be approximately
R$10.2 billion as of December 31, 2020. In the event we are required to pay these amounts, ABI will reimburse us in the amount
proportional to the benefit received by ABI pursuant to the merger protocol, as well as related costs.
Goodwill - Beverage Associate
Holding (BAH)
In October 2013, we
received a tax assessment related to the goodwill amortization resulting from the merger of Beverage Associates Holding Limited,
or BAH, into us. The decision from the first level administrative court was unfavorable to us and we filed an appeal to the Lower
Administrative Court against the decision which was partially granted. Given the partially favorable judgment, Brazilian tax authorities
and our company appealed to the Upper Administrative Court. The decision regarding the appeals is still pending.
In April and
August 2018, we received new tax assessments charging the remaining value of the goodwill amortization and filed defenses. In
April 2019, the first level administrative Court rendered us unfavorable decisions. As a result thereof, we appealed to the
Lower Administrative Court. In November and December 2019, the Lower Administrative Court rendered partially favorable
decisions. Ambev filed Special Appeals to the Upper Administrative Court. The Special Appeal filed in one of the tax
assessments is awaiting judgment by the Upper Administrative Court, whereas the other
Special Appeal is awaiting admission. Our management estimates the amount of possible losses in relation to this assessment to
be approximately R$2.3 billion as of December 31, 2020. We have not recorded any provision in connection with this assessment.
Goodwill - CND Holdings
In November 2017,
we received a tax assessment related to the goodwill amortization resulting from the merger of CND Holdings into Ambev. In November
2018, we received an unfavorable decision from the first level administrative Court and filed an appeal to the Lower Administrative
Court. In February 2020, we received a partially favorable decision at the Lower Administrative Court. Ambev and the tax authorities
filed Special Appeals to the Upper Administrative Court, which are awaiting admission and judgment. Our management estimates the
amount of possible losses in relation to this assessment to be approximately R$1,0 billion as of December 31, 2020. We have not
recorded any provision in connection with this assessment.
Disallowance of financial
expenses
In 2015, 2016 and
2020, we received tax assessments from the RFB related to the disallowance of alleged non-deductible expenses and the deduction
of certain losses mainly associated with financial investments and loans. We presented defenses and, in November 2019, received
a favorable decision at the first-level administrative Court regarding the 2016 case. The 2015 and 2020 cases are still pending
decision by the first-level administrative Court. Our management estimates the exposure to possible losses in relation to these
assessments to be approximately R$5.0 billion as of December 31, 2020. We have not recorded any provision in connection with these
assessments.
Disallowance of Taxes Paid
Abroad
Since 2014, we have
been receiving tax assessments from the RFB related to the disallowance of deductions associated with alleged unproven taxes paid
abroad by our subsidiaries and have been filing defenses. The cases are being challenged at both the administrative and judicial
levels. In November 2019, the Lower Administrative Court rendered a favorable decision regarding an assessment from 2010, which
became final. In January 2020, the Lower Administrative Court rendered unfavorable decisions regarding four of these assessments,
from 2015 and 2016. Regarding the 2015 assessments, Ambev filed Special Appeals to the Upper Administrative Court which are pending
decisions. Regarding the 2016 assessments, Ambev was notified of the decisions and filed motions for clarification which are pending.
With respect to the cases related to the periods of 2015 and 2016, tax assessments were filed to charge fines due to the lack of
monthly prepayments of income tax as a result of allegedly undue deductions of taxes paid abroad. Ambev responded and judgment
by the first level administrative Court is pending. The other cases are still awaiting final decisions at both administrative and
judicial. As of December 31, 2020, our management estimates the remaining exposure of approximately R$11.7 billion as a possible
risk, and accordingly we have not recorded a provision for such amount.
Presumed Profit
In April 2016, Arosuco
(one of our subsidiaries) received a tax assessment regarding the use of the “presumed profit” method for the calculation
of income tax and the social contribution on net profit instead of the “real profit” method. In September 2017, Arosuco
received an unfavorable first level administrative decision and filed an appeal. In January 2019, the Lower Administrative Court
rendered a favorable decision to Arosuco, which became final.
In March 2019, we
received a new tax assessment regarding the same subject matter and filed a defense. In October 2019, Arosuco received an unfavorable
first-level administrative decision and filed an appeal.
Arosuco management
estimates the amount of possible losses in relation to this assessment to be approximately R$0.5 billion as of December 31, 2020.
Arosuco has not recorded any provision in connection therewith.
Deductibility of IOC expenses
In November 2019,
we received a tax assessment from the RFB questioning the interest on capital, or IOC, deduction in 2014. The tax assessment refers
primarily to the accounting and corporate effects of the corporate restructuring carried out by us in 2013 and its impacts on the
increase in the deductibility of IOC expenses. In August 2020, Ambev received a partially favorable decision at the first level
administrative Court and filed an Appeal to the Lower Administrative Court.
In December 2020,
Ambev received a new tax assessment related to the deduction of the IOC in 2015 and 2016. The defense against such assessment was
filed by Ambev in January 2021.
We also distributed
IOC in the years following the assessed period, i.e. after 2016. In a scenario where the IOC deductibility would also be questioned
for the period after 2016, on the same basis as the aforementioned tax assessments, our management estimates that the outcome of
such potential further assessments would be similar to the abovementioned case. Accordingly, the effects of the deductibility of
IOC expenses on ours effective income tax rate for this period would be maintained.
As of December 31,
2020, our management estimates the exposure of approximately R$10.2 billion as a possible risk, and, accordingly, has not recorded
a provision for such amount.
Social Contributions
Since 2015, we
have been receiving tax assessments issued by the Brazilian federal tax authorities relating to amounts allegedly due under
Integration Program / Social Security Financing Levy (PIS/COFINS) over bonus products granted to our customers. The cases are
now being challenged at both the judicial and administrative levels of the courts. In 2020, we received final favorable
decisions at the administrative level in some of these cases and other favorable decisions that are still subject to review.
At the judicial level, the case is still in its initial stage. Our management estimates the possible losses related to these
assessments to be approximately R$1.7 billion as of December 31, 2020. No related provision has been made.
Adherence to the Special
Tax Regularization Program
In September 2017,
we decided to participate in the Federal Tax Amnesty Program established by Provisional Measure No. 783/2017, converted into Law
No. 13,496/2017, or PERT 2017, undertaking to pay certain tax assessments that were in dispute under administrative or judicial
levels, including debts from our subsidiaries, in the total amount of R$3.5 billion (already considering discounts established
by the program). The total amount paid in 2017 was approximately R$960.0 million and the balance will be paid in 145 monthly installments,
with interest, as of January 2018. All installments due up to the date have been paid by the Company.
Despite our participation
in this program, we could be subject to tax audits for subsequent periods, which may lead to tax challenges by the relevant authorities
on similar claims. In addition, if we are delinquent in our payments under these programs or are otherwise unable to pay as scheduled,
we may be barred from participating in this program and similar programs this.
Subsequent events
Not applicable.
Labor
Matters
We are involved in
more than 17,000 labor claims. Most of the labor claims we face relate to our Brazilian operations. In Brazil, it is not unusual
for a large company to be named as a defendant in such a significant number of claims. As of December 31, 2020, we made provisions
totaling R$129,8 million in connection the above labor claims involving former, current and outsourced employees relating mainly
to overtime, dismissals, severance, health and safety premiums, supplementary retirement benefits and other matters, all of which
are awaiting judicial resolution and have probable chance of loss.
In connection with
the labor matters, we are also involved in claims regarding the social charges on payroll. Management estimates the possible losses
related to these claims to be, approximately, R$0.4 billion as of December 31, 2020. We have recorded provisions of approximately
R$30 million for proceedings where we consider the chance of loss to be probable.
Civil
Claims
As of December 31,
2020, we were involved in more than 8,500 civil claims that were pending, including third-party distributors and product-related
claims. We have established provisions totaling R$86,8 million reflecting applicable adjustments, such as accrued interest, as
of December 31, 2020 in connection with civil claims.
Subscription Warrants
In 2002, we decided
to request a ruling from the CVM in connection with a dispute between Old Ambev and some of its warrant holders regarding the criteria
used in the calculation of the strike price of certain Old Ambev warrants. In March and April 2003, the CVM ruled that the criteria
used by Old Ambev to calculate the strike price were correct. In response to the CVM’s final decision and seeking to reverse
it, some of the warrant holders filed separate lawsuits before the courts of São Paulo and Rio de Janeiro.
Although the warrants
expired without being exercised, the warrant holders claim that the strike price should be reduced to take into account the strike
price of certain stock options granted by Old Ambev under its then-existing stock ownership program, as well as for the strike
price of other warrants issued in 1993 by Brahma.
We are aware of
at least seven claims in which the plaintiffs argue that they would be entitled to those rights. One of these cases was settled.
The other six lawsuits were ruled favorably to Ambev by the Superior Court of Justice (“STJ”). Three cases were dismissed
by the STJ’s Special Court. The plaintiffs may still file motions for clarification against such decisions. One case was
ruled favorably to Ambev by the STJ’s Special Court and the judgment became final. Another case was remitted to the STJ’s
lower court for a new judgment. The sixth case was ruled favorably to Ambev and it was subject to an appeal to the Brazilian Supreme
Court (“STF”), which was denied. Such decision became final.
In the event the plaintiffs
prevail in the above six pending proceedings, we believe that the corresponding economic dilution for the existing shareholders
would be the difference between the market value of the shares at the time they are issued and the value ultimately established
in liquidation proceedings as being the subscription price pursuant to the exercise of the warrants. We believe the warrants object
of those six proceedings represented, on December 31, 2020, 172,831,574 Ambev common shares that would be issued at a value substantially
below fair market value, should claimants ultimately prevail. The plaintiffs also claim they should receive past dividends related
to these shares in the amount of approximately R$1 billion as of December 31, 2020.
Based on management
assessments, our chances of receiving unfavorable final decisions in this matter are remote, and therefore we have not established
a provision for this litigation in our audited consolidated financial statements. As these disputes are based on whether we should
receive as a subscription price a lower price than the price that we consider correct, a provision of amounts with respect to these
proceedings would only be applicable with respect to legal fees and past dividends.
Lawsuit Against the Brazilian
Beer Industry
On October 28, 2008,
the Brazilian Federal Prosecutor’s Office (Ministério Público Federal) filed a suit for damages against
us and two other brewing companies claiming total damages of approximately R$2.8 billion (of which approximately R$2.1 billion
are claimed against us). The public prosecutor alleges that: (1) alcohol causes serious damage to individual and public health,
and that beer is the most consumed alcoholic beverage in Brazil; (2) defendants have approximately 90% of the national beer market
share and are responsible for heavy investments in advertising; and (3) the advertising campaigns increase not only the market
share of the defendants but also the total consumption of alcohol and, hence, cause damage to society and encourage underage consumption.
Shortly after the
above lawsuit was filed, a consumer-protection association applied to be admitted as a joint-plaintiff. The association has made
further requests in addition to the ones made by the Public Prosecutor, including the claim for “collective moral damages”
in an amount to be ascertained by the court; however, it suggests that it should be equal to the initial request of R$2.8 billion
(therefore, doubling the initial amount involved). The court has admitted the association as joint-plaintiff and has agreed to
hear the new claims. After the exchange of written submissions and documentary evidence, the case was dismissed by the Lower Court
Judge, which denied all the claims submitted against Ambev and the other defendants. The Federal Prosecutor’s Office appealed
to the Federal Court, which decided for the annulment of the lower court decision, based on the understanding that more evidences
should have been produced before the case’s dismissal. Ambev filed a motion for clarification against the decision, which
was rejected and such decision became final. The case has now returned to the lower court for the production of evidences. Ambev
believes, based on management assessments, that its chances of loss remain remote and, therefore, has not made any provision with
respect to such claim.
Lawsuit Against
F. Laeisz
On April 4, 2018,
F. Laeisz filed a lawsuit against us for collection of dividends relating to 74,211,825 ordinary shares issued by Ambev and held
in our treasury since April 10, 2012. F. Laeisz alleges that: (1) it is the rightful owner of the shares; and (2) the ownership
of registered shares shall be based on the registration under the shareholder’s name on the company’s Share Registry
Book.
The Lower Court Judge
granted our request to admit the Federal Government as joint-defendant since it also claims to be the owner of such shares, as
the Federal Government was entitled to incorporate such shares based on a decree enacted during World War II. In October 2019,
the Lower Court Judge granted F. Laeisz’s claims ordering Ambev to pay the amount equivalent to the dividends of 74,211,825
ordinary shares held in our treasury since April 10, 2012. Such decision will now be subject to a mandatory review by the Federal
Court of Appeals, since the Federal Government lost its preliminary claims. In parallel, we have negotiated and executed a settlement
agreement with F. Laeisz, aiming at reducing the total amount under dispute. Except for inflation adjustment, F. Laeisz has agreed
on restrictions to the application of interests to adjust the dividends in the event the Federal Court of Appeals rules in its
favor and recognizes F. Laeisz as the rightful owner of the shares. We believe, based on management assessments, that our chances
of loss are possible. Nonetheless, irrespective to whom is considered the rightful owner of the shares in question, we have duly
accounted for all dividends relating to the relevant shares since April 10, 2012.
Dividend
Policy
The timing, frequency
and amount of future dividend payments, if any, will depend upon various factors that our Board of Directors may consider relevant,
including our earnings and financial condition. Our bylaws provide for a minimum mandatory dividend of 40% of our adjusted annual
net income, if any, as determined under IFRS at our individual financial statements. Brazilian companies are permitted to make
limited distributions to shareholders in the form of interest accrued on share capital, commonly referred to as “interest
on shareholders’ equity,” and treat such payments as a deductible financial expense for purposes of Brazilian income
tax and social contribution on profits. This notional interest distribution is treated for accounting purposes as a deduction from
shareholders’ equity in a manner similar to a dividend. The benefit from the tax-deductible interest on shareholders’
equity is recorded in the income statement. The minimum mandatory dividend includes amounts paid as interest on shareholders’
equity (net of taxes). However, payment of such interest on shareholders’ equity is subject to Brazilian withholding income
tax, whereas no such withholding is required in connection with dividends paid. For further information on this matter see “Item
10. Additional Information—E. Taxation—Brazilian Tax Considerations—Income Tax.”
Annual adjusted net
income not distributed as dividends or interest on shareholders’ equity may be capitalized, used to absorb losses or otherwise
appropriated as allowed under the Brazilian Corporation Law and our bylaws. Therefore, annual adjusted net income amounts may not
necessarily be available to be paid as dividends. We may also not pay dividends to our shareholders in any particular fiscal year
upon the determination of the Board of Directors that such distribution would be inadvisable in view of our financial condition
at the time. Any such dividends not distributed would be allocated to a special reserve account for future payment to shareholders,
unless used to offset subsequent losses. For further information on this matter, see “Item 3. Key Information— D. Risk
Factors—Risks Relating to Our Common Shares and ADSs—Our shareholders may not receive any dividends.”
For further information
on provisions of the Brazilian Corporation Law relating to required reserves and payment of dividends or interest on shareholders’
equity, as well as specific rules applicable to the payment of dividends by us under our bylaws, see “Item 10. Additional
Information—B. Memorandum and Articles of Association—Reserves.”
Ambev
S.A.
The following table
shows the cash dividends paid by Ambev to holders of Ambev’s common shares in reais and in U.S. dollars (translated
from reais at the commercial exchange rate as of the date of payment) for each of the indicated periods. The amounts include
interest on shareholders’ equity, net of withholding tax. The last distribution of dividends approved, which relates to the
second half of the 2020 fiscal year, was paid by Ambev on January 28, 2021.
Date of
Approval
|
First Payment
Date
|
Reais
per Shares(1)
|
U.S. Dollar
Equivalent per Share at Payment Date(1)(2)
|
|
|
|
|
First half 2018
|
July 30, 2018
|
0.160
|
0.043
|
|
|
|
|
Second half 2018
|
December 28, 2018
|
0.272
|
0.071
|
|
|
|
|
Second half 2019
|
December 30, 2019
|
0.417
|
0.103
|
|
|
|
|
Second half 2020
|
December 30, 2020
|
0.3516
|
0.079
|
|
|
|
|
Second half 2020
|
January 28, 2021
|
0.0767
|
0.014
|
|
|
|
|
|
(1)
|
The amounts set forth above are amounts actually received by shareholders,
which are net of withholding tax. The financial statements present the amounts actually disbursed, including the withholding tax
on interest on shareholders’ equity, which was paid by Ambev on behalf of shareholders. The dividends set forth above are
calculated based on the number of outstanding shares at the date the distributions were declared. See “Item 7. Major Shareholders
and Related Party Transactions—A. Major Shareholders.”
|
|
(2)
|
Translated to U.S. dollars at the exchange rate in effect at the first
scheduled payment date.
|
For more information
on rules and procedures for shareholder distributions under our bylaws, see “Item 10. Additional Information—B. Memorandum
and Articles of Association—Reserves.”
B. Significant
Changes
Except as otherwise
disclosed in our audited consolidated financial statements and in this annual report, there have been no significant changes in
our business, financial conditions or results in December 31, 2020.
|
ITEM 9.
|
THE OFFER AND LISTING
|
A. Offer
and Listing Details
Not applicable. Information
regarding the price history of the stock listed as required by Item 9.A.4 is set forth below in “—C. Principal Market
and Trading Market Price Information.”
B. Plan
of Distribution
Not applicable.
C. Principal
Market and Trading Market Price Information
We are registered
as a publicly held company with the CVM. Our common shares are listed on the B3 under the symbol “ABEV3” and our ADSs
are listed on the NYSE under the symbol “ABEV”. Our shares and ADSs began trading on the B3 and the NYSE, respectively,
on November 11, 2013. The shares and ADSs of Old Ambev ceased all trading activities on those stock exchanges on the close of business
of November 8, 2013.
Ambev has only one
class of shares (i.e, voting common shares), including in the form of ADSs (evidenced by ADRs), with each ADS representing one
Ambev common share. The Ambev common shares and ADSs are registered under the Exchange Act. As of March 5, 2021, Ambev had 15,734,907,799
shares outstanding. As of March 5, 2021, there were 1,460,123,966 Ambev ADSs outstanding (representing 1,460,123,966 Ambev shares,
which corresponds to 9.3% of the total Ambev shares outstanding). The Ambev shares held in the form of ADSs under the Ambev ADS
facilities are deemed to be the shares held in the “host country” (i.e, the United States) for purposes of the Exchange
Act. In addition, as of March 5, 2021 there were 136 registered holders of Ambev ADSs.
Regulation
of the Brazilian Securities Market
The Brazilian securities
market is regulated by the CVM, which has regulatory authority over the stock exchanges and securities markets, as well as by the
Central Bank, which has, among other powers, licensing authority over brokerage firms and regulates foreign investment and foreign
exchange transactions. The Brazilian securities market is governed primarily by Law No. 6,385 dated December 7, 1976, as amended,
or the Brazilian Securities Law, and by the Brazilian Corporation Law, as amended and supplemented. These laws and regulations,
among others, provide for disclosure requirements, criminal penalties for insider trading and price manipulation, and protection
of minority shareholders, licensing procedures, supervision of brokerage firms and governance of Brazilian stock exchanges. However,
the Brazilian securities markets are not as highly regulated and supervised as U.S. securities markets.
Under the Brazilian
Corporation Law, a company is either publicly held, such as Ambev, whose shares are publicly traded on the B3, or privately held.
All listed companies are registered with the CVM and are subject to reporting and regulatory requirements relating to the periodic
disclosure of information and material facts. A company registered with the CVM may trade its securities either on the Brazilian
stock exchanges, including B3, or in the Brazilian over-the-counter market. Shares of companies like Ambev traded on the B3 may
not simultaneously be traded on the Brazilian over-the-counter market. The over-the-counter market consists of direct trades between
persons in which a financial institution registered with the CVM serves as an intermediary. The shares of a listed company, including
Ambev, may also be traded privately subject to several limitations. To be listed on the B3, a company must be registered as a publicly
held Company with the CVM and apply for registration with the B3.
The over-the-counter
market is divided into two categories: (1) an organized over-the-counter market, in which the transactions are supervised by self-regulating
entities authorized by the CVM; and (2) a non-organized over-the-counter market, in which the transactions are not supervised by
self-regulating entities authorized by the CVM. In either case, transactions are directly traded among persons, outside of the
stock exchange market, through a financial institution authorized by the CVM. The institution is required to be registered
with the CVM (and in the relevant over-the-counter market), but there is no need for a special license to trade securities of a
publicly listed company on the over-the-counter market.
The trading of securities
on the Brazilian stock exchanges may be suspended under certain circumstances, including at the request of a company in anticipation
of a disclosure of material announcement. Companies may be required by law to request such suspension. Trading may also be suspended
on the initiative of a Brazilian stock exchange or the CVM, among other reasons, based on or due to a belief that a company has
provided inadequate information regarding a significant event or has provided inadequate responses to inquiries by the CVM or a
stock exchange.
Trading
on the Brazilian Stock Exchanges
B3 is a stock exchange
and leading operator of registration, clearing, custodial and settlement services for equities, financial securities, indices,
rates, commodities and currencies in Brazil. B3 is currently the only Brazilian stock exchange on which private equity and private
debt may be traded.
Trading on the exchange
is conducted by authorized members. B3 trading sessions take place every business day, from 10:00 a.m. to 5:55 p.m., BRT. Equity
trading is executed fully electronically through an order-driven trading system called “PUMA Trading System,” or “PUMA.”
Additionally, the home broker system through the Internet has been established allowing retail investors to transmit orders directly
to the B3. B3 trading session hours may change from time to time due to daylight saving time in Brazil and in the United States,
in such case B3 may shorten its sessions hours and permits trading after the session closure on an online system connected to PUMA
and Internet brokers called the “after-market”. CVM has discretionary authority to suspend trading in shares of a particular
issuer under specific circumstances. Securities listed on the B3 may also be traded off the exchange under specific circumstances,
but such trading is very limited.
Settlement of transactions
is effected two business days after the trade date, without any adjustment to the purchase price. Delivery of and payment for shares
are made through the facilities of an independent clearing house, B3 Central Depository, which is the clearing house for the transactions
carried out on the B3 and handles the multilateral counterparty settlement of both financial obligations and transactions involving
securities. According to the regulations of the B3 Central Depository, financial settlement is carried out through the funds transfer
system of the Central Bank and the transactions involving the sale and purchase of shares are settled through the B3 Central Depository
custody system. All deliveries against final payment are irrevocable. The seller is ordinarily required to deliver the shares to
the exchange on the second business day following the trade date. The B3 Equities Clearing is responsible for the registration,
settlement and risk management of trades with shares through the PUMA Trading System.
In order to better
control volatility, B3 has adopted a “circuit breaker” mechanism pursuant to which trading sessions may be suspended
for a period of 30 minutes or one hour whenever the index of the stock exchange falls below 10% or 15%, respectively, compared
to the previous day’s closing index. If the market falls more than 20% compared to the previous day, the B3 may determine
the suspension of trading in all markets for a defined period, at its sole discretion, and such decision must be disclosed to the
market. The “circuit breaker” is not allowed to be started during the last 30 minutes of the trading session.
Although the Brazilian
equity market is Latin America’s largest in terms of market capitalization, it is smaller, more volatile and less liquid
than the major U.S. and European securities markets. As of December 31, 2020, the aggregate market capitalization of all companies
included in the IBOVESPA index of the B3 was equivalent to approximately R$ 4.2 trillion. Although all of the outstanding shares
of a listed company are actually available for trading by the public, in most cases fewer than half of the listed shares are actually
traded by the public because the remainders of a listed company’s shares are usually held by small groups of controlling
persons, by governmental entities or by one principal shareholder. For this reason, data showing the total market capitalization
of Brazilian stock exchanges tend to overstate the liquidity of the Brazilian equity securities market.
There is also significantly
greater concentration in the Brazilian securities markets. For example, as of December 31, 2020 the ten shares with greatest representation
on the IBOVESPA index of the B3 accounted for 51.6 % of the total weight of all companies included in that stock index.
Trading on Brazilian
stock exchanges by non-residents of Brazil is subject to limitations under Brazilian foreign investment legislation. See “Item
3. Key Information—A. Selected Financial Data—Exchange Controls” and “Item 10. Additional Information—B.
Memorandum and Articles of Association—Restrictions on Foreign Investment.”
D. Selling
Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses
of the Issue
Not applicable.
|
ITEM 10.
|
ADDITIONAL INFORMATION
|
A. Share
Capital
Not applicable.
B. Memorandum
and Articles of Association
Below is a brief summary
of the material provisions concerning our common shares, bylaws and the Brazilian Corporation Law. In Brazil, the principal governing
document of a corporation is its bylaws (Estatuto Social). This description is qualified in its entirety by reference to
the Brazilian Corporation Law and our bylaws. An English translation of our bylaws has been filed with the SEC as an exhibit to
this annual report. A copy of our bylaws (together with an English translation) is also available for inspection at the principal
office of the depositary and at our website (http://ri.ambev.com.br/). Information on ownership of our shares is set forth under
“Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders.”
On March 23, 2020,
our Board of Directors approved the issuance of 1.542.676 new common shares with no par value as a result of the exercise of options
granted under the “First Program for the year of 2015 of the Company’s Stock Option Plan”, approved by our Board
of Directors on March 4, 2014 pursuant to our Stock Option Plan that was approved by our Shareholders on July 30, 2013. The issuance
price per share was R$ 20.95 and our capital stock following the increase sums R$ 57,899,072,773.68, represented by 15,735,117,965
common shares with no par value.
As of March 5, 2021,
our capital stock was equal to R$57,899,072,773.68 divided into 15,735,117,965 issued common shares, without par value, of which
210,166 were treasury shares, with no further changes since March 2020. We are authorized to increase our capital up to 19,000,000,000
shares upon the decision of our Board of Directors, without the need to amend our bylaws. We have a single-class share structure,
comprised exclusively of voting common shares, and there are no classes or series of preferred shares outstanding.
Pursuant to the Brazilian
Corporation Law, we are allowed to sell in the open market any Ambev common shares that have been subscribed but not paid in full
within the applicable deadline set forth in our bylaws or the applicable subscription bulletin under which those shares were issued.
If an open market sale is impractical, any subscribed but unpaid Ambev common shares may be forfeited.
Each common share
entitles the holder thereof to one vote at our shareholders’ meetings. Holders of common shares are not entitled to any preference
upon our liquidation.
The Board of Directors
does not vote on compensation payable to them or any of their members. For more information on management compensation, see “Item
6. Directors, Senior Management and Employees—C. Board Practices—The Board of Directors—Operations, Finance and
Compensation Committee.”
There is no age limit
for retirement applicable to the members of our Board of Director in our bylaws.
General
Our registered name
is Ambev S.A. and our registered office is in the city of São Paulo, State of São Paulo, Brazil. Our registration
number with the São Paulo Commercial Registry is 35,300,368,941. Our principal corporate purposes include the production
and sale of beer, CSDs and other beverages. A more detailed description of our corporate purposes can be found in Chapter I, Article
3 of our bylaws.
Rights
of the Ambev Common Shares
Each of our common
shares is indivisible and entitles its holder to one vote at any shareholders’ meeting of Ambev. In accordance with our bylaws
and the Brazilian Corporation Law, shareholders have the right to receive dividends or other distributions in proportion to their
equity interest in our share capital. For additional information regarding the payment of dividends and other distributions relating
to our common shares, see “Item 8. Financial Information—A. Consolidated Financial Statements and Other Financial Information—Dividend
Policy.” In addition, our shareholders may freely transfer their shares and are entitled to be included in a statutory sale
of control tender offer upon a disposition
of our control (see item “Disclosure of Principal Shareholders” for more information).
Also, upon our liquidation,
and after the discharge of all our liabilities, our common shares entitle its holders to a participation in our remaining assets
as capital reimbursement in proportion to their equity interest in our share capital. Except under certain circumstances, holders
of our common shares have the right, but not the obligation, to subscribe for our future capital increases.
Moreover, pursuant
to the Brazilian Corporation Law, neither our bylaws nor actions taken at a shareholders’ meeting may deprive a shareholder
of the following rights:
|
·
|
the right to participate in our profit distributions;
|
|
·
|
the right to participate in our remaining assets in proportion to its equity interest in our share
capital in the event of our liquidation;
|
|
·
|
preemptive rights to subscribe for our common shares, convertible debentures and warrants, except
in certain circumstances under the Brazilian Corporation Law, as described in “—Preemptive Rights”;
|
|
·
|
the right to inspect and monitor our management, in accordance with the Brazilian Corporation Law;
|
|
·
|
the right to exercise appraisal rights and withdraw from the Company in the cases provided under
the Brazilian Corporation Law, as described in “—Appraisal Rights.”
|
Shareholders’
Meetings
Pursuant to the Brazilian
Corporation Law, shareholders, during shareholders’ meetings regularly called and convened, are generally empowered to pass
resolutions relating to our corporate purpose as they may deem necessary. Shareholders’ meetings may be ordinary, such as
the annual meeting, or extraordinary. Shareholders at the annual shareholders’ meeting, which is required to be held within
four months of the end of our fiscal year, have the exclusive power to approve our financial statements and to determine the allocation
of our adjusted net income and the distribution of dividends with respect to the fiscal year ended immediately prior to the relevant
annual meeting. Extraordinary shareholders’ meetings are convened to approve the remaining matters within their competency
as provided by law and/or our bylaws. An extraordinary shareholders’ meeting may be held concurrently with an ordinary meeting.
A shareholders’
meeting is convened by publishing a meeting call notice no later than 15 days prior to the scheduled meeting date, on first call,
and no later than eight days prior to the date of the meeting, on second call, and no fewer than three times, in the Diário
Oficial do Estado de São Paulo and in a newspaper with general circulation in São Paulo, where we have our registered
office. In certain circumstances, however, the CVM may require that the first notice be published no later than 30 days prior to
the meeting. At the shareholders’ meeting held on March 1, 2013, our shareholders designated Valor Econômico,
a newspaper with general circulation in São Paulo for this purpose. The call notice must contain the date, time, place and
agenda of the meeting, and in case of amendments to the bylaws, the indication of the relevant matters. CVM Rule No. 481 of December
17, 2009, also requires that additional information be disclosed in the meeting call notice for certain matters. For example, in
the event of an election of all directors, the meeting call notice shall also disclose the minimum percentage of equity interest
required from a shareholder to request the adoption of cumulative voting procedures. All documents in connection with the shareholders’
meeting’s agenda shall be made available to shareholders either within at least one month prior to the meeting or upon publication
of the first meeting call notice, as the case may be, except if otherwise required by law or CVM regulations.
A shareholders’
meeting may be held if shareholders representing at least one quarter of the voting shares are present, except in some cases provided
by law, such as in meetings seeking to amend the Company’s bylaws, which requires the presence of shareholders representing
at least two-thirds of the voting shares. If no such quorum is present, an eight-day prior notice must be given in the same manner
as described above, and a meeting may then be convened without any specific quorum
requirement, subject to the minimum quorum and voting requirements for specific matters, as discussed below.
Except as otherwise
provided by law, resolutions of a shareholders’ meeting are passed by a simple majority vote of the shares present or represented
at the meeting, abstentions not being considered. Under the Brazilian Corporation Law, the approval of shareholders representing
at least a majority of the issued and outstanding voting shares is required for the types of actions described below (among others):
|
·
|
creating preferred shares or increasing disproportionately an existing class of preferred shares
relative to the other classes of shares, unless such action is provided for or authorized by the bylaws;
|
|
·
|
modifying a preference, privilege or condition of redemption or amortization conferred upon one
or more classes of preferred shares, or creating a new class with greater privileges than those of the existing classes of preferred
shares;
|
|
·
|
reducing the minimum mandatory dividend;
|
|
·
|
merging Ambev with another company or consolidating or executing a spin-off of Ambev;
|
|
·
|
changing our corporate purpose; and
|
|
·
|
dissolving Ambev or ceasing its liquidation status.
|
Shareholders may not
exercise voting rights with respect to the approval of the appraisal report of assets contributed by them in a capital increase
paid in kind or with respect to the approval of their own accounts as managers of the company, as well as in those resolutions
that may favor those shareholders specifically, or whenever there is a conflicting interest with the Company. Mergers between affiliated
parties are subject to a special statutory valuation procedure intended to provide a parameter (based on the net equity at market
prices of the companies involved) for comparing the proposed exchange ratio.
Shareholders’
meetings may be called by our Board of Directors. Under the Brazilian Corporation Law, meetings may also be convened by our shareholders
as follows: (1) by any shareholder, if the directors take more than 60 days to convene a shareholders’ meeting after the
date they were required to do so under applicable laws and our bylaws, (2) by shareholders holding at least 1% of our total capital
stock, if our Board of Directors fails to call a meeting within eight days after receipt of a justified request to call a meeting
by those shareholders indicating the proposed agenda, (3) by shareholders holding at least 5% of our voting capital stock, if the
directors fail to call a general meeting within eight days after receipt of a request to call a shareholders’ meeting for
purpose of assembling a Fiscal Council, and (4) by our Fiscal Council, if the Board of Directors fails to call an annual shareholders’
meeting within 30 days after the mandatory date for such call. The Fiscal Council may also call an extraordinary shareholders’
meeting if it believes that there are important or urgent matters to be addressed.
To attend a shareholders’
meeting, shareholders or their legal representatives willing to attend the meeting shall present proof of ownership of their Company
shares, including identification and/or pertinent documentation that evidences their legal representation of such shareholder.
A shareholder may be represented at a general meeting by an attorney-in-fact appointed no more than one year before the meeting,
who must be another shareholder, a company officer, a lawyer or a financial institution. Notwithstanding the above, the CVM decided
on November 4, 2014 that shareholders that are legal entities may be represented at general meetings by their legal representatives
or by a duly appointed attorney-in-fact, pursuant to the bylaws and related corporate instruments of the legal entities and pursuant
to the Brazilian Civil Code.
The participation
and remote voting in general shareholders’ meetings of publicly-held companies are regulated by CVM Rule No. 561, as amended,
which aims to facilitate the participation of shareholders in general meetings either through the vote or through the submission
of proposals, as well as to enhance the corporate governance instruments available in the Brazilian market. For this purpose, this
regulation provided the following:
|
·
|
the creation of a remote voting bulletin through which shareholders may exercise their right to
vote prior to the date the general meeting is held;
|
|
·
|
the possibility of inclusion of candidates and proposals of deliberation of minority shareholders
in that bulletin, with due observance of certain percentages of equity interest, in order to facilitate shareholders’ participation
in general meetings; and
|
|
·
|
the deadlines, procedures and ways of sending this bulletin, which may be forwarded by the shareholder:
(a) to the custodian (if the shares held by the shareholder are kept at a centralized deposit) or; (b) to the book-entry agent
of the shares issued by the company (if such shares are not kept at a centralized deposit); or (c) directly to the company.
|
The application of
CVM Rule No. 561, as amended, became mandatory on January 1, 2017 for companies that on April 9, 2015 had at least one share class
included either on the Index Brasil 100 or the IBOVESPA index of the B3, such as Ambev. Additionally, CVM Rule No. 594 of December
20, 2017, introduced modifications to the rules applicable to remote voting, including, but not limited to, (1) the deadlines for
inclusion of candidates in the bulletin by request of minority shareholders and for the company to resend the bulletin in case
of inclusion of candidates by minority shareholders and (2) the disclosure of the detailed final voting map of the shareholders’
meetings, including the partial disclosure of each shareholders taxpayer’s registry number and their respective votes on
each matter.
CVM Rule No. 622 of
April 17, 2020, amended allowed publicly held companies to hold virtual or hybrid (i.e. physical and virtual) shareholders’
meetings, including certain procedures that must be adopted by such companies when holding these types of meetings. The notice
to a shareholders’ meeting must indicate the format of the meeting and the actions that shareholders must take to participate
remotely.
Board
of Directors
In accordance with
the Brazilian Corporation Law, as a general rule, any matters subject to the approval of our Board of Directors can be approved
by the affirmative vote of a majority of our Board members present at the relevant meeting. Exceptions to this general rule are
provided in the Shareholders’ Agreement.
Under our bylaws,
(i) the majority of the members of our Board of Directors must be external directors (i.e. with no current employment or managerial
relationship with the company) and (ii) at least two members of our Board of Directors shall be independent directors. According
to our bylaws, for a director to be considered independent he or she may not: (1) be a controlling shareholder, or a spouse or
relative to the second degree of a controlling shareholder, (2) have been, within the last three years, an employee or executive
officer of (a) Ambev or of any of our controlled companies or (b) our controlling shareholder or entities under common control
with Ambev, (3) directly or indirectly, supply to, or purchase from, us, our controlled companies, controlling shareholder or entities
under common control, any products or services, to such an extent as would cause that director to cease being independent, (4)
be an employee or administrator of any corporation or entity that offers products or services to, or receives products or services
from, us, our controlled companies, controlling shareholder or entities under common control, to such an extent as would cause
that director to cease being independent, (5) be a spouse or relative to the second degree of any member of management of Ambev,
its controlled companies, controlling company or entity under common control, or (6) receive any other compensation from Ambev,
its controlled companies, controlling shareholder or entities under common control, aside from compensation for duties as a board
member (gains arising from ownership of our stock are excluded from this restriction). Our bylaws also set forth that directors
elected by a separate ballot vote of minority shareholders holding at least 10% of our capital stock, as provided in paragraphs
4 and 5 of Section 141 of the Brazilian Corporation Law, shall be deemed independent regardless of compliance with the abovementioned
criteria.
According to the general
principles of the Brazilian Corporation Law, if a director or an executive officer has a conflict of interest with a company in
connection with any proposed transaction, the director or executive officer may not intervene nor vote in any resolution of the
Board of Directors or of the board of executive officers regarding such transaction and must disclose the nature and extent of
the conflicting interest for purposes of recording such information in the minutes of the meeting. In any case, a director or an
executive officer may not transact any business with a company, including any borrowings, except on reasonable or fair terms and
conditions that are identical to the terms and conditions prevailing in the market or offered by third parties. Any transaction
in which a director or executive officer may have an interest can only be approved if carried out on an arm’s-length basis.
Since the enactment
of Brazilian Law No. 12,431/2011, which amended Section 146 of the Brazilian Corporation Law, directors no longer need to be shareholders
to serve on the board of directors of a Brazilian corporation.
Election
of Directors
Each Ambev common
share represents one vote at any shareholders’ meeting in connection with the election of our Board of Directors.
Common shareholders
holding at least 10% of our capital may elect one member and respective alternate to the Board of Directors without the participation
of the controlling shareholders. To exercise these minority rights, shareholders must prove their continuous ownership of their
Ambev common shares for at least three months prior to the shareholders’ meeting convened to elect board members. If that
prerogative is exercised with the adoption of cumulative voting procedures, as described below, the controlling shareholder will
always have the right to elect the same number of members appointed by minority shareholders plus one, regardless of the number
of directors provided in our bylaws.
Shareholders holding
shares representing at least 10% of our capital, or a smaller applicable percentage according to a sliding scale determined by
the CVM and based on a company’s capital stock (currently 5% of the Ambev common shares, pursuant to the CVM’s sliding
scale), have the right to request that cumulative voting procedures be adopted. Under such procedures, each of our common shares
shall entitle as many votes as the number of director positions to be filled, and each shareholder may cast all of his or her votes
for a single candidate or distribute them among various candidates.
Pursuant to CVM Rule
No. 561/15, publicly-held companies shall adopt the following measures regarding voting process: (1) inform the market of the adoption
of cumulative voting process in applicable meetings immediately upon the receipt of the first valid requirement; (2) disclose the
voting final summary statements, the voting final detailed statements, as well as any voting statement presented by shareholders
at the relevant meeting; and (3) register in the minutes of the annual shareholders’ meeting the number of approving, rejecting
or abstaining votes for each item of the agenda, including the votes received by each member of the Board of Directors and/or Fiscal
Council elected in such shareholders’ meeting.
Under our bylaws and
applicable law, the number of directors may be reduced to a minimum of five.
The current members
of our Board of Directors were elected by our controlling shareholders. Board members, regardless of the shareholder they represent,
owe fiduciary duties to the Company and all of our shareholders. At the same time, any director appointed by shareholders bound
by a shareholders’ agreement is also bound by the terms of that agreement. For more information on our shareholders’
agreements, see “Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders—Ambev’s
Major Shareholders.”
Dividends
The discussion below
summarizes the main provisions of the Brazilian Corporation Law regarding the establishment of reserves by corporations and rules
with respect to the distribution of dividends, including provisions regarding interest on shareholders’ equity.
Calculation
of Distributable Amounts
At each annual shareholders’
meeting, our Board of Directors is required to propose how Ambev’s net income for the preceding fiscal year is to be allocated.
For purposes of the Brazilian Corporation Law, a company’s net income after income taxes and social contribution on profits
for the immediately preceding fiscal year, net of any accumulated losses from prior fiscal years and amounts allocated to employees’
and management’s participation in earnings, represents its “adjusted net income” for such preceding fiscal year.
In accordance with the Brazilian Corporation Law, an amount equal to such adjusted net income, which is also referred to in this
section as the distributable amount, will be available for distribution to shareholders in any particular year. Such distributable
amount is subject to:
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reductions that may be caused by amounts contributed for the purpose of meeting the charges of
the assistance foundation for employees and management of the Company and its controlled companies, with due regard for the rules
established by the Board of Directors to this effect; up to 10% of the distributable amount may be contributed under this concept;
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reductions caused by amounts allocated to the Legal Reserve or Contingency Reserves (see “—Reserves”);
and
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increases caused by reversals of reserves constituted in prior years.
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Minimum
Mandatory Dividend
We are required by
our bylaws to distribute to shareholders as dividends in respect to each fiscal year ending on December 31 a minimum mandatory
dividend equivalent to no less than 40% of the distributable amount. In addition to the minimum mandatory dividend, the Board of
Directors may recommend payment of additional dividends to shareholders. The limit for dividend payment is the distributable amount
plus the balance available in our statutory “Investment Reserve,” to which we allocate distributable amounts from previous
fiscal years not paid as dividends. See “—Reserves.” Furthermore, the Board of Directors may also resolve on
the distribution of interim dividends and/or interest on shareholders’ equity based on the accrued profits or existing profits
reserves presented in the latest annual or six-month balance sheet. Interim dividends and interest on shareholders’ equity
are always deemed as an advancement towards the minimum mandatory dividend.
In addition, the minimum
mandatory dividend, whether the full amount or only a portion thereof, may not be distributed in any given year should the Board
of Directors consider that such payment is incompatible with the Ambev’s financial situation, subject to shareholder approval.
While the law does not establish the circumstances in which distribution of the minimum mandatory dividend is incompatible with
a company’s financial situation, it is generally agreed that a company is allowed to refrain from paying the minimum mandatory
dividend if such payment threatens its existence as a going concern or harms its normal course of operations. The Fiscal Council
must opine on the nonpayment of minimum mandatory dividends, and management must submit to the CVM a report explaining the reasons
considered by the Board of Directors to withhold the payment of the minimum mandatory dividend no later than five business days
after the shareholders’ meeting that decides on this topic.
Any postponed payment
of minimum mandatory dividends must be allocated to a special reserve. Any remaining balance in such reserve not absorbed by losses
in subsequent fiscal years must be paid to shareholders as soon as the Company’s financial situation allows.
Payment
of Dividends
Under the Brazilian
Corporation Law any holder of record of shares at the time of a dividend declaration is entitled to receive such dividends, which
are generally required to be paid within 60 days following the date of such declaration, unless otherwise resolved by the shareholders’
meetings, which, in either case, must occur prior to the end of the fiscal year in which such dividends were declared. Our bylaws
do not provide for a time frame for payment of dividends. The minimum mandatory dividend is satisfied through payments made both
in the form of dividends and interest on shareholders’ equity (amount net of taxes), which, from an economic perspective,
is equivalent to a dividend but represents a tax efficient alternative to distribute earnings to shareholders because it is deductible
for income tax purposes up to a certain limit established by Brazilian tax laws (see “—Interest on Shareholders’
Equity”). Shareholders have a three-year period from the dividend payment date to claim the payment of dividends, after which
we are no longer liable for such payment.
Shareholders who are
not residents of Brazil must register their investment with the Central Bank in order for dividends, sales proceeds or other amounts
to be eligible for remittance in foreign currency outside of Brazil. Our common shares underlying the Ambev ADSs will be deposited
with the Brazilian custodian, Banco Bradesco S.A., which acts on behalf of and as agent for the Depositary, which is registered
with the Central Bank as the fiduciary owner of those common shares underlying our ADSs. Payments of cash dividends and distributions
on our common shares will be made in reais to the custodian on behalf of the Depositary. The custodian will then convert
those proceeds into U.S. dollars and will deliver those U.S. dollars to the Depositary for distribution to ADS holders. If the
custodian is unable to immediately convert dividends in reais into U.S. dollars, ADS holders may be adversely affected by devaluations of the real
or other exchange rate fluctuations before those dividends can be converted into U.S. dollars and remitted abroad. Fluctuations
in the exchange rate between the real and the U.S. dollar may also affect the U.S. dollar equivalent of the trading price
of our common shares in reais on the B3.
Interest
on Shareholders’ Equity
Brazilian companies
are permitted to distribute earnings to shareholders under the concept of an interest payment on shareholders’ equity, calculated
based on specific Ambev’s shareholders’ equity accounts multiplied by the TJLP rate. The TJLP is the official interest
rate defined by the Central Bank and used as reference in long-term loans provided by the BNDES.
Amounts distributed
by Ambev to its shareholders as interest on shareholders’ equity is deductible for purposes of income tax and social contribution
applicable to our profits. The amount of the deduction may not exceed the greater of:
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50% of net income (after the deduction of social contribution on net income but before taking into
consideration the provision for corporate income tax and the amounts attributable to shareholders as interest on shareholders’
equity) for the period in respect of which the payment is made; or
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50% of the sum of retained profits and profit reserves as of the date of the beginning of the period
in respect of which the payment is made.
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Interest on shareholders’
equity is treated similarly to dividends for purposes of distribution of profits. The only significant difference is that a 15%
withholding income tax is due by nonexempt shareholders, resident or not of Brazil, upon receipt of such interest payment, which
tax must be withheld by us on behalf of our shareholders when the distribution is implemented. If the shareholder is not a Brazilian
resident, and is resident or domiciled in a tax-haven jurisdiction, withholding income tax is due at a 25% rate. The amount shareholders
receive as interest on shareholders’ equity net of taxes is deducted from the minimum mandatory dividend owed to shareholders.
For further information
on the taxation of interest on shareholders’ equity, including the concept of tax haven jurisdiction for such purposes, see
“—E. Taxation—Brazilian Tax Considerations—Income Tax—Distributions of Interest on Shareholders’
Equity.”
Reserves
General
The Brazilian Corporation
Law provides that all discretionary allocations of adjusted net income, including the Unrealized Income Reserve and the Investment
Reserve, are subject to shareholder approval and may be added to capital (except for the amounts allocated to the Unrealized Income
Reserve) or distributed as dividends in subsequent years. In the case of Tax Incentive Reserve and the Legal Reserve, they are
also subject to shareholder approval; however, the use of their respective balances is limited to having those balances added to
capital or used to absorb losses. They cannot be used as a source for income distribution to shareholders.
Legal
Reserve
Under the Brazilian
Corporation Law, corporations are required to maintain a “Legal Reserve” to which they must allocate 5% of their adjusted
net income for each fiscal year until the balance of the reserve equals 20% of their share capital. However, corporations are not
required to make any allocations to their legal reserve in a fiscal year in which the Legal Reserve, when added to other established
capital reserves, exceeds 30% of their share capital. Accumulated losses, if any, may be charged against the Legal Reserve. Other
than that, the Legal Reserve can only be used to increase a company’s share capital.
Contingency
Reserve
Under the Brazilian
Corporation Law, a portion of a corporation’s adjusted net income may also be discretionally allocated to a “Contingency
Reserve” for an anticipated loss that is deemed probable in future years and which amount can be estimated. Any amount so
allocated in a prior year must be either reversed in the fiscal year in which the loss was anticipated
if that loss does not in fact occur or is not charged off in the event that the anticipated loss occurs.
Investment
Reserve
Under Brazilian Corporation
Law, we are permitted to provide for the allocation of part of our net income to discretionary reserve accounts that may be established
in accordance with our bylaws. The allocation of our net income to discretionary reserve accounts may not be made if it serves
to prevent the distribution of the minimum mandatory distributable amount. According to our bylaws, a portion of up to 60% of our
adjusted net income may be allocated to an “Investment Reserve” for the expansion of our activities, including to be
capitalized by us or for our investment in new business ventures.
Pursuant to our bylaws,
the Investment Reserve balance is not allowed to be greater than 80% of our share capital. In case such limit is reached, shareholders
may resolve to use the exceeding amount for conversion into share capital or to be distributed as dividends.
Unrealized
Income Reserve
Pursuant to the Brazilian
Corporation Law, the amount by which the minimum mandatory dividend exceeds the “realized” portion of net income for
any particular year may be allocated to the Unrealized Income Reserve. The realized portion of net income is the amount by which
the adjusted net income exceeds the sum of:
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our net positive results, if any, from the equity method of accounting for earnings and losses
of our subsidiaries and certain affiliates; and
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the net profits, net gains or net return obtained on transactions or on accounting of assets and
liabilities based on their market value, to be completed after the end of the following fiscal year.
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Tax
Incentive Reserve
Under the Brazilian
Corporation Law, a portion of the adjusted net income may also be allocated to a general “Tax Incentive Reserve” in
amounts corresponding to reductions in a company’s income tax generated by credits for particular government-approved investments.
This reserve is available only in connection with the acquisition of capital stock of companies undertaking specific government-approved
projects.
Goodwill
Premium from Shares Issued
Pursuant to the Brazilian
Corporation Law, the amount received from subscription of shares in excess of the par value of the shares or the portion of the
issuance price allocated to capital stock, in case of shares without par value, must be allocated to this reserve. The amount can
be used (i) to absorb losses that surpass accumulated profits and profit reserves, (ii) for future capital increases without the
issuance of new shares, (iii) to redeem or reimburse shares (including founder’s shares, if applicable), (iv) for payment
of dividends to preferred shares, if applicable, or (v) to support an approved share buyback program.
Fiscal
Benefit of Goodwill Premium Amortization (CVM Rule No. 319/99)
Pursuant to CVM Rule
No. 319/99, when a reporting company merges with its parent company, while remaining a reporting company, the goodwill previously
paid by the parent company on its acquisition is deductible for purposes of income tax and social contribution on profits. This
future tax benefit is recorded as a capital reserve by the reporting company. As this benefit is realized, the company increases
its share capital proportionally to the benefit, and is able to issue new shares to the parent company, pursuant to the terms of
the merger agreement.
Liquidation
In the event of our
liquidation, an extraordinary general shareholders’ meeting shall determine the form of liquidation and appoint a committee
to supervise the process during the liquidation period. A liquidator shall be appointed by the Board of Directors.
Restrictions
on Foreign Investment
There are no restrictions
on ownership or voting rights in respect of our common shares owned by individuals or legal entities domiciled outside Brazil.
For a description of voting rights, see “—Rights of the Ambev Common Shares” and “—Shareholders’
Meetings.” The right to convert payments of dividends (including interest on shareholders’ equity) and proceeds from
the sale of our common shares into foreign currency and to remit those amounts outside Brazil, however, is subject to exchange
control and foreign investment legislation. For a description of these exchange control restrictions and foreign investment legislation,
see “Item 3. Key Information—A. Selected Financial Data—Exchange Controls.”
Appraisal
Rights
Under the Brazilian
Corporation Law, dissenting shareholders have appraisal rights that allow them to withdraw from the Company and be reimbursed for
the value of their Ambev common shares, whenever, among other instances, a decision is taken at a shareholders’ meeting to:
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create preferred shares or increase disproportionately an existing class of preferred shares relative
to the other classes of shares, unless such action is provided for or authorized by our bylaws;
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modify a preference, privilege or condition of redemption or amortization conferred upon one or
more classes of preferred shares, or create a new class with greater privileges than the existing classes of preferred shares;
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reduce the minimum mandatory dividend;
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merge or consolidate us with another company;
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change our corporate purpose;
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conduct a spin-off of Ambev, if the new entities resulting from the spin-off have different primary
corporate purposes or a lower minimum mandatory dividend or such spin-off causes us to join a group of companies (as defined in
the Brazilian Corporation Law);
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transform us into another corporate type;
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conduct a stock swap merger of Ambev with another company, so that Ambev becomes a wholly-owned
subsidiary of that company; or
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approve the acquisition of control of another company, the price of which exceeds the limits set
forth in the Brazilian Corporation Law.
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In cases where Ambev
merges or is consolidated with another company, participates in a group of companies (as defined in the Brazilian Corporation Law),
or is a party to a share merger, dissenting shareholders will not be entitled to exercise appraisal rights if their Ambev common
shares are (1) liquid, defined as being part of the IBOVESPA Index and (2) widely-held such that the controlling shareholder or
companies under its control holds less than 50% of the referred common shares.
Appraisal rights expire
within 30 days after publication of the minutes of the relevant shareholders’ meeting that approved the transaction. We are
entitled to reconsider any action triggering appraisal rights within 10 days following the expiration of the 30-day appraisal rights
exercise period if the redemption of our common shares held by dissenting shareholders would jeopardize our financial stability.
Any shareholder that
exercises appraisal rights is, in general, entitled to receive the amount equivalent to its shares’ book value as per the
last balance sheet approved by our shareholders. If the resolution giving rise to appraisal rights is approved more than 60 days
after the date of the last shareholder-approved balance sheet of Ambev, dissenting shareholders may require that the value of their
shares be calculated on the basis of an updated balance sheet (balanço especial) dated no less than 60 days before
the resolution date. In this case, we must (1) immediately advance 80% of the book value
of the shares to be redeemed according to the most recent balance sheet approved by our shareholders and (2) pay the remaining
balance within 120 days after the date of the resolution of the shareholders’ meeting. However, if the advanced payment of
80% of the book value of the shares to be redeemed is greater than the actual appraisal rights value per share determined by the
updated balance sheet, then the amount in excess advanced by the Company shall be refunded to us by the dissenting shareholders
who exercised appraisal rights.
As a general rule,
shareholders may not exercise appraisal rights with respect to shares acquired after the publishing of a first meeting call notice
or the relevant press release concerning the matter giving rise to such appraisal rights.
Preemptive
Rights
Each shareholder of
Ambev generally has preemptive rights to subscribe for new shares of Ambev in our capital increases (including in the issuance
of stock purchase warrants or convertible bonds) in proportion to its shareholdings. A minimum 30-day period following the publication
of the capital increase notice is given for the exercise of preemptive rights. Preemptive rights may be purchased and sold by shareholders.
Our bylaws provide that if the Board of Directors decides to increase our share capital within the limit of the authorized capital
through sales in stock exchanges, public offerings or public tender offers, no preemptive rights will apply. In addition, Brazilian
law provides that the grant or the exercise of stock options pursuant to certain stock option plans, such as our Stock Option Plan,
is not subject to preemptive rights.
Inspection
of Corporate Records
Shareholders that
own 1% or more of our outstanding share capital have the right to inspect our corporate records, including shareholders’
lists, corporate minutes, financial records and other documents, if (1) Ambev or any of its officers or directors have committed
any act contrary to Brazilian law or our bylaws or (2) there are grounds to suspect that there are material irregularities in the
Company. However, in either case, shareholders desiring to inspect our corporate records must obtain a court order authorizing
the inspection.
Form and
Transfer
Brazilian law provides
that ownership of shares issued by a Brazilian corporation shall generally be evidenced only by a record of ownership maintained
by either the corporation or an accredited intermediary, such as a bank, acting as a registrar for the shares. Banco Bradesco S.A.
currently maintains our share ownership records.
Because our common
shares are in registered book-entry form, a transfer of those shares is made under the rules of the Brazilian Corporation Law,
which provides that a transfer of shares is effected by an entry made by the registrar for our shares in its books, by debiting
the share account of the transferor and crediting the share account of the transferee.
Transfers of shares
by a foreign investor are made in the same way and executed by that investor’s local agent on the investor’s behalf,
except that, if the original investment was registered with the Central Bank pursuant to foreign investment regulations, the foreign
investor should also seek, through its local agent, an amendment of the corresponding electronic registration to reflect the new
ownership, if necessary.
The B3 operates a
central clearing system. A holder of our common shares may choose, at its discretion, to participate in this system, and all shares
elected to be transferred to this system will be deposited in custody with the stock exchange through a Brazilian institution that
is duly authorized to operate by the Central Bank and maintains a clearing account with the stock exchange. Our common shares that
are subject to custody with the stock exchange will be reflected in our registry of shareholders. Each participating shareholder
will, in turn, be registered in our register of beneficial shareholders maintained by the stock exchange and will be treated in
the same way as registered shareholders.
Disclosure
of Principal Shareholders
Under Brazilian law,
shareholders owning more than 5% of a company’s voting shares must publicly disclose their shareholder ownership, as well
as disclose any increase or decrease exceeding thresholds of 5% multiples (i.e. 5%, 10%, 15% etc.).
With the issuance
of CVM Rule No. 568/15, the CVM has amended CVM Rule No. 358/02 dealing with disclosure requirements of significant interests in
Brazilian corporations. These amendments provided for, among other things: (1) the change in the form of calculation of trades
of relevant equity interests to determine when a disclosure obligation of those trades is triggered, and (2) the regulation of
individual investment plans.
Individual investment
plans for direct or indirect controlling shareholders, members of any statutory governing bodies of a corporation, as well as any
persons who, due to their responsibility, function or position in a listed company, its controlling company, subsidiaries or affiliates
have potential access to insider information, are now allowed, subject to certain requirements, to trade in the company’s
shares during certain periods during which such trading was previously prohibited.
CVM Rule No. 568/15
amended CVM Rule No. 358/02 in order to also require publicly held corporations to disclose monthly information of trades in their
own securities executed by them or their affiliates.
Other Significant
Provisions of the Brazilian Corporation Law
The Brazilian Corporation
Law, as applicable to us, also requires the following:
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upon a sale of our control, the acquirer is required to launch a tender offer to purchase all minority
voting shares at a price equal to at least 80% of the price per share paid for the controlling stake;
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our delisting is subject to an administrative proceeding before the CVM, having as a condition
the launching of a tender offer by the controlling shareholder or us for the acquisition of all our outstanding shares (defined
as those owned by shareholders other than the controlling shareholder, officers and directors) at their fair value, as determined
by an independent appraiser. Shareholders holding more than two-thirds of the free float of shares must accept the tender offer
or must expressly agree with the delisting (for this purpose, the free float of shares must be considered those held by shareholders
that have either accepted the delisting or the offer);
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in addition, if a controlling shareholder or group of controlling shareholders acquires additional
shares in excess of one-third of the free float of shares in any class (as calculated according to a formula created by CVM), a
mandatory tender offer to ensure share dispersion is required for all the outstanding shares in that class. The same requirement
applies whenever (1) a shareholder or group of shareholders representing the same interest and holding more than 50% of the shares
in any class from March 7, 2002 (when CVM Rule No. 361/02 became effective, except for public companies existing in September 5,
2000, in which case this date will prevail), acquires a further interest of 10% or more of that same class of shares within a 12-month
period and (2) the CVM determines, within six months after being informed, that the acquisition restricts the liquidity of the
shares;
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upon the occurrence of a tender offer aimed at delisting a company or through which the controlling
shareholders will acquire more than one-third of the free float shares, the purchase price shall be equal to the fair value of
the shares considering the total number of outstanding shares;
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members of our Board of Directors elected by noncontrolling shareholders (in a separate voting
mechanism) have the right to veto the choice of the independent auditor by the Board;
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our controlling shareholders, the shareholders that elect members to our Board of Directors or
Fiscal Council, the members of our Board of Directors and Fiscal Council, and our executive officers are required to disclose any
purchase or sale of our shares to the CVM and to the B3; and
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the chairman of any shareholders’ meeting or directors shall disregard any vote that is rendered
against provisions of any shareholders’ agreement if that shareholders’ agreement has been duly filed with us, as is
the case with the Shareholders’ Agreement.
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C. Material
Contracts
In addition to the
contracts described in other sections of this annual report, the following is a summary of the material contracts to which we are
a party.
Shareholders’
Agreement
See “Item 7.
Major Shareholders and Related Party Transactions—A. Major Shareholders—Ambev’s Major Shareholders—The
Shareholders’ Agreement”.
Acquisitions,
Dispositions and Joint Ventures
We have discussed
the details of some material acquisitions and agreements related thereto in “Item 4. Information on the Company—A.
History and Development of the Company.”
Licensing
Agreements
Pepsi
See “Item 4.
Information on the Company—B. Business Overview—Licenses—Pepsi.”
Red
Bull
See “Item 4.
Information on the Company—B. Business Overview—Licenses—Red Bull.”
Licensing
Agreements with ABI
See “Item 4.
Information on the Company—B. Business Overview—Licenses—Licensing Agreements with ABI.”
Tax Benefits
Many states in
Brazil offer tax benefits programs to attract investments to their regions. We participate in ICMS Value-added Tax Credit
Programs offered by various Brazilian states which provide (1) tax credits to offset ICMS Value-Added Tax payables and (2)
ICMS Value-Added Tax deferrals. In return, we are required to meet certain operational requirements including, depending on
the state, production volume and employment targets, among others. All of these conditions are included in specific
agreements between Ambev and the state governments. In the event that we do not meet the program’s targets, future
benefits may be withdrawn. Also, the State of São Paulo and others have challenged, in the Brazilian Supreme Court,
state laws upon which certain of the above benefits have been granted, on the basis that they constitute tax benefits created
without certain approvals required under Brazilian tax laws and regulations, which would render such state laws
unconstitutional (Brazilian tax war). Accordingly, as far as the tax benefits are granted based on the state legislation,
most companies apply for and use those benefits when granted. On August 8, 2017, Supplementary Law No. 160 was published
authorizing the states and the Federal District to revalidate within 180 days the tax benefits allegedly created without the
approvals required under Brazilian tax laws and regulations by means of an Interstate Agreement. Under the provisions of
Supplementary Law No. 160, Confaz Interstate Agreement No. 190 was published on December 18, 2017, allowing the states to
republish and reinstall the state tax benefits created up to August 8, 2017. The validation of such tax incentives, however,
is not self-applicable and it depends on the fulfillment of certain conditions by the granting state. So far, most of the tax
benefits programs granted to Ambev have been republished and reinstalled by the granting state. Moreover, in August 2020, the
Brazilian Supreme Court issued a binding decision (Extraordinary Appeal No. 628.075) ruling that tax credits granted by the
states in the context of ICMS tax war shall be considered unconstitutional, except for the credits derived from tax benefits
that have been complied with the validation process provided for in Supplementary Law No. 160 and Confaz Interstate Agreement
No. 190. See “Item 5. Operating and Financial Review and Prospects—B.
Liquidity and Capital Resources—Sales Tax Deferrals and Other Tax Credits” and “Item 3. Key Information—D.
Risk Factors.”
Material
Financing Agreements
For a discussion of
our 2021 debentures, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Borrowings—Long-term
Debt.”
D. Exchange
Controls and other Limitations Affecting Security Holders
See “Item 3.
Key Information—A. Selected Financial Data—Exchange controls.”
E. Taxation
The following summary
contains a description of the material Brazilian and U.S. federal income tax considerations of the acquisition, ownership and disposition
of our common shares or ADSs. This discussion is not a comprehensive discussion of all the tax considerations that may be relevant
to a decision to purchase, hold or dispose of our common shares or ADSs and is not applicable to all categories of investors, some
of which may be subject to special rules. Each prospective purchaser is urged to consult its own tax advisor about the particular
Brazilian and U.S. tax considerations to it of an investment in our common shares or ADSs.
The summary is based
upon tax laws of Brazil and the United States and the regulations thereunder, as in effect on the date hereof, which are subject
to change (possibly with retroactive effect). Although there is at present no income tax treaty between Brazil and the United States,
the tax authorities of the two countries have entered into a Tax Information Exchange Agreement and have had discussions that may
culminate in a treaty. No assurance can be given, however, as to whether or when a treaty will enter into force or of how it will
affect holders of our common shares or ADSs. This summary is also based on representations of the depositary and on the assumption
that each obligation in the Deposit Agreement relating to our ADSs and the related documents will be performed in accordance with
its terms.
Brazilian
Tax Considerations
The following discussion
summarizes the material Brazilian tax consequences of the acquisition, ownership and disposition of our common shares or ADSs by
a holder that is not deemed to be domiciled in Brazil for purposes of Brazilian taxation and, in the case of a holder of common
shares, which has registered its investment in such securities with the Central Bank as a U.S. dollar investment (in each case,
a “Non-Brazilian Holder”).
The discussion does
not purport to be a comprehensive description of all tax considerations that may be relevant to a decision to purchase our common
shares or ADSs. The discussion below is based on Brazilian law as currently in effect. Any change in such law may change the consequences
described below. The following discussion does not specifically address all of the Brazilian tax considerations applicable to any
particular Non-Brazilian Holder, and each Non-Brazilian Holder should consult his or her own tax advisor concerning the Brazilian
tax consequences of an investment in our common shares or ADSs.
Income
Tax
Taxation of Dividends
Dividends paid by
us, a Brazilian corporation, including our Company, to The Bank of New York Mellon in respect of the common shares underlying the
respective ADSs, or to a Non-Brazilian Holder with respect to our common shares, are currently not be subject to Brazilian withholding
income tax (“WHT”) provided that they are paid out of profits generated as of January 1, 1996. Dividends paid
from profits generated before January 1, 1996 may be subject to WHT at variable rates according to the tax legislation applicable
to each corresponding year.
Profits determined
pursuant to Law 11,638/07 (“IFRS Profits”) may differ from the profits calculated pursuant to the accounting methods
and criteria as in force on December 31, 2007 (“2007 Profits”).
While it was a general
market practice to distribute exempted dividends with reference to the IFRS Profits, Normative Ruling No. 1,397, issued by the
Brazilian tax authorities on September 16, 2013, has established that legal entities should observe the accounting methods and
criteria in force on December 31, 2007, or 2007 Profits, in order to determine the amount of profits that could be distributed
as exempted income to its beneficiaries.
Any profits paid in
excess of said 2007 Profits (“Excess Dividends”) should, in the tax authorities’ view and in the specific case
of non-resident beneficiaries, be subject to the following rules of taxation: (i) 15%WHT, in case of beneficiaries domiciled abroad,
but not in Low or Nil Tax Jurisdiction (as defined below), and (ii) 25% WHT, in case of beneficiaries domiciled in Low or Nil Tax
Jurisdiction (as defined below).
In order to mitigate
potential disputes on the subject, Law No. 12,973, dated May 13, 2014, in addition to revoking the RTT, introduced a new set of
tax rules, or the New Tax Regime, including new provisions with respect to Excess Dividends.
Taxation of Gains
According to Article
26 of Law No. 10,833/2003, as amended, gains realized by a Non-Resident Holder on a sale or disposition of assets located in Brazil,
such as our common shares, are generally subject to WHT in Brazil, regardless of whether the sale or other disposition is made
by a Non-Resident Holder to another non-Brazilian resident or to a Brazilian resident. With respect to the ADSs, arguably the gains
realized by a non-Brazilian holder on the disposition of ADSs, including to another non-Brazilian resident are not taxed in Brazil,
based on the argument that ADSs would not constitute assets located in Brazil for purposes of Law No. 10,833/03. However, we cannot
assure you how Brazilian courts would interpret the definition of assets located in Brazil in connection with the taxation of gains
realized by a non-Brazilian holder on the disposition of ADSs, including to another non-Brazilian resident. As a result, gains
on a disposition of ADSs by a non-Brazilian holder to a Brazilian resident, or even to a non-Brazilian holder in the event that
courts determine that ADSs would constitute assets located in Brazil, may be subject to income tax in Brazil according to the rules
further described.
The deposit of
common shares in exchange for ADSs may be subject to Brazilian tax on capital gains at rates ranging from 15% to 22.5%,
or 25% in the case of investors domiciled in a Low or Nil Tax Jurisdiction, as defined below, if the acquisition cost of the
common shares is lower than (a) the average price per common share on a Brazilian stock exchange on which the greatest number
of such shares were sold on the day of deposit or (b) if no common shares were sold on that day, the average price on the
Brazilian stock exchange on which the greatest number of common shares were sold in the 15 trading sessions immediately preceding
such deposit. In such case, the difference between the acquisition cost and the average price of the common shares calculated as
described above, may be considered to be a capital gain subject to taxation. In some circumstances, there may be arguments to sustain
that such taxation is not applicable in the case of a non-Brazilian holder that is a 4,373 Holder (as defined below) and is
not resident in a Low or Nil Tax Jurisdiction, as defined below.
The withdrawal
of ADSs in exchange for common shares should not be considered as giving rise to a capital gain subject to Brazilian income tax,
provided that on the receipt of the underlying common shares, the non-Brazilian holder complies with the regulatory rules observed
in respect to the registration of the investment before the Central Bank.
Gains realized by
a Non-Brazilian Holder on a sale or disposition of our common shares carried out on the Brazilian stock exchange, which includes
the transactions carried out on the organized over-the-counter market, are:
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exempt from income tax when realized by a Non-Brazilian Holder
that (1) has registered its investment in Brazil with the Central Bank under the rules of CMN Resolution No. 4,373/2014, or a 4,373
Holder, and (2) is not resident or domiciled in a Low or Nil Taxation Jurisdiction, as defined
below; or
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in all other cases, subject to income tax at a rate that may go up to 25%, depending on the type
of investor and its location. In addition, a withholding tax of 0.005% of the sale value shall be applicable and withheld by the
intermediary institution (i.e, a broker) that receives the order directly from the Non-Brazilian Holder, which can be later offset
against any income tax due on the capital gain earned by the Non-Brazilian Holder.
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Any other gains assessed
on a sale or disposition of the shares that is not carried out on a Brazilian stock exchange are subject to WHT at rates ranging
from 15% up to 25% depending on the type of investor and its location. Lower rates may be applicable as provided for in an applicable
tax treaty entered into between Brazil and the country where the Non-Brazilian Holder is resident. If these gains are related to
transactions conducted on the Brazilian non-organized over-the-counter market with intermediation, a withholding tax of 0.005%
on the sale value will also apply and can be used to offset the income tax due on the capital gain.
In the case of
a redemption of common shares (or ADSs if understood that these are assets located in Brazil) or a capital reduction by a Brazilian
corporation, the positive difference between the amount received by the non-Brazilian holder and the acquisition cost of the common
shares (or ADSs) redeemed is treated as capital gain derived from the sale (or exchange of shares in the case of ADSs) not carried
out on a Brazilian stock exchange market and is therefore subject to income tax at the rate of 15%, or 25%, as the case
may be.
As a rule, capital
gains realized as a result of a transaction carried out on a Brazilian stock exchange can be measured by the positive difference
between the amount realized on sale or exchange of a security and its respective acquisition cost. There is a controversy regarding
the currency that should be considered for purposes of determining the capital gain realized by a Non-Brazilian Holder on a sale
or disposition of shares in Brazil, more specifically, if such capital gain is to be determined in foreign or in local currency
(BRL).
There can be no assurance
that the current preferential treatment for non-Brazilian holder of ADSs and 4,373 Holder of preferred shares will continue.
Any exercise of preemptive
rights relating to the Ambev common shares or ADSs will not be subject to Brazilian taxation. Gains on the sale of preemptive rights
relating to the shares will be treated differently for Brazilian tax purposes depending on (1) whether the sale is made by The
Bank of New York Mellon or the investor and (2) whether the transaction takes place on a Brazilian stock exchange. Gains on sales
made by the depositary on a Brazilian stock exchange are not taxed in Brazil, but gains on other sales may be subject to tax at
rates of up to 25%.
Discussion on Low or Nil
Taxation Jurisdictions and Privileged Tax Regimes
A Low or Nil Taxation
Jurisdiction is a country or location that (1) does not impose taxation on income, (2) imposes income tax at a maximum rate lower
than 20% or (3) imposes restrictions on the disclosure of shareholding composition or the ownership of the investment. A regulation
issued by the Ministry of Treasury on November 28, 2014 (Ordinance No. 488, of 2014) decreased from 20% to 17% this minimum threshold
for certain specific cases. The reduced 17% threshold applies only to countries and regimes aligned with international standards
of fiscal transparency in accordance with rules established by the Brazilian tax authorities in Normative Ruling No. 1,530, dated
December 19, 2014. However, the Normative Ruling No. 1,037, of June 4, 2010 which identifies the countries considered to be
Low or Nil Tax Jurisdictions and the locations considered as Privileged Tax Regimes, has not been amended to reflect the 17% rate.
On June 24, 2008,
and with effect as of January 1, 2009, Law No. 11,727/2008 created the concept of Privileged Tax Regime, in connection with transactions
subject to Brazilian transfer pricing rules and also applicable to thin capitalization/cross border interest deductibility rules,
which is broader than the concept of a Low or Nil Tax Jurisdiction. Pursuant to Law No. 11,727/08, a jurisdiction will be considered
a Privileged Tax Regime if it: (1) does not tax income or taxes it at a maximum rate lower than 20% or 17%, provided that the requirements
set forth in Normative Ruling No. 1,530 and Ordinance No. 488 are met; (2) grant tax advantages to a non-resident entity or individual
(i) without the need to carry out a substantial economic activity in the country or a said territory or (ii) conditioned to the
non-exercise of a substantial economic activity in the country or a said territory; (3) does not tax or tax proceeds generated
abroad at a maximum rate lower than 20% or 17% as applicable provided that the requirements set forth in Normative Ruling No. 1,530
are met; or (4) restricts the ownership disclosure of assets and ownership rights or restricts disclosure about economic transactions
carried out.
In addition, on June
4, 2010, the Brazilian Tax Authorities enacted Ordinance No. 1,037 listing (i) the countries and jurisdictions considered Low or
Nil Tax Jurisdictions and (ii) the Privileged Tax Regimes. Normative Ruling 1,037 has not been amended thus far to reflect the
threshold changes previously mentioned.
Prospective purchasers
should consult with their own tax advisors regarding the consequences of the implementation of Law No. 11,727, Normative Instruction
No. 1,037 and of any related Brazilian tax laws or regulations concerning Nil or Low Tax Jurisdictions and Privileged Tax Regimes.
Distributions of Interest
on Shareholders’ Equity
In accordance with
Law No. 9,249, dated December 26, 1995, Brazilian corporations may make payments to shareholders characterized as distributions
of interest on their shareholders’ equity. Such interest is calculated by multiplying the TJLP, as determined by the Central
Bank from time to time, by the sum of the determined Brazilian company’s net equity accounts.
Distributions of interest
on shareholders’ equity in respect of the Ambev common shares paid to shareholders who are either Brazilian residents or
non-Brazilian residents, including holders of ADSs, are subject to Brazilian WHT at the rate of 15% or 25% if the payee is domiciled
in a Low or Nil Taxation Jurisdictions , as defined above, or where applicable local laws impose restrictions on the disclosure
of the shareholding composition or the ownership of investments or the ultimate beneficial owner of the income derived from transactions
carried out and attributable to a non-Brazilian holder. As explained in “—Discussion on Low or Nil Taxation Jurisdictions
and Privileged Tax Regimes,” the RFB reduced to 17% the maximum income tax rate that may be imposed by a given jurisdiction
for the purpose of characterization of a Low or Nil Taxation Jurisdiction, as long as the country complies with international tax
transparency standards.
The amounts paid as
distribution of interest on shareholders’ equity are deductible from the taxable basis of the corporate income tax and social
contribution on net profits, both of which are taxes levied on our profits, as long as the payment of a distribution of interest
is approved at a general meeting of shareholders of the Company. The amount of such deduction cannot exceed the greater of:
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50% of net income (after social contribution on net profits, and before taking such distribution
and any deductions for corporate income tax into account) for the period in respect of which the payment is made; or
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50% of the sum of retained earnings and profit reserves as of the initial date of the period in
respect of which the payment is made.
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The distribution of
interest on shareholders’ equity may be determined by the Board of Directors. No assurance can be given that the Board of
Directors will not determine that future distributions of profits may be made by means of interest on shareholders’ equity
instead of by means of dividends. These payments of interest on shareholders’ equity may be included, at their net value,
as part of any mandatory dividend. To the extent payment of interest on shareholders’ equity is so included, the corporation
may be required to distribute to shareholders an additional amount to ensure that the net amount received by them, after payment
of the applicable WHT, plus the amount of declared dividends is at least equal to the mandatory dividend.
There are discussions
in Congress regarding possible changes to the tax treatment of interest on shareholders’ equity from time to time.
Tax
on Foreign Exchange Transactions (IOF/Exchange Tax)
Brazilian law imposes
a Tax on Foreign Exchange Transactions, or “IOF/Exchange,” on the conversion of reais into foreign currency
and on the conversion of foreign currency into reais. As from October 7, 2014, the general IOF/Exchange rate applicable
to almost all foreign currency exchange transactions was increased from zero to 0.38%, although other rates may apply in particular
operations, such as:
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inflow related to transactions carried out in the Brazilian financial and capital markets, including
investments in our common shares by investors which register their investment under Resolution No. 4,373, zero;
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outflow related to the return of the investment mentioned under the first bulleted item above,
zero; and
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outflow related to the payment of dividends and interest on shareholders’ equity in connection
with the investment mentioned under the first bulleted item above, zero.
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Notwithstanding these
rates of the IOF/Exchange, , the Brazilian government is permitted to increase at any time the rate to a maximum of 25%, but only
in relation to future transactions, with immediate effects.
Tax on Bonds and
Securities Transactions (IOF/Bonds)
Tax on Transactions
Involving Bonds and Securities, or “IOF/Bonds” may be levied on transactions involving shares, even if the transactions
are effected on Brazilian stock, futures or commodities exchanges. IOF/Bonds may also be levied on transactions involving ADSs
if they are considered assets located in Brazil by the Brazilian tax authorities. As mentioned in the above discussion on taxation
of gains, we are unable to predict how Brazilian courts would view this issue, and to date, we are not aware of any judicial or
administrative precedent on this specific matter.
As from December 24,
2013, the IOF/Bonds levies at a rate of zero percent on the transfer (cessão) of shares traded in a Brazilian stock
exchange environment with the specific purpose of enabling the issuance of depositary receipts to be traded outside Brazil. The
rate of IOF/Bonds with respect to other transactions related to shares and ADSs (if applicable) is currently zero.
The
Brazilian government may increase such rate up to 1.5% per day, with immediate effects but only with respect to future transactions.
Other
Relevant Brazilian Taxes
There
are no Brazilian inheritance, gift or succession taxes applicable to the ownership, transfer or disposition of shares or ADSs by
a Non-Brazilian Holder except for gift and inheritance taxes which may be levied by some states of Brazil. There currently are
no Brazilian stamp, issue, registration or similar taxes or duties payable by holders of shares or ADSs.
U.S. Federal
Income Tax Considerations
The following discussion
is a summary of the U.S. federal income tax considerations generally applicable to the acquisition, ownership and disposition of
our common shares or ADSs by a U.S. Holder (as defined below) who holds our common shares or ADSs as capital assets for U.S. federal
income tax purposes (generally, property held for investment). This discussion is based on the U.S. Internal Revenue Code of 1986,
as amended (the “Code”), U.S. Treasury regulations promulgated thereunder (“Regulations”), published positions
of the Internal Revenue Service (the “Service”), court decisions and other applicable authorities, all as currently
in effect as of the date hereof and all of which are subject to change or differing interpretations (possibly with retroactive
effect).
This discussion does
not describe all of the U.S. federal income tax considerations that may be applicable to U.S. Holders in light of their particular
circumstances or U.S. Holders subject to special treatment under U.S. federal income tax law, such as:
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banks, insurance companies and other financial institutions;
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real estate investment trusts;
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regulated investment companies;
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dealers or traders in securities;
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certain former citizens or residents of the United States;
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persons that elect to mark their securities to market;
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persons holding our common shares or ADSs as part of a “straddle,” conversion or other
integrated transaction;
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persons that have a functional currency other than the U.S. dollar; and
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persons that actually or constructively own 10% or more of our equity (by vote or value).
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In addition, this
discussion does not address any U.S. state or local or non-U.S. tax considerations or any U.S. federal estate, gift, alternative
minimum tax or Medicare contribution tax considerations. U.S. Holders should consult their tax advisors concerning the U.S. federal
income tax considerations to them in light of their particular situation as well as any considerations arising under the laws of
any other taxing jurisdiction.
For purposes of this
discussion, a “U.S. Holder” is a beneficial owner of our common shares or ADSs that is for U.S. federal income tax
purposes:
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an individual who is a citizen or resident of the United States;
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a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created
or organized in or under the laws of the United States, any state thereof or the District of Columbia;
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an estate the income of which is subject to U.S. federal income taxation regardless of its source;
or
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a trust that (i) is subject to the primary supervision of a court within the United States
and the control of one or more U.S. persons or (ii) has a valid election in effect under applicable Regulations to be treated
as a U.S. person.
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If a partnership (or
an entity or arrangement treated as a partnership for U.S. federal income tax purposes) acquires, owns or disposes of our common
shares or ADSs, the tax treatment of a partner in such partnership will generally depend upon the status of the partner and the
activities of the partnership. A partner in a partnership acquiring, owning or disposing of our common shares or ADSs should consult
its tax advisor regarding the U.S. federal income tax considerations to it of acquiring, owning or disposing of our common shares
or ADSs.
The discussion below
assumes that the representations contained in the ADS deposit agreement are true and that the obligations in the ADS deposit agreement
and any related agreements will be complied with in accordance with their terms. In general, for U.S. federal income tax purposes,
U.S. Holders who own ADSs will be treated as the beneficial owners of the underlying common shares represented by those ADSs. Accordingly,
the surrender of ADSs in exchange for common shares (or vice versa) will not result in the realization of gain or loss for U.S.
federal income tax purposes. The rest of this discussion assumes that a U.S. Holder of ADSs will be treated for U.S. federal income
tax purposes as directly holding the underlying common shares.
Distributions
Subject to the discussion
below under “—Passive Foreign Investment Company Rules,” the gross amount of distributions (including amounts
withheld to pay Brazilian withholding taxes, if any) on our common shares or ADSs to a U.S. Holder out of our current or accumulated
earnings and profits, as determined under U.S. federal income tax principles, will generally be includible in a U.S. Holder’s
gross income as dividend income on the day actually or constructively received by such holder. Because we do not intend to determine
our earnings and profits on the basis of U.S. federal income tax principles, any distribution paid will generally be treated as
dividend income for U.S. federal income tax purposes. Dividends received on our common shares or ADSs will not be eligible for
the dividends received deduction allowed to corporations under the Code.
Individuals and other
non-corporate U.S. Holders will be subject to tax at the lower capital gain tax rate applicable to “qualified dividend income,”
provided that certain conditions are satisfied, including that (1) our common shares or ADSs are readily tradable on an established
securities market in the United States, (2) we are neither a passive foreign investment company (a “PFIC”) nor treated
as such with respect to a U.S. Holder (as discussed below) for the taxable year in which the dividend was paid and the preceding
taxable year, and (3) certain holding period requirements are met. Our ADSs, but not our common shares, are listed on the NYSE
so we anticipate that our ADSs should qualify
as readily tradable on an established securities market in the United States, although there can be no assurances in this regard.
The amount of any
dividend paid in reais (including amounts withheld to reflect Brazilian withholding tax) will be includible in income in
a U.S. dollar amount based on the prevailing U.S. dollar-reais exchange rate in effect at the time the distribution is received
by the depositary (in the case of ADSs) or by the U.S. Holder (in the case of common shares held directly by such U.S. Holder),
regardless of whether such reais are converted into U.S. dollars on such date. Any foreign currency gain or loss recognized
by a U.S. Holder on a subsequent sale or conversion of any reais received in a dividend will generally be U.S.-source ordinary
income or loss.
For U.S. foreign tax
credit purposes, dividends will generally be treated as income from foreign sources and will generally constitute passive category
income. Depending on a U.S. Holder’s particular circumstances, such holder may be eligible, subject to a number of complex
limitations, to claim a foreign tax credit in respect of any Brazilian withholding taxes imposed on dividends received on our common
shares or ADSs. If a U.S. Holder does not elect to claim a foreign tax credit for foreign tax withheld, such holder is permitted
instead to claim a deduction, for U.S. federal income tax purposes, for the foreign tax withheld, but only for a year in which
such holder elects to do so for all creditable foreign income taxes. The rules governing foreign tax credits and deductions are
complex. U.S. Holders should consult their tax advisors regarding the availability of foreign tax credit or deductions under their
particular circumstances.
Sale or Other Taxable Disposition
Subject to discussion
below under “—Passive Foreign Investment Company Rules,” a U.S. Holder will generally recognize capital gain
or loss upon the sale or other taxable disposition of our common shares or ADSs in an amount equal to the difference, if any, between
the amount realized upon the disposition and such holder’s adjusted tax basis in such common shares or ADSs. For these purposes,
if Brazilian tax is withheld on the sale or other taxable disposition of our common shares or ADSs, the amount realized will include
the gross amount of the proceeds of that sale or other taxable disposition before deduction of the Brazilian tax. Any capital gain
or loss will be long-term if a U.S. Holder has held our shares for more than one year. Long-term capital gains of non-corporate
U.S. Holders are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations under the
Code. Any gain or loss recognized by U.S. Holders will generally be treated as U.S.-source gain or loss for foreign tax credit
purposes. Consequently, U.S. Holders may not be able to use the foreign tax credit arising from any Brazilian tax imposed on the
disposition of our common shares or ADSs unless such credit can be applied (subject to applicable limitations) against tax due
on other income treated as derived from foreign sources. If a U.S. Holder does not elect to claim a foreign tax credit for foreign
tax withheld, such holder is permitted instead to claim a deduction, for U.S. federal income tax purposes, for the foreign tax
withheld, but only for a year in which such holder elects to do so for all creditable foreign income taxes. The rules governing
foreign tax credits and deductions are complex. U.S. Holders should consult their tax advisors regarding the availability of foreign
tax credits or deductions under their particular circumstances.
Passive Foreign Investment
Company Rules
A non-U.S. corporation
will be classified as a PFIC for U.S. federal income tax purposes for any taxable year, if either (i) 75% or more of its gross
income for such year consists of certain types of “passive” income or (ii) 50% or more of the value of its assets (determined
on the basis of a quarterly average) during such year produce or are held for the production of passive income. Passive income
generally includes dividends, interest, royalties, rents, annuities, net gains from the sale or exchange of property producing
such income and net foreign currency gains. For this purpose, cash is categorized as a passive asset and the company’s unbooked
intangibles associated with active business activity are taken into account as a non-passive asset. We will be treated as owning
our proportionate share of the assets and earning our proportionate share of the income of any other corporation in which we own,
directly or indirectly, at least 25% (by value) of the stock.
If we are a PFIC for
any taxable year during which a U.S. Holder holds our common shares or ADSs, such holder will be subject to special tax rules with
respect to any “excess distribution” that such holder receives and any gain such holder realizes from a sale or other
disposition (including a pledge) of our common shares or ADSs, unless such holder makes a certain election as discussed below.
Distributions a U.S. Holder receives in a taxable year that are greater than 125% of the average annual distributions such holder
received during the shorter of the three preceding taxable years or such
holder’s holding period for the common shares or ADSs will be treated as an excess distribution. Under these special tax
rules:
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the excess distribution or gain will be allocated ratably over such holder’s holding period
for the common shares or ADSs;
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amounts allocated to the current taxable year and any taxable years in such holder’s holding
period prior to the first taxable year in which we are classified as a PFIC (a “pre-PFIC year”) will be taxable as
ordinary income; and
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amounts allocated to each prior taxable year, other than the current taxable year or a pre-PFIC
year, will be subject to tax at the highest tax rate in effect applicable to such holder for that year, and such amounts will be
increased by an additional tax equal to interest on the resulting tax deemed deferred with respect to such years.
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If we are a PFIC for
any taxable year during which a U.S. Holder holds our common shares or ADSs and any of our non-U.S. subsidiaries are also PFICs,
such holder will be treated as owning a proportionate amount (by value) of the shares of each such non-U.S. subsidiary classified
as a PFIC for purposes of the application of these rules.
The determination
as to whether or not we are a PFIC is a factual determination made at the close of the applicable tax year. Based on our income,
assets and activities and the value of our ADSs, we do not believe that we were a PFIC for our taxable year ending December 31,
2020 and we do not expect to be classified as a PFIC in the foreseeable future. Although we do not anticipate becoming a PFIC,
changes in the nature of our income or assets, or fluctuations in the market price of our ADSs, may cause us to become a PFIC for
future taxable years.
If we are classified
as a PFIC, certain elections may be available to mitigate the adverse U.S. federal income tax considerations of owning stock in
a PFIC. In particular, a U.S. Holder may elect mark-to-market treatment for its common shares or ADSs, provided those common shares
or ADSs constitute “marketable stock” as defined in the Regulations. Our ADSs are listed on the NYSE, which is a qualified
exchange for these purposes, and, consequently, assuming that the ADSs are regularly traded, it is expected that the market-to-market
election would be available to U.S. Holders of ADSs if we are or become a PFIC. A mark-to-market election is not available with
respect to our common shares, however, because our common shares are not marketable stock.
If we are classified
as a PFIC, a U.S. Holder must file an annual report with the Service. U.S. Holders should consult their tax advisors concerning
the U.S. federal income tax considerations of acquiring, owning and disposing of our common shares or ADSs if we are or become
a PFIC, including the availability and advisability of making certain elections and the annual PFIC filing requirements, if any.
Foreign Asset Reporting
Individual and certain
other noncorporate U.S. Holders may be required to submit to the Service certain information with respect to their beneficial ownership
of the common shares or ADSs, if such common shares or ADSs are not held on their behalf by a financial institution. This legislation
also imposes penalties if a U S Holder is required to submit such information to the Service and fails to do so. U.S. Holders should
consult their tax advisors regarding any foreign asset reporting requirements.
THE PRECEDING DISCUSSION
OF U.S. FEDERAL INCOME TAX CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH INVESTOR SHOULD
CONSULT ITS TAX ADVISOR AS TO THE PARTICULAR TAX CONSIDERATIONS OF THE ACQUISITION OWNERSHIP AND DISPOSITION OF OUR COMMON SHARES
OR ADSs, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, FOREIGN OR OTHER TAX LAWS AND OF ANY PROPOSED CHANGES IN APPLICABLE
LAW.
F. Dividends
and Paying Agents
Not applicable.
G. Statement
by Experts
Not applicable.
H. Where
You Can Find More Information (Documents on Display)
We are subject to
the informational reporting requirements of the Exchange Act, and file with or furnish to the SEC, as applicable, the following
documents that apply to foreign private issuers:
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annual reports on Form 20-F;
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certain other reports on Form 6-K containing the information that we make public under Brazilian
law, file with the Brazilian stock exchanges or distribute to shareholders; and
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You may read and copy
any reports or other information that we file at the SEC’s public reference rooms at 100 F Street, NE, Washington, D.C. 20549,
and at the SEC’s regional offices located at Brookfield Place, 200 Vesey Street, Suite 400 New York, New York 10281-1022
and 175 W. Jackson Boulevard, Suite 900, Chicago, Illinois 60604. You may obtain information on the operation of the SEC’s
public reference rooms by calling the SEC at 1-800-SEC-0330. Electronic filings made through the Electronic Data Gathering, Analysis
and Retrieval System are also publicly available through the SEC’s website on the Internet at www.sec.gov. In addition, material
filed by us may also be inspected at the offices of the NYSE at 20 Broad Street, New York, New York 10005.
As a foreign private
issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements and will
not be required to file proxy statements with the SEC, and its officers, directors and principal shareholders will be exempt from
the reporting and “short swing” profit recovery provisions contained in Section 16 of the Exchange Act.
You may obtain documents
from us by requesting them in writing, at the following addresses or by telephone:
|
Ambev S.A.
|
Attention:
|
Investor Relations Department
|
Telephone numbers:
|
(55-11) 2122-1415
|
|
(55-11) 2122-1414
|
Email:
|
ri@ambev.com.br
|
You may obtain additional
information about us on our website at http://ri.ambev.com.br/. The information contained therein is not part of this annual report.
I. Subsidiary
Information
Not applicable.
|
ITEM 11.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Our activities expose
us to various market risks, including changes in foreign currency exchange rates and interest rates and changes in the prices of
certain commodities, including malt, aluminum, sugar and corn. Market risk is the potential loss arising from adverse changes in
market rates and prices. We enter into derivatives and other financial instruments, in order to manage and reduce the impact of
fluctuations in commodity prices, in foreign currency exchange rates and in interest rates. We have established policies and procedures
for risk assessment and the approval, reporting and monitoring of derivative financial activities. Decisions regarding hedging
are made according to our risk management policy, taking into consideration the amount and duration of the exposure, market volatility
and economic trends.
These instruments
are accounted for based on their characteristics. See Notes 3 and 28 to our audited consolidated financial statements for a discussion
of the accounting policies and information on derivative financial instruments.
In order to minimize
the credit risk of its investments, we have cash allocation and investment policies, taking into consideration financial institution
credit limits and ratings, not allowing credit concentration. Thus, the credit risk is monitored and minimized because the negotiations
are carried out only with a select group of highly qualified counterparties. The definition of financial institutions authorized
to operate as a counterparty for us is described in our policy, which establishes maximum exposure limits for each counterparty
based on each counterparty’s risk rating and capitalization.
Enterprise Risk
Management (ERM)
We have implemented
a management strategy to promote enterprise-wide risk management (ERM), through an integrated framework that considers the impact
on our business of not only market risks but also of compliance, strategic and operational risks. We believe that such integrated
framework, which accounts for different kinds of business risks, enables us to improve management’s ability to evaluate risks
associated with our business.
The risk management
department is responsible for reviewing and following up with management the risk factors and related mitigating initiatives consistent
with our corporate strategy. Market risks, such as exposure in foreign currency, interest rates, commodity prices, liquidity and
credit risk arise during the normal course of our business. We analyze each of these risks both individually and on an interconnected
basis, defining strategies for managing the economic impact on its performance in line with our financial risk management policy.
Commodity Risk
We use a large volume
of agricultural goods to produce our products, including malt and hops for our beer and sugar, guaraná, other fruits and
sweeteners for our CSDs. See “Item 4. Information on the Company—B. Business Overview—Sources and Availability
of Raw Materials.” We purchase a significant portion of our malt and all of our hops outside of Brazil. We purchase the remainder
of our malt and our sugar, guaraná and other fruits and sweeteners locally. Ambev also purchases substantial quantities
of aluminum cans.
We produce approximately
80% of our consolidated malt needs and approximately 10% of our guaraná requirement. The remainder and all other commodities
are purchased from third parties. We believe that adequate supplies of the commodities we use are available at the present time,
but we cannot predict the future availability of these commodities or the prices we will have to pay for such commodities. The
commodity markets have experienced and will continue to experience price fluctuations. We believe that the future price and supply
of agricultural materials will be determined by, among other factors, the level of crop production, weather conditions, export
demand, and government regulations and legislation affecting agriculture, and that the price of aluminum and sugar will be largely
influenced by international market prices. See “Item 4. Information on the Company—B. Business Overview—Sources
and Availability of Raw Materials.”
All of the hops we
purchase in the international markets outside of South America are paid for in U.S. dollars. In addition, although we purchase
aluminum cans and sugar in Brazil, their prices are directly influenced by the fluctuation of international commodity prices.
As of December 31,
2020, our derivative activities consisted of sugar, wheat, aluminum, corn and resin derivatives. The table below provides information
about our significant commodity risk sensitive instruments as of December 31, 2020. The contract terms of these instruments have
been categorized by expected maturity dates and are measured at market prices.
|
Maturity
Schedule of Commodities Derivatives as of December 31, 2020
|
Derivatives
Instruments
|
2021
|
2022
|
2023
|
2024
|
2025
|
Thereafter
|
Total
|
Fair Value
|
|
(in R$ million, except price per ton/gallon/barrel/gigajoule)
|
Sugar Derivatives:
|
|
|
|
|
|
|
|
|
Notional Amount
|
254.5
|
77.2
|
0.0
|
0.0
|
0.0
|
0.0
|
331.7
|
50.9
|
Average Price (R$/ton)
|
1,405.91
|
1,565.03
|
0.00
|
0.00
|
0.00
|
0.00
|
1,442.93
|
|
Wheat Derivatives:
|
|
|
|
|
|
|
|
|
Notional Amount
|
-55.4
|
0.0
|
0.0
|
0.0
|
0.0
|
0.0
|
-55.4
|
-4.1
|
Average Price (R$/ton)
|
1,139.39
|
0.00
|
0.00
|
0.00
|
0.00
|
0.00
|
1,139.39
|
|
Aluminum Derivatives:
|
|
|
|
|
|
|
|
|
Notional Amount
|
1,897.5
|
0.0
|
0.0
|
0.0
|
0.0
|
0.0
|
1,897.5
|
268.5
|
Average Price (R$/ton)
|
8,653.84
|
0.00
|
0.00
|
0.00
|
0.00
|
0.00
|
8,653.84
|
|
Corn Derivatives:
|
|
|
|
|
|
|
|
|
Notional Amount
|
53.0
|
0.0
|
0.0
|
0.0
|
0.0
|
0.0
|
53.0
|
12.0
|
Average Price (R$/ton)
|
766.17
|
0.00
|
0.00
|
0.00
|
0.00
|
0.00
|
766.17
|
|
Resin Derivatives:
|
|
|
|
|
|
|
|
|
Notional Amount
|
152.8
|
0.0
|
0.0
|
0.0
|
0.0
|
0.0
|
152.8
|
8.7
|
Average Price (R$/ton)
|
3,211.19
|
0.00
|
0.00
|
0.00
|
0.00
|
0.00
|
3,211.19
|
|
Interest Rate
Risk
We are exposed to
interest rate volatility with respect to our cash and cash equivalents, current investment securities and fixed and floating rate
debt. Our U.S. dollar-denominated cash equivalents generally bear interest at a floating rate. We are exposed to interest rate
volatility with regard to existing issuances of fixed rate debt, existing issuances of floating rate debt, currency future and
forward swaps agreements, cash and cash equivalents and current investment securities. We manage our debt portfolio in response
to changes in interest rates and foreign currency rates by periodically retiring, redeeming and repurchasing debt and using derivative
financial instruments.
The table below provides
information about our significant interest rate sensitive instruments. For variable interest rate debt, the rate presented is the
weighted average rate calculated as of December 31, 2020. The contract terms of these instruments have been categorized by expected
maturity dates:
|
Maturity
Schedule of Debt Portfolio as of December 31, 2020
|
Debt Instrument
|
2021
|
2022
|
2023
|
2024
|
2025
|
Thereafter
|
Total
|
|
(in R$ million, except percentages)
|
International Debt:
|
|
|
|
|
|
|
|
Other Latin America Currency Floating Rate
|
436.3
|
95.3
|
9.7
|
7.2
|
14.2
|
27.2
|
590.0
|
Average Pay Rate
|
8.11%
|
8.11%
|
8.11%
|
8.11%
|
8.11%
|
8.11%
|
8.11%
|
Other Latin America Currency
Fixed Rate
|
|
|
|
|
|
|
|
Average Pay Rate
|
4.9
|
|
|
|
|
|
|
US$ Fixed Rate
|
4.19%
|
|
|
|
|
|
|
Average Pay Rate
|
|
|
|
|
|
|
|
US$ Floating Rate
|
|
|
|
|
|
|
|
Average Pay Rate
|
|
|
|
|
|
|
|
CAD Fixed Rate
|
64.9
|
54.8
|
51.1
|
42.8
|
24.7
|
104.3
|
342.6
|
Average Pay Rate
|
3.50%
|
3.50%
|
3.50%
|
3.50%
|
3.50%
|
3.50%
|
3.50%
|
CAD Floating Rate
|
|
|
|
|
|
|
|
Average Pay Rate
|
|
|
|
|
|
|
|
Reais Denominated Debt Floating Rate – TJLP & TR:
|
|
|
|
|
|
|
|
Notional Amount
|
11.6
|
12.3
|
12.3
|
13.4
|
14.7
|
96.9
|
161.2
|
TJLP & TR + Average Pay Rate
|
9.33%
|
9.33%
|
9.33%
|
9.33%
|
9.33%
|
9.33%
|
|
Reais Debt - ICMS Fixed Rate:
|
|
|
|
|
|
|
|
Notional Amount
|
36.7
|
34.1
|
20.7
|
3.0
|
5.6
|
35.5
|
135.7
|
Average Pay Rate
|
4.54%
|
4.54%
|
4.54%
|
4.54%
|
4.54%
|
4.54%
|
|
|
|
|
|
|
|
|
|
Reais Debt - Fixed Rate:
|
|
|
|
|
|
|
|
Notional Amount
|
1,333.1
|
337.0
|
278.2
|
169.1
|
195.0
|
393.1
|
2,705.5
|
Average Pay Rate
|
5.42%
|
5.42%
|
5.42%
|
5.42%
|
5.42%
|
5.42%
|
|
Reais Debt - Floating Rate:
|
|
|
|
|
|
|
|
Notional Amount
|
851.3
|
1.1
|
|
|
|
|
|
Average Pay Rate
|
3.90%
|
3.90%
|
|
|
|
|
|
Total Debt
|
2,738.8
|
534.6
|
372.0
|
235.6
|
254.2
|
657.1
|
4,792.2
|
|
Maturity
Schedule of Cash Instruments as of December 31, 2020
|
Cash
Instrument
|
2021
|
2022
|
2023
|
2024
|
2025
|
Thereafter
|
Total
|
|
(in
R$ million, except percentages)
|
US$-Denominated Cash
and Cash Equivalents:
|
|
|
|
|
|
|
|
Notional
|
3,848.55
|
-
|
-
|
-
|
-
|
-
|
3,848.5
|
Average Interest Rate
|
0.3%
|
|
|
|
|
|
0.3%
|
Reais-Denominated
Cash and Cash Equivalents:
|
|
-
|
-
|
-
|
-
|
-
|
|
Notional
|
7,111.46
|
-
|
-
|
-
|
-
|
-
|
7,111.5
|
Average Interest Rate
|
2.7%
|
|
|
|
|
|
2.7%
|
C$-Denominated
Cash and Cash Equivalents:
|
|
-
|
-
|
-
|
-
|
-
|
|
Notional Amount
|
1,920.47
|
-
|
-
|
-
|
-
|
-
|
1,920.5
|
Average Pay Rate
|
0.6%
|
|
|
|
|
|
0.6%
|
Other
Latin American Currency investments:
|
|
-
|
-
|
-
|
-
|
-
|
|
Notional Amount
|
4,209.86
|
-
|
-
|
-
|
-
|
-
|
4,209.9
|
Total
|
17,090.3
|
-
|
-
|
-
|
-
|
-
|
17,090.3
|
Part of the floating
rate debt accrues interest at TJLP. During the period set forth below the TJLP was:
|
2020
|
2019
|
2018
|
4th Quarter
|
4.55
|
5.57
|
6.98
|
3rd Quarter
|
4.91
|
5.95
|
6.56
|
2nd Quarter
|
4.94
|
6.26
|
6.60
|
1st Quarter
|
5.09
|
7.03
|
6.75
|
We have not experienced,
and do not expect to experience, difficulties in obtaining financing or refinancing existing debt.
Foreign Exchange
Risk
We are exposed to
fluctuations in foreign exchange rate movements because a significant portion of our operating expenses, in particular those related
to hops, malt, sugar, aluminum and corn, are also denominated in or linked to the U.S. dollar. We enter into derivative financial
instruments to manage and reduce the impact of changes in foreign currency exchange rates in respect of our U.S. dollar-denominated
debt. From January 1, 2016, until December 31, 2020, the U.S. dollar depreciated 31.1% against the real, and, as of December
31, 2020, the commercial market rate for purchasing U.S. dollars was R$ 5.20 per US$1.00. In 2018, the U.S. dollar appreciated
17.2% against the real. In 2019, the U.S. dollar appreciated 3.6% against the real. The U.S. dollar appreciated 29.2%
against the real in 2020.
Our foreign currency
exposure gives rise to market risks associated with exchange rate movements, mainly against the U.S. dollar. Foreign currency-denominated
liabilities at December 31, 2020, included debt of R$ 937.4 million.
As of December 31,
2020, derivative activities consisted of foreign currency forward contracts, foreign currency swaps and future contracts. The table
below provides information about our significant foreign exchange rate risk sensitive instruments as of December 31, 2020. The
contract terms of these instruments have been categorized by expected maturity dates.
|
Maturity
Schedule of Foreign Exchange Derivatives as of December 31, 2020
|
|
Derivatives Instruments(1)
|
2021
|
2022
|
2023
|
2024
|
2025
|
Thereafter
|
Total
|
Fair Value
|
|
|
(in R$ million, except percentages)
|
BM&F Dollar Futures:
|
|
|
|
|
|
|
|
|
Notional Amount
|
7,795.2
|
0.0
|
0.0
|
0.0
|
0.0
|
0.0
|
7,795.2
|
-24.6
|
|
Average Unit Price
|
5.11
|
0.00
|
0.00
|
0.00
|
0.00
|
0.00
|
5.11
|
|
|
FDF C$ x US$:
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
1,581.6
|
0.0
|
0.0
|
0.0
|
0.0
|
0.0
|
1,581.6
|
-78.8
|
|
Average Unit Price
|
2.65
|
0.00
|
0.00
|
0.00
|
0.00
|
0.00
|
2.65
|
|
|
FDF C$ x EUR:
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
50.8
|
0.0
|
0.0
|
0.0
|
0.0
|
0.0
|
50.8
|
1.7
|
|
Average Unit Price
|
2.19
|
0.00
|
0.00
|
0.00
|
0.00
|
0.00
|
2.19
|
|
|
NDF ARS x US$:
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
3,129.3
|
0.0
|
0.0
|
0.0
|
0.0
|
0.0
|
3,129.3
|
-95.3
|
|
Average Unit Price
|
93.99
|
0.00
|
0.00
|
0.00
|
0.00
|
0.00
|
93.99
|
|
|
NDF CLP x US$:
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
738.5
|
0.0
|
0.0
|
0.0
|
0.0
|
0.0
|
738.5
|
-73.1
|
|
Average Unit Price
|
783.10
|
0.00
|
0.00
|
0.00
|
0.00
|
0.00
|
783.10
|
|
|
NDF UYU x US$:
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
223.4
|
0.0
|
0.0
|
0.0
|
0.0
|
0.0
|
223.4
|
-13.0
|
|
Average Unit Price
|
46.73
|
0.00
|
0.00
|
0.00
|
0.00
|
0.00
|
46.73
|
|
|
NDF BOB x US$:
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
348.7
|
0.0
|
0.0
|
0.0
|
0.0
|
0.0
|
348.7
|
-23.9
|
|
Average Unit Price
|
7.69
|
0.00
|
0.00
|
0.00
|
0.00
|
0.00
|
7.69
|
|
|
NDF PYG x US$:
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
659.3
|
0.0
|
0.0
|
0.0
|
0.0
|
0.0
|
659.3
|
5.8
|
|
Average Unit Price
|
7,073.70
|
0.00
|
0.00
|
0.00
|
0.00
|
0.00
|
7,073.70
|
|
|
NDF MXN x US$:
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
60.8
|
0.0
|
0.0
|
0.0
|
0.0
|
0.0
|
60.8
|
5.3
|
|
Average Unit Price
|
0.05
|
0.00
|
0.00
|
0.00
|
0.00
|
0.00
|
0.05
|
|
|
NDF MXN x CLP:
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
9.4
|
0.0
|
0.0
|
0.0
|
0.0
|
0.0
|
9.4
|
-3.2
|
|
Average Unit Price
|
40.74
|
0.00
|
0.00
|
0.00
|
0.00
|
0.00
|
40.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Negative notional amounts represent an excess of liabilities over assets at any given moment.
|
Equity Swap Risk
We established several
share-based payment programs that allow our directors, officers and certain other employees to receive share-based compensation
under certain conditions.
As part of these programs,
our board of directors approved equity swap transactions on December 19, 2019, May 13, 2020 and December 9, 2020, respectively,
pursuant to which we will receive any price variation related to the difference between the strike price and the trading price
of our shares or ADRs at the maturity of the swap. Ambev will pay CDI or Libor plus a fee over the notional value of the transaction.
The objective of the transaction is to neutralize the possible effects of the stock prices’ oscillation, considering our
share-based payment programs as eventual share price increases would result in a positive gain on the equity swap transaction mitigating
the higher cost of purchasing shares in the market to deliver to the employees and vice versa. As these derivative instruments
are not characterized as hedge accounting they were not therefore designated to any hedge.
On December 19, 2019,
our Board of Directors authorized us or our subsidiaries to enter into equity swap transactions, or First Swap Agreements. The
First Swap Agreements must be liquidated within 18 months from our Board of Directors’ approval and may cause an exposure
of up to 80 million common shares (which may be, partially or totally, referenced in ADRs), also limited to R$1.5 billion. On May
13, 2020, our Board of Directors authorized us or our subsidiaries to enter into additional equity swap transactions, or Second
Swap Agreements, without prejudice of the regular liquidation of the First Swap Agreements still in force, if applicable. The Second
Swap Agreements must be liquidated within 18 months from our Board of Directors’ approval and may cause an exposure of up
to 65 million common shares (which may be, partially or totally, referenced in ADRs), limited to R$1 billion. On December 9, 2020,
our Board of Directors authorized us or our subsidiaries to enter into additional equity swap transactions, or Third Swap Agreements,
without prejudice of the regular liquidation of the First and Second Swap Agreements still in force, if applicable. The Third Swap
Agreements must be liquidated within 18 months from our Board of Directors’ approval and may cause an exposure of up to 80
million common shares (which may be, partially or totally, referenced in ADRs), limited to R$1.2 billion. The Third Swap Agreements
considered together with the outstanding balances of the First and Second Swap Agreements to be liquidated do not reach the threshold
set forth in CVM Instruction No. 567/2015.
As of December 31,
2020, an exposure equivalent to R$ 1.7 billion in our shares (or ADR’s) was partially hedged, resulting in a loss in income
statement of R$329.3 million.
|
Maturity
Schedule of Equity Swap Derivatives as of December 31, 2020
|
Derivatives
Instruments
|
2021
|
2022
|
2023
|
2024
|
2025
|
Thereafter
|
Total
|
Fair Value
|
|
(in R$ million, except Unit Price)
|
Equity Swap:
|
|
|
|
|
|
|
|
|
Notional Amount
|
700.9
|
-
|
-
|
-
|
-
|
-
|
700.9
|
142.6
|
Average Unit Price (R$/Share)
|
13.47
|
-
|
-
|
-
|
-
|
-
|
13.47
|
-
|
|
ITEM 12.
|
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
|
A. Debt
Securities
Not Applicable.
B. Warrants
and Rights
Not Applicable.
C. Other
Securities
Not Applicable.
D. American
Depositary Shares
The Bank of New York
Mellon, or the Depositary, is the depositary of the Ambev shares in accordance with the Deposit Agreement, dated July 9, 2013,
entered into among Ambev, The Bank of New York Mellon, as depositary, and all owners from time to time of ADSs of Ambev, or the
Depositary Agreement. A copy of this Depositary Agreement is filed as an exhibit to this annual report on Form 20−F.
The Depositary collects
its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal
or from intermediaries acting for them. The Depositary collects fees for making distributions to investors by deducting those fees
from the amounts distributed or by selling a portion of distributable property to pay the fees. The Depositary may collect its
annual fee for depositary services by deduction from cash distributions or by directly billing investors or by charging the book-entry
system accounts of participants acting for them. The Depositary may collect any of its fees by deduction from any cash distribution
payable to ADS holders that are obligated to pay those fees. The Depositary may generally refuse to provide fee-attracting services
until its fees for those services are paid. Pursuant to the Depositary Agreement, holders of our ADSs may have to pay to The Bank
of New York Mellon, either directly or indirectly, fees or charges up to the amounts set forth in the table below.
Persons depositing or withdrawing shares or ADS holders must pay:
|
|
For:
|
US$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)
|
|
issuance of ADSs, including issuances resulting
from a distribution of shares, rights or other property; and
|
|
|
cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates.
|
US$0.02 (or less) per ADS
|
|
any cash distribution to ADS holders.
|
A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADSs
|
|
distribution of securities distributed to holders of deposited securities which are distributed by the Depositary to ADS holders.
|
US$0.02 (or less) per ADSs per calendar year
|
|
depositary services.
|
Registration or transfer fees
|
|
transfer and registration of shares on Ambev’s share registry to or from the name of the Depositary or its agent when you deposit or withdraw shares.
|
Expenses of the Depositary
|
|
cable, telex and facsimile transmissions (when
expressly provided in the deposit agreement); and
converting foreign currency to U.S. dollars.
|
Taxes and other governmental charges the Depositary or the Custodian may have to pay on any ADS or share underlying an ADS, for example, stock transfer taxes or stamp duty (which currently are inapplicable in Brazil) or withholding taxes
|
|
as necessary.
|
Any charges incurred by the Depositary or its agents for servicing the deposited securities
|
|
as necessary.
|
In performing its
duties under the Deposit Agreement, the Depositary may use brokers, dealers or other service providers that are affiliates of the
Depositary and that may earn or share fees or commissions.
Subject to certain
terms and conditions, the Depositary has agreed to reimburse us for certain expenses it incurs that are related to establishment
and maintenance expenses of the ADS program, including the standard out-of-pocket maintenance costs for the ADRs, which consist
of the expenses of postage and envelopes for mailing annual and interim financial reports, printing and distributing dividend checks,
electronic filing of U.S. federal tax information, mailing required tax forms, stationery, postage, facsimile, and telephone calls.
There are limits on the amount of expenses for which the Depositary will reimburse us, but the amount of reimbursement available
to us is not necessarily tied to the amount of fees the depositary collects from investors.
The Depositary has
made payments to us in the amount of US$1.35 million during 2020. These amounts were used for general corporate purposes such as
the payment of costs and expenses associated with (1) the preparation and distribution of proxy materials, (2) the preparation
and distribution of marketing materials and (3) consulting and other services related to investor relations.
The accompanying notes are an integral part of these consolidated
financial statements.
The accompanying notes are an integral
part of these 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 17 - Deferred income tax and social contribution.
The accompanying notes are an integral part of these consolidated
financial statements.
The accompanying notes are an integral
part of these consolidated financial statements.
(ii) Of this amount, R$1,035.2 refers to the
renegotiation of the shareholders’ agreement from Tenedora to acquire 30% of the issued capital as at January 18, 2018.
The accompanying notes are an integral
part of these consolidated financial statements.
The accompanying notes are an integral
part of these consolidated financial statements.
The accompanying notes are an integral
part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated
financial statements.
Ambev S.A. (referred to as the “Company”
or “Ambev”) together with its subsidiaries (the “Group” or “Consolidated”), headquartered in
São Paulo - SP, Brazil, has as its purpose, either directly or through participation in other companies, the production
and sale of beer, draft beer, soft drinks, other non-alcoholic beverages, malt and food in general, as well as the advertising
of its own and of third party products, the sale of promotional and advertising materials and the direct or indirect exploitation
of bars, restaurants, snack bars and similar establishments, among others.
The Company’s shares and American Depositary
Receipts (“ADRs”) are listed on the Brasil, Bolsa, Balcão S.A. (“B3”) under the ticker “ABEV3”
and on the New York Stock Exchange (“NYSE”) under the ticker “ABEV”, respectively.
The Company’s direct controlling
shareholders are Interbrew International B.V. (“IIBV”), AmBrew S.à.r.l (“Ambrew”), both of which
are subsidiaries of Anheuser-Busch InBev N.V. (“AB InBev”) and Fundação Antonio e Helena Zerrenner Instituição
Nacional de Beneficência (“Fundação Zerrenner”).
The financial statements were approved,
in their final form, by the Board of Directors on March 16, 2021.
The outbreak of the novel coronavirus
(SARS-CoV-2 or “COVID-19”) on a global scale has increased the volatility of the national and international markets,
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 evolved rapidly across the globe in a fluid and uncertain manner, including voluntary and, in some cases,
mandatory quarantines, restrictions on travel, commercial and social activities, and ban on the distribution, sale and consumption
of alcoholic beverages in some countries where we operate. Many of these measures directly affect our sales, distribution and final
consumer demand for our products.
The impact of the
pandemic on our operations and the restrictions imposed in response by national governments, especially since March 2020, have
generated, 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 higher levels of income, more mature beer market and a greater weighting towards 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 less mature beer markets, volume has been impacted according to the market segmentation between the on-trade and off-trade
channels. In those cases, the reduction in volume is higher depending on the weighting of the on-trade channel. In all the cases,
the more severe the restrictions on the sale and consumption of our products, the greater the reduction
in volume, which is why Bolivia and Panama were among the worst-affected countries. 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 Company's total
volume.
During the fourth quarter of 2020, the
implementation of the Company's strategy, the relaxation of restrictions in some regions and the impact of government aid to the
community in some countries, led to a gradual increase in volumes across most of our operations, especially in Brazil. The most
affected countries, Bolivia and Panama also placed fewer restrictions on both the circulation of people and the production of beverages.
However, there is some uncertainty regarding the likelihood of further restrictions by each government on commercial and operating
activities, as well as the economic effects on financial markets and exchange rates. Those impacts may result in material adverse
impacts on our business, liquidity, financial condition, and the outcome of operations, as well as volatility in the trading prices
of our shares. However, we are continuing to manage our liquidity and capital resources in a disciplined manner. As such, management
have concluded that there are no substantial doubts regarding the Company's ability to continue as a going concern.
As required by IAS 1 - Presentation of
Financial Statements, the Company updated the analysis of the impact of COVID-19, as at December 31, 2020, which mainly involved,
(i) a review of the assumptions of the annual impairment test, as described in Note 14 - Goodwill, (ii) an analysis of possible
credit losses and inventory obsolescence, (iii) an analysis of the recoverability of deferred taxes, and (iv) the evaluation of
the relevant estimates used for the preparation of the financial statements, among other analyses.
Any impacts arising from these analyses
are reflected in the financial statements and Explanatory Notes. In addition, due to the protective actions taken for our staff
and the donations made by our community, the Company incurred exceptional expenses of R$263.2, at December 31, 2020, as reported
in Note 8 - Exceptional items.
The Company and E. León
Jimenes, S.A. (“ELJ”), as the shareholders of Tenedora CND, S.A. (“Tenedora”), a holding company headquartered
in the Dominican Republic, the owner of almost the entire share capital of Cervecería Nacional Dominicana, S.A., on July
2, 2020, signed the second amendment to Tenedora’s Shareholders Agreement (the “Shareholders Agreement”), extending
their partnership in the country and postponing the terms of the put and call options defined in the original Agreement. ELJ is
currently the owner of 15% of Tenedora’s shares, and its put option is now divided into 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 over the Tranche A shares exercisable starting in 2021 and
of the Tranche B shares to be exercised starting in 2029. The details of the assumptions used for this option are described in
Note 28 (Item IV (d)).
On August 16, 2020, Cervecería
Chile S.A., a Chilean subsidiary of the Company, entered into a long-term distribution agreement with Embotelladora Andina S.A.,
Coca-Cola Embonor S.A. and Embotelladora Iquique S.A. (the “Distributors”), by which the Distributors were granted
the right to sell and distribute certain products within the Company’s portfolio, with exclusivity in specific zones and
sales channels in Chile.
The long-term agreement with PepsiCo,
under which the Cervecería Boliviana Nacional, a subsidiary of the Company in Bolivia, has the exclusive right to produce,
sell and distribute certain brands from PepsiCo’s portfolio in Bolivia, was amended in June 1, 2020, extending the agreement
for a further ten years and reflecting certain changes in the trade agreement between the parties.
On January 22, 2020, the company, through
its subsidiary Labatt Brewing Company Limited, acquired G&W Distilling Inc., a company that produces a portfolio of ready-to-drink
alcoholic beverages.
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 through 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.
In the third quarter of 2019, there were
news reports based on alleged leaks of statements by Mr. Antonio Palocci as part of legal proceedings, to which the company subsequently
had access. As previously stated in a press release dated August 9, 2019, the Company, consistently with its Code of Business Conduct
and principles, remains committed to reviewing and monitoring this matter. In this regard, the Company has not identified any evidence
supporting Mr. Palocci’s claims of illegal conduct by Ambev.
The Company reaffirms its commitment to
conducting business in a legal and ethical manner, and states that it will continue to monitor this matter and respond as appropriate
to any requests from the authorities.
On December 19, 2019, the Board of Directors
of Ambev approved the execution, by the Company or its subsidiaries, of equity swap contracts through financial institutions to
be defined by the Company's management, having as underlying asset the shares issued by the Company or American Depositary Receipts
(ADRs), without impacting the liquidation, within the regulatory term, of the 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 could
result in exposure of up to 80 million common shares (all or part of which 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 impact on the liquidation of the equity-swap contracts
still in force over the applicable terms. The settlement of the new approved equity-swap contracts will occur over a maximum term
of 18 months from the date of approval, and such contracts may lead to exposure of up to 65 million common shares (all or part
of which may be in the form of ADRs), up to a value limit of R$1.0 billion.
On December 9,
2020, the Board of Directors of Ambev approved new equity-swap contracts, without impact on the liquidation, of the equity-swap
contracts still in force over the applicable terms. The settlement of the new approved equity-swap contracts will occur over a
maximum term of 18 months from the date of approval, and such contracts may lead
to exposure of up to 80 million common shares (all or part of which may be in the form of ADRs), up to a value limit of R$1.2 billion,
in addition to contracts already executed in the context of the approvals of December 19, 2019 and May 13, 2020, and which have
not yet been settled as at the date of approval, may result in an exposure of up to 137,014,453 common shares (some or all of which
may be in the form of ADRs).
The long-term agreement with PepsiCo,
under which the Company has the exclusive right to bottle, sell and distribute certain brands from PepsiCo’s portfolio of
soft drinks in Brazil, including Pepsi Cola, Gatorade, H2OH! and Lipton Ice Tea, was added in October 2018 to reflect certain changes
to 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 1st, 2019. The agreement will be in force until December 31, 2027.
In July 2018, the Argentinean
Peso underwent a severe devaluation, resulting in the three-year cumulative inflation of Argentina exceeding 100%, thereby triggering
hyperinflationary accounting, as prescribed by IAS 29 - “Financial Reporting in Hyperinflationary Economies” from January
1, 2018 (beginning in the reporting period during which hyperinflation is identified).
Under IAS 29, the non-monetary
assets and liabilities, equity and income statements of subsidiaries operating in hyperinflationary economies are restated to reflect
changes in the general purchasing power of the local currency by applying a general price index.
The financial statements
of entities whose functional currency is the currency of a hyperinflationary economy, whether based on a historical costs approach
or a current costs approach, shall be stated in terms of the unit of measurement which is current at the end of the reporting period,
and will be converted into the Brazilian Real at the closing exchange rate for the period.
Consequently, the company
has applied hyperinflation accounting for its Argentinean subsidiaries in these consolidated financial statements by applying the
IAS 29 rules as follows:
The income statements
for 2017, the first and second quarters of 2018 and the respective balance sheets of the Argentinean subsidiaries were not restated,
due to the application of this standard. Under paragraph 42 (b) of IAS 21, when amounts are translated into the currency of a non-hyperinflationary
economy, the comparative amounts shall be those presented for the current year in the relevant prior year’s financial statements
(i.e. not adjusted for subsequent changes in prices or subsequent changes in exchange rates).
On June 8, 2018, the Company concluded
the sale of all shares of its subsidiary Barbados BottlingCo. Limited, which is active within the Soft Drink business sub-unit,
for a total of US$53 million, corresponding to R$179 million. The Company recorded a gain on this transaction of US$22 million,
corresponding to R$75 million as at the transaction date and R$79 million as at December 31, 2018, recorded in the income
statement as an Exceptional item.
In September 2017, Quilmes, a subsidiary
of Ambev, entered into an agreement whereby AB InBev will grant a perpetual license to Quilmes in Argentina for Budweiser and
other North American brands upon the recovery of the distribution rights by AB InBev from the Chilean company Compañia
Cervecerías Unidas S.A. (“CCU”). The agreement also included the transfer of the brewery of Cerveceria Argentina
Sociedad Anonima Isenbeck by AB InBev to Quilmes and the transfer of some Argentinean brands (Norte, Iguana and Baltica) and related
business assets, along with the payment of US$50 million by Quilmes to CCU. The transaction was closed on May 2, 2018, following
approval, by the Argentinean antitrust authority (Comisión Nacional de Defensa de la Competencia) on April 27, 2018 of
the main transaction documents and the verification of other usual conditions closing. The Company recorded a gain of 306 million
Argentinean Pesos (corresponding to R$50 million as
at the transaction date and to R$30 million as at December 31, 2018) in the income statement as a result of the application
of the accounting practice for the exchange of assets involving transactions under common control as Exceptional items.
The consolidated financial statements
have been prepared using the going concern basis of accounting and are being presented in accordance with the International Financial
Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”), effective
from December 31, 2020 and disclose all (and only) the applicable significant information related to the financial statements,
which is consistent with the information utilized by management in the performance of its duties.
There were no significant changes in the
accounting policies and calculation methods used for the financial statements as at December 31, 2020 compared to those presented
in the financial statements for the years ended December 31, 2019 and 2018, except for the policy described below.
The accounting policy for the recognition
of extemporaneous (related to previous periods) tax credits and debits considered the account origin of the credit or debit
up to September 30, 2020. For example, “cost of products sold” is the account of origin for the extemporaneous
tax credits or debits related to the acquisition of raw materials. In the same way depreciation expenses is the account of origin
of extemporaneous tax credits or debits related to acquisitions of property, plant and equipment. Following this accounting
policy, which has been applied consistently up to the third quarter of 2020, credits referring to the exclusion of circulation
of goods and services tax (“ICMS”) from the social integration program (“PIS”) and contribution to the
financing of social security (“COFINS”) calculation base have been recognized as a reduction in sales tax expenses,
with a positive effect on Net Revenue.
In the third quarter of 2020 the Company
(i) obtained final favorable decisions on: (a) lawsuits involving controlled companies claiming refunds of the PIS and COFINS portion
calculated with the inclusion of the ICMS and/or ICMS-ST relating to the period from 1990 onward, and (b) lawsuits involving the
Company and its controlled companies, specifically for the period in which the Special Beverage Regime – (“REFRI”)
was in place (2009 to 2015), and (ii) is awaiting decisions in lawsuits related to the current taxation model (“New Tax Model”)
- from 2015 onwards. The amounts involved in these lawsuits, referred to in items (i.b) and (ii), are significantly higher
than those previously recognized, both for credits of the same type, as for recoveries or tax payments.
The Company changed its accounting policy
to one which better reflects the effects of the recognition of credits arising from final favorable decisions, in the lawsuits
mentioned above. The previous account policy could have given a distorted analysis of the performance for the year, due to the
significant increase in the value of credits , so the Company changed its accounting policy to record credits and other extemporaneous
tax payments, of any nature, in Other operating income (expenses), and thus is no longer following the original accounting treatment.
However, this change in accounting policy does not impact the Net Income, or any of the other balance sheet schedules previously
presented, or the amounts recorded in the financial results. The change in accounting policy did not apply for state amnesties
which are presented separately in income statement given their one-off exceptional nature, please refer to note 8.
As determined by IAS 8, the new
accounting policy is applicable from October 1, 2020 and, for comparative purposes, the relevant balances of extemporaneous credits
and debits for 2019 have been reclassified from the account of origin to “Other income and expenses”. The
balances for the year ended December 31, 2018, were not reclassified for this change in accounting policy as the amount is deemed
immaterial.
(i) The amount recognized during 2019 was
R$ 212.5 in the third quarter and R$ 382.1 in the fourth quarter.
There were no new standards for the period
ended December 31, 2020 for the preparation of these financial statements.
There are no other Standards, Interpretations
and/or Amendments to Standards that are not in force and that the Company expects to have a material impact resulting from their
application in its consolidated financial statements on the entity in the current or future reporting periods, or on foreseeable
future transactions.
The financial statements of subsidiaries,
joint arrangements and associates used in its consolidated financial statements are prepared for the same reporting period as Ambev,
using a consistent accounting policy.
All intercompany transactions, balances
and unrealized gains or losses on transactions between group companies have been eliminated.
The Company controls an entity when it
is exposed to or has rights to variable returns due to its involvement with the entity, and it is able to affect those returns
through its power over the entity. When assessing control, potential voting rights are considered. Control is presumed to exist
where the Company owns, directly or indirectly, more than half of the voting rights (which does not always equate to economic ownership),
unless it can be demonstrated that such ownership does not confer control.
Subsidiaries are consolidated from the
date on which control is obtained by the Company, except when the predecessor basis of accounting is applied to transfers of common
control. Consolidation is discontinued from the date on which control ceases.
Ambev uses the purchase method to account
for its business combinations. The consideration transferred for the acquisition of a subsidiary represents the fair value of the
assets transferred, the liabilities incurred, and the equity interest issued by Ambev. The consideration transferred includes the
fair value of any asset or liability resulting from a contingent consideration agreement, when applicable. Costs related to the
acquisition are recognized in income as they are incurred. Assets, liabilities and contingent liabilities acquired/assumed in a
business combination are recognized initially at their fair value as at the acquisition date. Ambev recognizes the non-controlling
interest in the acquiree, either at its fair value or at the non-controlling interest’s proportional share of the net assets
acquired. The measurement of the non-controlling interest to be recognized is determined for each acquisition.
The excess of: (i) the consideration paid;
plus (ii) the amount of any non-controlling interests in the acquiree (when applicable); and (iii) the fair value, at the acquisition
date, of any previous equity interest in the acquiree, over the fair value of the net identifiable assets acquired, at the date
of acquisition, is recorded as goodwill. When the consideration transferred is less than the fair value of the net assets acquired,
the difference is recognized directly in income.
All intercompany transactions, balances
and unrealized gains and losses on transactions between group companies have been eliminated. Unrealized losses are
eliminated in the same way as unrealized gains, but only to the
extent that there is no evidence of impairment.
Joint arrangements are all entities over
which the Company shares control with one or more parties. Joint arrangements are classified either as joint operations or joint
ventures depending on the contractual rights and obligations of each investor.
Business combinations
between entities under common control have not been addressed under IFRS. IFRS 3 is the standard applicable to business combinations,
but its scope explicitly excludes business combinations between entities under common control.
In accordance with IAS
8, Management has adopted the predecessor basis of accounting, which is consistent with United States Generally Accepted Accounting
Principles (“USGAAP”) and United Kingdom Generally Accepted Accounting Principles (“UKGAAP”), to record
the carrying amount of the asset received, as recorded by the parent company.
Under the predecessor basis of accounting,
when accounting for a transfer of assets between entities under common control, the entity that receives the net assets or the
equity interests (the acquirer) shall initially record the assets and liabilities transferred at their parent book value as at
the transfer date. If the book value of the assets and liabilities transferred by the parent is different from the historical cost
recorded by the controlling entity of the entities under common control (the ultimate parent), the financial statements of the
acquirer shall reflect the assets and liabilities transferred at the same cost of the ultimate parent, as a counter-entry to shareholders'
equity against the carrying value adjustments.
For transactions between entities under
common control that involve the disposal or transfer of assets from the subsidiary to its parent company (i.e. above the level
of the consolidated financial statements), the Company assesses the existence of: (i) any conflicts of interest; and (ii) the economic
substance and purpose of the transaction. Having fulfilled these assumptions, the Company adopted as a policy the concepts of IAS
16 in order to provide adequate visibility and a fair impact on the amount of distributable results to our shareholders,
specially the non-controlling interest. This policy also includes assets acquired through the swapping of non-cash assets, or swaps
with a combination of cash and non-cash assets. The assets swapped may be of the same or a different nature. The cost of such assets
is measured at fair value, unless: (i) the swap transaction is not commercial in nature; or (ii) the fair value of the asset received
(and the asset assigned) cannot be reliably measured. The acquired asset is measured in this way even if the assignor entity cannot
immediately remove the asset from its books. If the acquired asset is not measurable at fair value, its cost is determined based
on the book value of the assigned asset.
Whenever assets distributed are not recorded
as cash, the asset, before distribution, is recorded at its fair value in the income account. This procedure is applicable to distributions
where the assets are of the same nature and therefore can be treated equally. However, similarly to IFRIC 17, in the absence of
a specific accounting practice for transactions under common control, we apply these procedures as part of our accounting practices.
We also apply the same procedures to sales (products, supplies, etc.) to our controlling entity, where the positive result of the
sale is recognized in income.
The items included in the financial statements
of each subsidiary of the Company are measured using the currency of the primary economic environment in which the entity operates
(the “functional currency”).
The functional and presentation currency
of the Company financial statements is the Brazilian Real.
Foreign currency transactions are accounted
for at the exchange rates prevailing as at the dates of the transactions. Monetary assets and liabilities denominated in foreign
currencies are translated using the balance sheet date rate. Non-monetary assets and liabilities denominated in foreign currencies
are translated at the foreign exchange rate prevailing as at the date of the transaction. Non-monetary assets and liabilities denominated
in foreign currencies stated at fair value are translated at the exchange rate in force as at the date on which the fair value
was determined. Gains and losses arising from the settlement of transactions in foreign currencies and resulting from the conversion
of assets and liabilities denominated in foreign currencies are recognized in the income statement.
Foreign exchange gains and losses related
to loans and cash and cash equivalents are presented in the statement of income as finance expenses or finance income.
Assets and liabilities of subsidiaries
located abroad are translated at the foreign exchange rates prevailing at the balance sheet date, while amounts from the income
statement and cash flow are translated at the average exchange rate for the year, and changes in equity are translated at the historical
exchange rate of each transaction. Translation adjustments arising from the difference between the average exchange rates and the
historical rates are recorded directly in Carrying value adjustments.
Upon consolidation, exchange differences
arising from the translation of equity in foreign operations and borrowing and other currency instruments designated as net investment
hedges are recognized in Carrying value adjustments, an equity reserve, and included in Other comprehensive income.
The goodwill and fair value adjustments
arising from the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and are translated
at the closing rate.
An entity may have a monetary item receivable
from or payable to a foreign operation, the settlement of which is neither planned nor likely to occur in the foreseeable future,
and which does not include trade receivables or trade payables. Exchange differences arising shall be recognized initially in other
comprehensive income and reclassified from equity to profit or loss upon the disposal of the net investment.
Under IAS 29, the non-monetary assets
and liabilities, the equity and the income statement of subsidiaries operating in hyperinflationary economies are restated to reflect
changes in the general purchasing power of the local currency by applying a general price index. The financial statements of an
entity whose functional currency is the currency of a hyperinflationary economy, whether using the historical costs approach or
the current costs approach, shall be stated in terms of the unit of measurement in force at the end of the reporting period, and
translated into Reais at the closing rate for the period.
The most significant exchange rates used
for the preparation of the Company’s financial statements are as follow:
(i) The functional currency of Cuba, the
Cuban Convertible Peso (“CUC”), has a fixed parity with the US Dollar (“USD”) at the balance sheet date.
Reportable segments are identified based
on the internal reporting regularly reviewed by the chief operating decision maker of the Company for the purpose of evaluating
the performance of each segment and allocating resources to those segments. Accordingly, segment information is presented by geographical
area, since the risks and rates of return are affected predominantly by the fact that the Company operates in different regions.
The Company’s management structure and the information reported to the chief decision are structured on the same basis.
Performance information by business unit
(Beer and Non-alcoholic beverages (“NAB”)), is also presented to the Company’s chief decision maker and is disclosed
as additional information, even though it does not qualify as a segment. Internally, the Company’s management uses performance
indicators such as the earnings of consolidated operation before interest and taxes (“EBIT”) and the normalized earnings
of consolidated operation before interest, taxes, depreciation and amortization (“normalized EBITDA”) as measures of
segment performance to make decisions regarding resource allocation and to analyze the performance of the consolidated operations.
These indicators have been reconciled with the profit for each segment in the tables in Note 5 - Segment reporting.
Effective from January 1, 2019, we
reorganized our regional reporting structure. We no longer report Latin America North (“LAN”) business segment and,
from now on, we will be reporting Brazil and Central America and The Caribbean (“CAC”) business segments on a separated
basis. On December 31, 2019 and 2020 we conducted our operations across four business segments, as follow:
▪ Brazil, where we operate two business
sub units: (i) beer and (ii) non-alcoholic beverages (NAB);
▪ Central America and Caribbean
(“CAC”), which includes our direct operations in the Dominican Republic, Saint Vincent, Antigua, Dominica, Cuba, Guatemala
(which also serves El Salvador, Nicaragua and Honduras), Barbados and Panama;
▪ Latin America South (LAS), which
includes our operations in Argentina, Bolivia, Chile, Paraguay and Uruguay; and
The Company recognizes revenue when the
amount of revenue can be measured reliably and it is probable that the economic benefits associated with the transaction will flow
to the Company, as described below.
Revenue represents the fair value of the
amount received or receivable upon the sale of products or the rendering of services in the ordinary course of business. Revenue
is presented net of taxes, returns, rebates and discounts, as well as net of the elimination of sales between group companies.
The company recognizes revenue when its
performance obligations have been satisfied, meaning when the Company transfers control of a product to a customer.
Specifically, revenue recognition is based
on the following five-step approach:
Revenue from the sale of goods is measured
at the amount that reflects the best estimate of the consideration expected to be received in exchange for those goods. Contracts
can include significant variable elements, such as discounts, rebates, refunds, credits, price concessions, incentives, performance
bonuses and penalties. These trade incentives are treated as variable consideration. If the consideration includes a variable component,
the company estimates the amount of consideration to which it will be entitled for transferring the promised goods or services
to the customer. Variable consideration is only included in the transaction price if it is highly probable that the amount of revenue
recognized would not be subject to significant future reversals when the respective uncertainty is resolved.
Finance income consists of interest received
or receivable on funds invested, monetary updates arising from legal disputes, foreign exchange gains, gains on currency hedging
instruments intended for offsetting currency losses, gains on hedging instruments that are not part of a hedge accounting relationship,
gains on financial assets classified as at fair value through profit or loss, as well as any gains due to hedge ineffectiveness.
Interest income is recognized on an accruals basis unless collectability
is in doubt.
Finance expenses are comprised of interest
payable on borrowing, calculated using the effective interest rate method, foreign exchange losses, losses on currency hedging
instruments intended for the offsetting of currency gains, results on interest rate hedging instruments, losses on hedging instruments
that are not part of a hedge accounting relationship, losses on financial assets classified as held for trading, impairment losses
on financial assets classified as available for sale, as well as any losses due to hedge ineffectiveness.
All interest costs incurred in connection
with borrowing or financial transactions are expensed as incurred as part of finance expenses, except when capitalized. Any difference
between the initial amount and the maturity amount of interest-bearing loans and borrowing, such as transaction costs and fair
value adjustments, are recognized in the income statement over the expected life of the instrument based on the effective interest
rate method. The interest expenses component of finance lease payments is also recognized in the income statement using the effective
interest rate method.
Exceptional items are those that in Management’s
judgment need to be disclosed separately. In determining whether an event or transaction is special, Management considers quantitative
as well as qualitative factors such as the frequency or predictability of occurrence, and the potential impact on the variations
in profit or loss. These items are disclosed in the income statement or separately disclosed in the notes to the financial statements.
Transactions that may give rise to exceptional items are principally restructuring activities, amnesties, acquisitions of
subsidiaries, impairment losses, and gains or losses on disposal of assets and investments.
The income tax and social contribution
for the year are comprised of the current tax and deferred tax. Income tax and social contribution are recognized in the income
statement, unless they relate to items recognized directly in comprehensive income or in other equity accounts. In these cases,
the tax effects are also recognized directly in comprehensive income or in equity accounts (except for interest on shareholders’
equity. See Note 3 (q)).
The current tax expense represents the
expectation of the payment of tax on the taxable income for the year, using tax rates enacted, or substantially enacted, at the
balance sheet date, and any adjustment to tax payable in relation to previous years.
Deferred taxes are recognized using the
balance sheet liability approach. This means that a deferred tax liability or asset is recognized for all taxable and tax-deductible
temporary differences between the tax and accounting bases of assets and liabilities. Under this method, a provision for deferred
taxes is also calculated based on the differences between the fair values of assets and liabilities acquired in a business combination
and their tax basis. IAS 12 prescribes that no deferred tax liability should be recorded on goodwill recognition, and thus no deferred
tax asset/liability is recorded: (i) Upon the initial recognition of an asset or liability in a transaction other than a business
combination that at the time of the transaction affects neither the accounting nor the taxable profit or loss; and (ii) For differences
arising from investments in subsidiaries to the extent that they will not be reversed in the foreseeable future. The amount of
deferred tax for which a provision is made is based on the expected realization or settlement of the
temporary differences, using the currently or substantially enacted tax rates.
Deferred tax assets and liabilities are
offset if there is a legally enforceable right to offset current tax liabilities and assets, and where these relate to income taxes
levied by the same tax authority on the same taxable entity, or to different taxable entities which intend either to settle their
current tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously.
Deferred tax assets are recognized only
to the extent that it is likely that future taxable profits will be available. The deferred income tax asset is reduced to the
extent that it is no longer probable that the future taxable benefits will occur.
Property, plant and equipment are measured
at cost less accumulated depreciation and impairment losses. The cost includes the purchase price, borrowing costs incurred during
the construction period and any other costs directly attributable to bringing the asset to the location and condition necessary
for it to be capable of operating in the manner intended by management (e.g. nonrefundable tax, transportation and the costs of
dismantling, removal and site restoration, if applicable). The cost of a self-constructed asset is determined using the same principles
as an acquired asset. The depreciation methods, residual value, as well as the useful lives are reassessed and adjusted if appropriate,
on an annual basis.
Borrowing costs directly attributable
to the acquisition, construction or production of qualifying assets are capitalized as part of the cost of such assets.
Land is not depreciated since it is deemed to have an indefinite
useful life.
Property, plant and equipment, and depreciation include the
effects of using the predecessor basis of accounting (Note 3 (c)).
The Company recognizes in the carrying
amount of an item of property, plant and equipment the cost of replacing a component of such an item if it is probable that the
-future economic benefits in the component will flow to the Company and the cost of the component can be measured reliably. All
other costs are expensed as incurred.
The depreciable amount is the cost of
an asset less its residual value. The residual values, if significant, are reassessed annually. Depreciation is calculated from
the date on which the asset is available for use, using the straight-line method over the estimated useful lives of the assets.
The right-of-use assets are depreciated over the term of each contract.
The estimated useful lives of the major
classes of property, plant and equipment are as follow:
The assets’ residual values and
useful lives are reviewed at least annually. Management uses judgment to assess and ascertain the useful lives of these assets.
Gains and losses on sales are determined
by comparing the results with the carrying amounts and are recognized in Other operating income/(expenses) in the income statement.
Up to December 31, 2018, leases of assets
under which all the risks and rewards of ownership were substantially retained by the lessor were classified as operating leases.
Payments made under operating leases were charged to the income statement as the payments were incurred over the terms of the leases.
IFRS 16 replaced the existing lease accounting
requirements and was adopted retrospectively and in full by the Company, resulting in a significant change in the accounting treatment
and reporting of the leases that were previously classified as operating leases, with more assets and liabilities reported on the
balance sheet and a differences in the recognition of lease costs and related interpretations.
Leases are recognized as a right-of-use
asset and a corresponding liability at the date on which the leased asset becomes available for use by Company. Each lease payment
is allocated between the liability and the finance expenses. Finance expenses are recognized in the statement of income over the
lease period. Right-of-use assets are depreciated over the shorter of the asset's
useful life and the lease term, on a straight-line basis.
Assets and liabilities arising from a
lease are initially measured at present value and when measuring lease liabilities, the Company discounted lease payments using
incremental borrowing rates.
Payments associated with short-term leases
and all leases of low-value assets are recognized on a straight-line basis as an expense in profit or loss. Short-term leases are
leases with a lease term of 12 months or less. Low-value assets represent assets with a value of US$5,000 or less.
Goodwill arises on acquisitions of subsidiaries,
associates, and joint arrangements.
Goodwill is determined as the excess of:
(i) the consideration paid; plus (ii) the amount of any non-controlling interests in the acquiree (when applicable); and (iii)
the fair value, at the acquisition date, of any previous equity interest in the acquiree, over the fair value of the net identifiable
assets acquired as at the date of acquisition. All business combinations are accounted for using the purchase method.
In compliance with IFRS 3 - “Business
Combinations”, goodwill is carried at cost and not amortized, but is tested for impairment at least annually, or whenever
there are indications that the cash generating unit (“CGU”) to which the goodwill has been allocated could be impaired.
Impairment losses recognized on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount
of goodwill relating to the entity sold.
Goodwill is expressed in the functional
currency of the CGU or joint operation to which it relates and translated into Reais using the year-end exchange rate.
For associates and joint ventures, goodwill
is included in the carrying amount of the investment in the associate/joint venture.
If the Company’s interest in the
net fair value of the identifiable assets, liabilities and contingent liabilities recognized exceeds the costs of the business
combination, such excess is recognized immediately in the income statement.
Goodwill includes the effects of applying the predecessor basis
of accounting (Note 3 (c)).
When a portion of the consideration paid
in a business combination relates to brands, this is recognized in a specific Intangible Assets account, and measured at their
fair values as at the acquisition date. Subsequently, the value of brands can be reduced in the case of impairment losses. Internally
generated expenditure for brand development is recognized within expenses.
Amortization related to software is included
in the cost of sales, distribution and sales expenses, marketing expenses or administrative expenses, based on the business activity
which the software is intended to support.
Other intangible assets acquired by the
Company are stated at their acquisition cost less accumulated amortization and impairment losses.
Other intangible assets also include multi-year
sponsorship rights acquired by the Company. These are initially recognized at the present value of the future payments and subsequently
measured at cost less accumulated amortization and impairment losses.
Intangible assets with definite useful
lives are amortized on a straight-line basis over their estimated useful lives. Licenses, supply, and distribution rights are amortized
over the period for which the rights exist. Brands are considered to have indefinite lives, and therefore, are not amortized. Software
and capitalized development costs related to technology are amortized over a period of 3 to 5 years.
The accounting policy applied by the Company
considers the extemporaneous tax credits and debits of any nature as determined by IAS 37 - Provisions, Contingent Liabilities
and Contingent Assets.
Credits are recognized only when management
has elements that guarantee (i) that the credit is virtually certain; and (ii) the amount could be estimated with sufficient reliability
to enable it to be compensated or refunded. In cases where the recovery of the asset is probable, or the amount cannot be reliably
measured, the amounts are not recognized in the account, but presented in Note 30 - Contingencies related to contingent
assets. Management understands that, in cases of lawsuits involving contingent assets, a final and unappealable decision on the
specific lawsuit of the Company is required to confirm the existence of its rights, except where specific circumstances pertinent
to the case allow the recognition of their rights with sufficient objectivity and reliability.
Debits are recognized only when (i) these
are based on a past event; (ii) there is a present obligation arising from this past event; (iii) it is probable that an outflow
of resources will be required; and (iv) the amount can be estimated sufficiently reliably. If the expected disbursement is possible,
or the amount cannot be sufficient reliably measured, the amounts are presented in Note 30 - Contingencies.
Contingent assets and liabilities are
assessed periodically to ensure that they are appropriately reflected and disclosed in the financial statements.
From October 1, 2020, the accounting policy
for the recognition of assets and liabilities of extemporaneous tax credits and debits
of any nature are recorded as “Other operating income / (expenses)”, with an exception for amnesty payments, accounted
for as exceptional items, given their one-off nature.
Inventory is initially recorded at the
acquisition cost and subsequent valued at the lower of their cost and net realizable value. Cost includes expenditure incurred
to acquire the inventory and bring it to the location and condition required for use. The weighted average method is used to determine
the cost of inventory.
The cost of finished products and work
in progress includes raw materials, other production materials, direct labor, other direct costs, gains and losses on derivative
financial instruments, and an allocation of fixed and variable overheads based on the normal operating capacity, we highlight
that fixed costs not allocated or idle costs are not held in inventory, are recognized directly in the income statement, as determined
by IAS 2. The net realizable value is the estimated selling price in the ordinary course of business, less the costs of bringing
the inventory to the condition required for sale, and the selling costs.
The amount of inventory is reduced on
a case-by-case basis if the anticipated net realizable value declines below the carrying amount. The calculation of the net realizable
value takes into consideration the specific characteristics of each category of inventory, such as the expiry date, the remaining
shelf life, and any indicators of slow-moving inventory, amongst others.
Trade receivables are amounts due from
customers for goods sold or services performed in the ordinary course of business. Trade receivables are recognized initially at
the amount of the unconditional consideration, unless they contain significant financing components, in which case they are recognized
at fair value. The Company holds trade and receivables with the objective of collecting the contractual cash flow, and therefore
measures them subsequently at amortized cost using the effective interest rate method.
The Company applies the IFRS 9 simplified
approach to measuring expected credit losses whereby impairment allowances for trade receivables are measured upon initial recognition
on the basis of the expected 12-month credit losses. This is primarily based on past experience of credit losses, current data
on overdue receivables and credit score information. Prospective information (such as forecast economic performance indicators)
is also taken into consideration if, based on past experience, such indicators show a strong correlation with actual credit losses.
Typically trade receivables which are outstanding for more than 90 days are fully written-off.
Other receivables are mainly composed
of loans to customers, cash deposits on guarantees and tax receivables. These instruments are initially recognized at fair value
and subsequently measured at amortized cost. Any impairment losses and foreign exchange results are directly recognized in profit
or loss.
Cash and cash equivalents include all
cash balances, bank deposits, and short-term highly liquid investments with an insignificant risk of changes in value, and
readily convertible into cash. They are stated at their face value, which approximates the fair value.
For the purpose of the cash flow statement,
cash and cash equivalents are presented net of bank overdrafts, when applicable.
When the Company repurchases its own shares,
the amount paid, including any directly attributable additional costs are recognized as deductions from equity attributable to
shareholders, in the line item “Treasury shares”.
Incremental costs directly attributable
to the issuance of new shares or options are presented in equity as a deduction, net of tax, from the proceeds.
Dividends and interest on shareholders’
equity are recognized in liabilities from the date on which they are approved by a Board of Directors’ Meeting, except for
the minimum statutory dividends provided for under the Company’s bylaws, which are recognized as a liability, when applicable,
at the end of each fiscal year.
The interest expense attributable to capital
to shareholders is recognized in income for the purposes of the calculation of Brazilian income and social contribution tax, and
are subsequently reclassified from shareholders' equity for presentation purposes in the financial statements.
Interest-bearing loans and borrowing are
recognized initially at fair value less attributable transaction costs. Subsequently to their initial recognition, interest-bearing
loans and borrowing are stated at amortized cost, with any differences between the initial and maturity amounts recognized in the
income statement over the expected life of the instrument on an effective interest rate basis.
Borrowing costs directly related to
the acquisition, construction or production of a qualifying asset which requires a substantial period of time to prepare for
its intended use or sale, are capitalized as part of
the cost of that asset when it is probable that the future economic benefits associated with the item will flow to the Company,
and the costs can be measured reliably. Other borrowing costs are recognized as finance expenses in the period in which they are
incurred.
Post-employment benefits include pensions
managed in Brazil by Instituto Ambev de Previdência Privada (“IAPP”), post-employment dental benefits and post-employment
medical benefits managed by Fundação Zerrenner. Usually, pension plans are funded by payments made by both the Company
and its participants, considering the recommendations of independent actuaries. Post-employment dental benefits and post-employment
medical benefit obligations are funded using the returns on the assets of the Fundação Zerrenner plan. If necessary,
the Company may contribute some of its profits to Fundação Zerrenner.
The Company manages defined benefit and/or
defined contribution plans and/or medical and dental assistance plans for the employees of its companies located in Brazil and
its subsidiaries located in the Dominican Republic, Barbados, Panama, Uruguay, Bolivia, Argentina and Canada.
A defined contribution plan is a pension
plan under which the Company pays fixed contributions into a fund. The Company has no legal or constructive obligations to pay
further contributions if the fund does not hold sufficient assets to pay all employees for the benefits relating to their service
in the current and prior periods.
The contributions to these plans are recognized as expenses
in the period during which they are incurred.
Typically, defined benefit plans define
an amount of pension benefit that an employee will receive upon retirement, usually dependent on one or more factors such as age,
years of service and compensation level.
For defined benefit plans, expenses are
assessed separately for each plan using the projected credit unit method. The projected credit unit method takes into account that
each period of service gives rise to an additional unit of benefit and measures each such unit separately. Based on this method,
the cost of providing pensions is charged to the income statement over the period of service of the employee. The amounts charged
to the income statement consist of current service costs, interest costs, past service costs and the effect of any agreements and
settlements. The obligations of the plan recognized in the balance sheet are measured at the present value of the estimated future
cash outflows using a discount rate equivalent to the government´s bond rates with maturity terms similar to those of the
respective obligation and the fair values of the plan assets.
Past service costs arise from the introduction
of a new plan or changes to an existing plan. They are recognized immediately in the income statement, at the earlier of: (i) when
the settlement/curtailment occurs; or (ii) when the Company recognizes the related restructuring or termination costs, unless those
changes are conditional upon the employee’s continued employment, for a specific period of time (the period in which the
rights are acquired). In such cases, past services costs are amortized using the straight-line method over the period during which
the rights were acquired.
Actuarial gains and losses consist of
the effects of differences between the previous actuarial assumptions and the actual results, and the effects of changes in actuarial
assumptions. Actuarial gains and losses are fully recognized in Carrying value adjustments.
Remeasurements, representing actuarial
gains and losses, the effect of the asset ceiling and the return on plan assets, both excluding net interest, are recognized in
full in the period in which they occur in the statement of comprehensive income. Remeasurements are not reclassified to profit
or loss in subsequent periods.
When the amount of the defined benefit
obligation is negative (an asset), the Company recognizes those assets (prepaid expenses), to the extent of the value of the economic
benefit available to the Company either from refunds or reductions in future contributions.
The Company and some of its subsidiaries
provide post-employment medical benefits, the reimbursement of medication expenses and other benefits to certain retirees. These
benefits are not granted to new retirees. The expected costs of these benefits are recognized over the period of employment, using
an accounting methodology like that for defined benefit plans, including actuarial gains and losses.
Termination benefits are recognized as
expenses at the earlier of: (i) when the Company is demonstrably committed, without a realistic possibility of withdrawal, to a
formal detailed plan to terminate employment before the normal retirement date; and (ii) when the Company recognizes costs related
to restructuring.
Bonuses granted to employees and
managers are based on pre-defined company and individual target achievement. The estimated amount of the bonus is recognized as
an expense in the period during which the bonus is earned.
Different share and share option programs
allow management and other members appointed by the Board of Directors to acquire shares in the Company. The fair value of the
share options is estimated at the grant date, using an option pricing model. Based on the expected number of options that will
be exercised, the fair value of the options granted is recognized as an expense over the vesting period with a corresponding credit
to equity. When the options are exercised, the equity is increased by the amount of the proceeds received.
Trade payables are recognized initially
at their fair values and subsequently at amortized cost using the effective interest method.
Provisions are recognized when: (i) the
Company has a present obligation (legal or constructive) as a result of past events; (ii) it is likely that a future disbursement
will be required to settle the current obligation; and (iii) the amount of the obligation can be estimated reliably.
Provisions, except for those mentioned
in the line item Disputes and litigation, are determined by discounting the expected future cash flow, to a pre-tax rate, which
reflects the current market assessments of the time value of money and, where appropriate, the risks specific to the liability.
A provision for restructuring is recognized
when the Company has approved a detailed restructuring plan, and the restructuring has either commenced or been announced. Costs
relating to the ongoing and future activities of the Company are not provided for but are recognized when expenses are incurred.
The provision includes the benefit commitments in connection with early retirement and redundancy schemes.
A provision for disputes and litigation
is recognized when it is more likely than not that the Company will be required to make future payments as a result of past events.
Such items may include but are not limited to, claims, suits and actions filed by or against the Company relating to antitrust
laws, violations of distribution and license agreements, environmental matters, employment-related disputes, claims from the tax
authorities, and other matters.
The company uses financial instruments
to implement its risk management strategy and policy. Derivatives are generally used to mitigate the impact on the Company’s
performance due to changes in foreign currencies, interest rates, equity prices and commodity prices. The Company’s financial
risk management policy prohibits the use of derivatives not related to the Company’s core business.
Financial assets (except for accounts
receivable without a significant financing component) or financial liabilities are initially measured at fair value, plus, for
an item not measured at fair value through profit or loss, transaction costs directly attributable to their acquisition or issue.
Accounts receivable without a significant financing component are initially measured at the transaction price.
Upon initial recognition, a financial
asset is classified either: (i) at amortized cost; (ii) at fair value through other comprehensive income - debt instruments; (iii)
at fair value through other comprehensive income - equity instruments; or (iv) at fair value through profit or loss.
Financial assets are not reclassified
subsequently to initial recognition, unless the Group changes the business model for the management of financial assets, in which
case all impacted financial assets are reclassified on the first day of the post-change business model.
▪ Debt instruments at fair value
through other comprehensive income, with gains or losses recycled to profit or loss upon derecognition. Financial assets in this
category quoted debt instruments held by the Company in line with its business model either to collect cash flow or for sale.
▪ Equity instruments designated
as at fair value through other comprehensive income, with no recycling of gains or losses to the profit or loss upon derecognition.
This category only includes equity instruments which the company intends to hold for the foreseeable future, and which it has irrevocably
elected to classify thus upon their initial recognition or transition. These instruments are not subject to impairment testing.
▪ Financial assets and liabilities
at FVPL: comprise derivative instruments and equity instruments which were not designated as FVOCI. This category also includes
debt instruments with cash flow characteristics which are not held within a business model with the objective either to collect
contractual cash flow, or both to collect contractual cash flow and for sale.
The company designates certain derivatives
as hedging instruments to hedge the risk related to the variability of foreign exchange rates, interest rates and commodity prices.
Derivative financial instruments, although contracted to protect against the exposure, but not meeting all of the hedge accounting
requirements, will be recognized at fair value through profit or loss.
Derivative financial instruments are initially
recognized at fair value. The fair value is the value at which an asset can be realized, or a liability settled, between knowledgeable
and willing parties under normal market conditions. The fair value of derivative financial instruments can be obtained from market
prices or from pricing models that reflect current market rates, as well as the credit quality of the counterparty.
Subsequently to initial recognition, derivative
financial instruments are remeasured to their fair value as at the date of the financial statements. Changes in the fair values
of derivative financial instruments are recognized in current income, except when these instruments are cash flow hedges or net
investment hedges, where changes in fair value are recognized in comprehensive income.
The company contracts commodities derivatives
which have similar effective periods to the hedged items. The Company applies component hedging to its commodities. The hedged
component is contractually specified and matches with what is defined in the derivative contract, and therefore the hedge
ratio is always 1:1. Hedge effectiveness is assessed on a qualitative basis. Whenever the critical terms do not match, the company
uses the hypothetical derivatives method to assess the hedge effectiveness. Possible causes of ineffectiveness include changes
in the timing of forecast transactions, changes in the quantity of the commodity to be hedged, or changes in the credit risk of
either party to the derivative contract.
The cash flow, net investment and fair
value hedge concepts are applicable to all instruments that meet the hedge accounting requirements under IFRS 9 - “Financial
Instruments”.
Cash flow hedges are used to protect the
cash flow exposure of a recorded asset or liability, or the foreign currency risk or commodity price variations associated with
a highly probable transaction, the effective portion of any (gain or loss) on the derivative financial instrument is recognized
directly in the comprehensive income statement (cash flow hedge reserve), and will be reclassified from the cash flow hedge reserve
to the same line item within which and the same period during which the cash flow futures were hedged. The ineffective portion
of any gain or loss is recognized immediately in the current income statement.
When a hedging instrument or a hedging
relationship is terminated, but the hedged transaction is still expected to occur, the cumulative gains and losses (up to the date
of termination) remain within comprehensive income, being reclassified in accordance with the above practice, when the transaction
being protected occurs. If the hedged transaction is no longer probable, the accumulated gains and losses recognized in comprehensive
income are reclassified immediately to the current income statement.
When a derivative is intended to hedge
the variability in the fair value of a recognized asset or liability, or of a firm commitment, any resulting (gain or loss) on
the hedging instrument is recognized in profit or loss. The carrying amount of the hedged item is also adjusted for changes in
the fair value related to the risk being hedged, with any gain or loss being recognized in the income statement.
When a non-derivative foreign currency
liability hedges a net investment in a foreign operation, exchange differences arising on the translation of the liability into
the functional currency are recognized directly in other comprehensive income (translation reserves). Any ineffectiveness is recognized
immediately in profit or loss.
When a derivative financial instrument
hedges a net investment in a foreign operation, the portion of the gain or loss on the hedging instrument that is determined to
be effective is recognized directly in other comprehensive income (translation reserves), while the ineffective portion is reported
in profit or loss.
Certain derivative financial instruments do
not qualify for hedge accounting. Changes in the fair values of any of those derivative financial instruments are recognized immediately
in profit or loss.
On a quarterly basis, Management performs
impairment testing for financial assets or groups of financial assets. If a trigger event occurs, a financial asset or group of
financial assets will be deemed to be impaired. An asset or group of financial assets is deemed impaired, and impairment losses
are recorded, only if there is evidence of impairment as a result of one or more events occurring after the initial recognition
of the assets (a "loss event") and that event (or events) has an impact on the estimated future cash flow from the financial
asset or group of financial assets, and can be estimated reliably.
The carrying amounts of non-financial
assets, such as property, plant and equipment, goodwill and intangible assets are reviewed, at least, at each reporting date to
determine the existence of any indication of impairment. If there is any indication, the asset’s recoverable amount is estimated,
and the non-recoverable amount is recognized as an impairment in the income statement.
Goodwill, intangible assets not yet available
for use, and intangibles with indefinite useful lives, are tested for impairment at the business unit level (one level below the
reportable segment level) at least annually, or whenever there is any indication of impairment.
An impairment loss is recognized whenever
the carrying amount of an asset or the related cash-generating unit exceeds its recoverable amount. Impairment losses are recognized
in the income statement. Intangible assets with an indefinite useful life are tested on a fair value approach applying multiples
that reflect current market transactions to indicators that drive the profitability of the asset or the royalty stream that could
be obtained from licensing the intangible asset to another party in an arm’s length transaction.
The recoverable amounts of other assets
are determined as the higher of their fair value less costs to sell and their value in use. For an asset that does not generate
substantially independent cash inflows, the recoverable amount is allocated to the CGU to which the asset belongs. The recoverable
amounts of the CGU to which the goodwill and the intangible assets with indefinite useful lives belong are based on the fair value
net of selling expenses, using EBITDA multiples observed in the market for previous business combinations involving comparable
businesses in the brewing industry. For some CGUs, these calculations are corroborated using the fair-value less costs of disposal
approach, where the free cash flow of these CGUs is discounted to fair value using a discount rate after tax that reflects current
valuation models for the time value of money, and the risks specific to the asset.
Non-financial assets, except for goodwill,
are reviewed for the possible reversal of the impairment at the reporting date. Impairment losses are reversed only to the extent
that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation
or amortization, if no impairment loss had been recognized.
The Company receives benefits from Brazilian
state tax incentive programs to promote industrial development including the deferred payment of taxes. These State programs are
intended to promote long-term increases in employment and industrial decentralization, as well as to complement and diversify the
industrial states.
In the case of these States, the tax terms
are set out in the tax law. When conditions for obtaining these grants exist, they are under the Company's control. The benefits
of the delayed payment of such taxes are recorded in the income statement, on an accrual basis.
The preparation of financial statements
in compliance with IFRS requires Management to make use of 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 assumptions 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 judgments regarding the carrying amounts of assets and liabilities that are not readily
evident from other sources. The 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 during which they are realized, or future periods.
Although each significant accounting
policy 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:
(ix) Measurement of financial instruments,
including derivatives (Note 3 (w));
(x) Assets and liabilities recognition
related to extemporaneous tax credits and debits (Note 3 (m));
(xi) Accounting and financial reporting
in hyperinflationary economies (Note 3 (d)); and
The fair values of acquired
identifiable intangibles with indefinite useful lives are based on an assessment of future cash flow. Impairment analyses of
goodwill and intangible assets with indefinite useful lives are
performed at least annually, or whenever a triggering event occurs, to determine whether the carrying value exceeds the recoverable
amount.
The Company uses its judgment to chose
between 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 mainly based on the market conditions at each balance sheet date.
Actuarial assumptions regarding future
events are used for the calculation of projected pension and other long-term employee benefit expenses and liabilities. These factors
include assumptions regarding interest rates, rates of increase in healthcare costs, rates of future compensation increases, turnover
rates, and life expectancy.
The company is subject to income tax in
numerous jurisdictions. Significant judgment is required to determine the Company’s worldwide provision for income tax. There
are some transactions and calculations for which the ultimate tax determination is uncertain. Some of the subsidiaries of the Company
are involved in tax audits, usually in relation to prior years. These audits are ongoing in various jurisdictions as at the balance
sheet date, and by their nature, can take a considerable time to complete.
To measure the amounts of extemporaneous
tax credits arising from lawsuits, the Company evaluates the documents for the period covered by the lawsuit, and apply the guidelines
for the final decision, applicable legislation or other elements that enable the amount to be estimated with sufficient reliability.
(i) CAC: includes the 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) 2019 restated to reflect the change in
accounting policy, as set out Note 3.
(i) Balance for 2019 restated to reflect the
change in accounting policy, as Note 3.
(i) Balance for 2019 restated to reflect the
change in accounting policy, as Note 3.
Government grants are not recognized until
there is reasonable assurance that the Company will meet the respective conditions and that the grants will be received. Government
grants are systematically recognized in income during the periods when the Company recognizes as expenses the related costs that
the grants are intended to offset.
(ii) The restructuring expenses recognized refer
mainly to the realignment of the structures and processes in the Latin America geographical segment, CAC and Brazil.
(iv) The payment by Ambev of the Amnesty
in the State of Mato Grosso is required by the Brazilian government for in order to continue to receive tax incentives, according
to Complementary Law No. 160/17, regulated by the complementary law of the State of Mato Grosso No. 631/19.
(v) COVID-19 expenses refer to (a) additional
administrative expenses to ensure the safety of our people (increased frequency of cleaning at our facilities, providing alcohol
gel and masks for our employees); (b) donations; (c) Company initiatives providing support for some customer ecosystems, which
were necessary due to the COVID-19 pandemic.
The payroll expenses and related benefits
are presented in the income statement as shown below:
(i) These amounts added to R$2,175.1 (R$1,976.6 as at December 31,
2019) mentioned in Note 9 - Payroll and related benefits, total R$7,350.4 (R$4,660.7 as at December 31, 2019). The remaining
amount of R$19,715.7 (R$17,017.5 as at December 31, 2019), recorded in the cost of sales, refers to other production costs.
(i) The variation refers, for the most
part, to the Equity Swap, which changes according to the changes in share price.
The exceptional finance expenses refer
to the payment of Amnesty in the State of Mato Grosso, in the amount of R$101.9, and the realization of exchange variations on
loans settled with related parties, historically recognized in shareholders' equity, in the amount of R$77.5 at December 31, 2019
(R$179.1 in December 31, 2018).
Interest expenses are presented net of
the effects of interest rate derivative financial instruments which mitigate Ambev’s interest rate risk (Note 28 - Financial
instruments and risks). The interest expenses are as follow: