SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 6-K

 

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

Securities Exchange Act of 1934

 

For the month of May, 2021

Commission File Number 1565025

 


 

AMBEV S.A.

(Exact name of registrant as specified in its charter)

 

AMBEV S.A.

(Translation of Registrant's name into English)

 

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

(Address of principal executive office)

 

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


Form 20-F ___X___ Form 40-F _______

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

Yes _______ No ___X____

 
 

Ambev S.A.

Unaudited interim consolidated

financial statements at
March 31, 2021
and report on review

 

 
 

 

 

Report on review of interim

consolidated financial statements

 

To the Board of Directors and Shareholders

Ambev S.A.

 

 

Introduction

 

We have reviewed the accompanying interim consolidated balance sheet of Ambev S.A. and its subsidiaries ("Company") as at March 31, 2021 and the related interim consolidated statements of income, comprehensive income, changes in equity and cash flows for the quarter then ended, and a summary of significant accounting policies and other explanatory notes.

 

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

 

Scope of review

 

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

 

Conclusion

 

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

 

 

São Paulo, May 18, 2021   

 

 

PricewaterhouseCoopers

Auditores Independentes

CRC 2SP000160/O-5

  

 

Alessandro Marchesino de Oliveira

Contador CRC 1SP265450/O-8

 

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

 
 

 

AMBEV S.A.

 

Interim Consolidated Balance Sheet

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

Assets Note 03/31/2021 12/31/2020
       
Cash and cash equivalents 5 17,286,068 17,090,335
Investment securities 6 2,049,628 1,700,028
Derivative financial instruments 22 637,404 505,933
Trade receivable   3,357,889 4,303,138
Inventories 7 9,698,229 7,605,905
Income tax and social contributions recoverable   1,639,176 1,759,247
Recoverable taxes 8 1,366,802 1,527,895
Other assets   1,024,665 850,133
Current assets   37,059,861 35,342,614
       
       
Investment securities 6 218,335 213,907
Derivative financial instruments 22 380 3,403
Income tax and social contributions recoverable   4,362,349 4,495,002
Recoverable taxes 8 5,697,748 5,695,806
Deferred tax assets 9 5,926,253 4,560,808
Other assets   2,127,921 2,141,596
Employee benefits   36,928 33,648
Investments in joint ventures   341,043 337,427
Property, plant and equipment 10 26,676,905 24,768,355
Intangible   8,363,842 7,580,556
Goodwill 11 42,606,266 40,023,457
Non-current assets   96,357,970 89,853,965
       
Total assets   133,417,831 125,196,579

 

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

 

 

 

 
 

 

AMBEV S.A.

 

Interim Consolidated Balance Sheet (continued)

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

Equity and liabilities Note 03/31/2021 12/31/2020
       
Trade payables   20,816,270 19,339,223
Derivative financial instruments 22 542,497 329,768
Interest-bearing loans and borrowings 12 2,598,909 2,738,773
Wages and salaries   1,287,634 925,531
Dividends and interest on shareholders’ equity payable   1,325,042 2,454,741
Income tax and social contribution payable   1,226,294 1,167,347
Taxes and contributions payable   2,401,741 4,549,521
Other liabilities   1,543,685 1,848,148
Provisions 13 138,649 124,912
Current liabilities   31,880,721 33,477,964
       
Trade payables   693,280 655,872
Derivative financial instruments 22 - 20
Interest-bearing loans and borrowings 12 2,428,252 2,053,455
Deferred tax liabilities 9 3,439,366 3,043,362
Income tax and social contribution payable   1,863,107 1,912,658
Taxes and contributions payable   686,931 684,260
Put option granted on subsidiaries and other liabilities   4,543,738 4,226,731
Provisions 13 445,429 447,086
Employee benefits   3,806,612 3,544,047
Non-current liabilities   17,906,715 16,567,491
       
Total liabilities   49,787,436 50,045,455
       
Equity 14    
Issued capital   57,973,874 57,899,073
Reserves   80,897,817 80,905,572
Carrying value adjustments   (60,048,273) (64,989,017)
Retained earnings / (losses)   3,220,705 -
Equity attributable to the equity holders of Ambev   82,044,123 73,815,628
Non-controlling interests   1,586,272 1,335,496
Total equity   83,630,395 75,151,124
       
Total equity and liabilities   133,417,831 125,196,579

 

 

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

 

 
 

 

AMBEV S.A.

 

Interim Consolidated Statements of Income

For the period ended March 31

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

 

  Note 2021 2020
       
Net sales 16 16,639,761 12,602,597
Cost of sales   (7,945,330) (5,643,189)
Gross profit   8,694,431 6,959,408
       
Distribution expenses   (2,129,593) (1,851,313)
Sales and marketing expenses   (1,445,040) (1,555,539)
<root/> Administrative expenses   (1,234,059) (665,346)
Other operating income/(expenses), net 17 177,940 171,269
Exceptional items 18 (71,425) (24,075)
Income from operations   3,992,254 3,034,404
       
Finance expenses 19 (1,444,395) (1,782,643)
Finance income 19 380,095 245,776
Net finance result   (1,064,300) (1,536,867)
       
Share of results of joint ventures   (12,546) (6,617)
Income before income tax   2,915,408 1,490,920
       
Income tax expense 20 (182,097) (279,668)
Net income   2,733,311 1,211,252
       
Attributable to:      
Equity holders of Ambev   2,625,412 1,091,784
Non-controlling interest   107,899 119,468
       
Basic earnings per share - common - R$   0.1668 0.0694
Diluted earnings per share - common - R$   0.1654 0.0688

 

 

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

 

 

 

 
 

 

AMBEV S.A.

 

Interim Consolidated Statements of Comprehensive Income

For the period ended March 31

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

  2021 2020
     
Net income 2,733,311 1,211,252
     
Items that will not be reclassified to profit or loss:    
Recognition of actuarial gains/(losses) (56,151) (4,754)
     
Items that may be subsequently reclassified to profit or loss:    
Exchange differences on the translation of foreign operations (gains/(losses))    
Investment hedge - put option granted on subsidiaries (163,002) (574,974)
Gains/losses on translation of other foreign operations 4,687,468 8,054,805
Gains/losses on translation of foreign operations 4,524,466 7,479,831
     
Cash flow hedge - gains/(losses)    
Recognized in Equity (Hedge reserve) 1,048,776 898,514
Reclassified from Equity (Hedge reserve) and included in profit or loss (391,456) (355,682)
Total cash flow hedge 657,320 542,832
     
Other comprehensive (loss)/income 5,125,635 8,017,909
     
Total comprehensive income 7,858,946 9,229,161
     
Attributable to:    
   Equity holders of Ambev 7,565,774 8,734,835
   Non-controlling interest 293,172 494,326

 

 

 

 

The accompanying notes are an integral part of these interim consolidated financial statements. The consolidated statements of comprehensive income are presented net of income tax. The income tax effects of these items are disclosed in Note 9 - Deferred income tax and social contribution.

 
 

AMBEV S.A.

 

Interim Consolidated Statements of Changes in Equity

For the period ended March 31

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

   Attributable to equity holders of Ambev      
   Capital  Capital reserves  Net income reserves  Retained earnings Carrying value adjustments  Total   Non-controlling interests Total equity
At January 1, 2020 57,866,759 54,811,462 20,874,268 - (72,274,464) 61,278,025   1,277,980 62,556,005
                   
 Net Income - - - 1,091,784 - 1,091,784   119,468 1,211,252
                   
Comprehensive income:                  
Gains/(losses) on the translation of foreign operations - - - - 7,103,805 7,103,805   376,026 7,479,831
Cash flow hedges - - - - 543,944 543,944   (1,112) 542,832
Actuarial gains/(losses) - - - - (4,698) (4,698)   (56) (4,754)
Total comprehensive income - - - 1,091,784 7,643,051 8,734,835   494,326 9,229,161
Capital increase (Note 14) 32,314 (32,314) - - - -   - -
Effect of application of IAS 29 (hyperinflation) - - - 300,195 - 300,195   (566) 299,629
Gains/(losses) of controlling interest - - - - (756) (756)   1,109 353
Tax on deemed dividends - - - - (772) (772)   - (772)
Dividends paid - - - - - -   (23,685) (23,685)
Purchases of shares and results from treasury shares - (2,150) - - - (2,150)   - (2,150)
Share-based payments - 50,529 - - - 50,529   - 50,529
At March 31, 2020 57,899,073 54,827,527 20,874,268 1,391,979 (64,632,941) 70,359,906   1,749,164 72,109,070

 

 

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

 
 

AMBEV S.A.

 

Interim Consolidated Statements of Changes in Equity

For the period ended March 31

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

   Attributable to equity holders of Ambev      
  Capital Capital reserves Net income reserves Retained earnings Carrying value adjustments Total   Non-controlling interests Total equity
At January 1, 2021 57,899,073 54,985,511 25,920,061 - (64,989,017) 73,815,628   1,335,496 75,151,124
                   
 Net Income - - - 2,625,412 - 2,625,412   107,899 2,733,311
                   
Comprehensive income:                  
Gains/(losses) on the translation of foreign operations - - - - 4,340,712 4,340,712   183,754 4,524,466
Cash flow hedges - - - - 655,880 655,880   1,440 657,320
Actuarial gains/(losses) - - - - (56,230) (56,230)   79 (56,151)
Total comprehensive income - - - 2,625,412 4,940,362 7,565,774   293,172 7,858,946
Capital increase (Note 14) 74,801 (74,333) - - - 468   - 468
Effect of application of IAS 29 (hyperinflation) - - - 595,293 - 595,293   (1,236) 594,057
Gains/(losses) of controlling interest - - - - 382 382   - 382
Dividends paid - - - - - -   (41,160) (41,160)
Purchases of shares and results from treasury shares - (32,061) - - - (32,061)   - (32,061)
Share-based payments - 98,639 - - - 98,639   - 98,639
At March 31, 2021 57,973,874 54,977,756 25,920,061 3,220,705 (60,048,273) 82,044,123   1,586,272 83,630,395

 

 

 

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

 
 

AMBEV S.A.

 

Interim Consolidated Statements of Cash Flows

For the period ended March 31

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

  Note 2021 2020
       
Net income   2,733,311 1,211,252
Depreciation, amortization and impairment   1,263,530 1,174,012
Impairment losses on receivables and inventory   27,251 53,540
Additions/(reversals) in provisions and employee benefits   26,237 19,373
Net finance costs 19 1,064,300 1,536,867
Losses/(gains) on sale of property, plant and equipment and intangible assets   (27,848) (27,337)
Equity-settled share-based payment expenses 21 105,142 51,797
Income tax expense 20 182,097 279,668
Share of result of joint ventures   12,546 6,617
Other non-cash items included in profit   (427,211) (346,778)
Cash flow from operating activities before changes in working capital and use of provisions   4,959,355 3,959,011
       
(Increase)/decrease in trade and other receivables   1,464,781 2,665,860
(Increase)/decrease in inventories   (1,722,216) (1,142,700)
Increase/(decrease) in trade and other payables   (523,867) (2,518,292)
Cash generated from operations   4,178,053 2,963,879
       
Interest paid   (56,234) (132,971)
Interest received   54,250 133,746
Dividends received   2,740 937
Income tax paid   (1,341,951) (1,421,534)
Cash flow from operating activities   2,836,858 1,544,057
       
Proceeds from sales of property, plant and equipment and intangible assets   39,744 30,232
Proceeds from sales of subsidiaries operations   382 -
Acquisitions of property, plant and equipment and intangible assets   (1,327,335) (1,346,319)
Acquisitions of subsidiaries, net of cash acquired   (89,036) (279,327)
Acquisitions of other investments   (2,645) -
Investments in short term debt securities and net proceeds/(acquisitions) of debt securities   (349,075) (75,278)
Net proceeds/(acquisitions) of other assets   5,044 -
Cash flow from investing activities   (1,722,921) (1,670,692)
       
Capital increase   468 -
Capital increase/(decrease) of non-controlling interest   - 659
Proceeds/(repurchases) of treasury shares   (38,426) (4,467)
Proceeds from borrowings   107,120 86,549
Repayment of borrowings   (434,663) (46,938)
Cash net of finance costs other than interests   54,697 (8,147)
Payment of lease liabilities   (225,837) (128,690)
Dividends and interest on shareholders equity paid   (1,241,110) (46,548)
Cash flow from financing activities   (1,777,751) (147,582)
       
Net increase/(decrease) in cash and cash equivalents   (663,814) (274,217)
Cash and cash equivalents less bank overdrafts at the beginning of the year (i)   17,090,335 11,900,642
Effect of exchange rate fluctuations on cash and cash equivalents   859,547 1,578,047
Cash and cash equivalents less bank overdrafts at the end of the year (i)   17,286,068 13,204,472

 

(i) Net of guaranteed account.

 

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

 
 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended March 31, 2021

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

 

1.    CORPORATE INFORMATION 11
2.    STATEMENT OF COMPLIANCE 15
3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 16
4.    USE OF ESTIMATES AND JUDGMENTS 16
5.    CASH AND CASH EQUIVALENTS 18
6.    INVESTMENT SECURITIES 18
7.    INVENTORY 19
8.    RECOVERABLE TAXES 19
9.    DEFERRED INCOME TAX AND SOCIAL CONTRIBUTION 19
10.    PROPERTY, PLANT AND EQUIPMENT 22
11.    GOODWILL 24
12.    INTEREST-BEARING LOANS AND BORROWING 25
13.    PROVISIONS 27
14.    CHANGES IN EQUITY 29
15.    SEGMENT REPORTING 34
16.    NET SALES 36
17.    OTHER OPERATING INCOME / (EXPENSES) 37
18.    EXCEPTIONAL ITEMS 37
19.    FINANCE EXPENSES AND INCOME 37
20.    INCOME TAX AND SOCIAL CONTRIBUTION 38
21.    SHARE-BASED PAYMENTS 40
22.    FINANCIAL INSTRUMENTS AND RISKS 42
23.    COLLATERAL AND CONTRACTUAL COMMITMENTS WITH SUPPLIERS, ADVANCES FROM CUSTOMERS AND OTHERS 57
24.    CONTINGENCIES 57
25.    NON-CASH ITEMS 61
26.    RELATED PARTIES 61

 

10 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended March 31, 2021

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

1. CORPORATE INFORMATION

 

(a) Description of business

 

Ambev S.A. (referred to as the “Company” or “Ambev”) 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. (“ITW International”), 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 interim financial statements were approved, in their final form, by the Board of Directors on May 05, 2021.

 

(b) Major corporate events in 2021 and 2020

 

COVID-19 impacts

 

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.

 

11 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended March 31, 2021

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

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 markets 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 first quarter of 2021, the consistency in the implementation of the Company's strategy and the relaxation of restrictions in some regions during the first two months of this first quarter, led to a gradual increase in volumes across most of our operations, especially in Brazil. However, the restrictions imposed in March 2021, especially in Brazil, on commercial and operating activities, social distancing, production and consumption of alcoholic beverages had a partially impact in the result of the second half of March. Although the restrictions are considered temporary, there is some uncertainty regarding the duration and likelihood of further government interventions or increase in restrictions, 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. 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 March 31, 2021, which mainly involved, (i) a review of the assumptions of the annual impairment test, as described in Note 11 - 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 interim financial statements, among other analyses.

12 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended March 31, 2021

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

Any impacts arising from these analyses are reflected in the interim 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$31,051, at March 31, 2021, as reported in Note 18 - Exceptional items.

 

Share buyback program

The Board of Directors, in a meeting held on March 18, 2021, approved, pursuant to article 30, Paragraph 1st, “b”, of Law 6,404/76 and CVM Instruction 567/15, a share buyback program of shares issued by the Company (“Program”) up to the limit of 5,700,000 common shares, with the primary purpose of covering any share delivery requirements contemplated in the Company's share-based compensation plans or to be held in treasury, canceled and/or subsequently transferred. The program will be in effect until September 18, 2022, as detailed in the Notice Regarding the Negotiation of Shares Issued by the Company, together with other information, in the form of Exhibit 30-XXXVI of CVM Instruction No. 480/09 as disclosed at March 18, 2021. The Company has 4,357,308,131 outstanding shares as defined in CVM Instruction 567/15. The acquisition will occur as per a deduction of the capital reserve account recorded in the balance sheet dated as at December 31, 2020. The transaction will be carried out through one or more of the following financial institutions: UBS Brasil Corretora de Câmbio, Títulos e Valores Mobiliários S.A. and Itaú Corretora de Valores S.A..

 

Renegotiation of Tenedora’s shareholders agreement

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. Until March 31, 2021, there were no exercises for these options. The details of the assumptions used for this option are described in Note 22 (Item IV (d)).

13 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended March 31, 2021

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

 

Distribution agreement Cervecería Chile S.A.

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.

Addendum to the agreement with PepsiCo Bolivia

 

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.

 

New acquisitions

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.

 

Exchange contracts for future financial flows - Equity Swaps

 

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 an 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.

14 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended March 31, 2021

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

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).

 

2. STATEMENT OF COMPLIANCE

 

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

 

The information does not meet all disclosure requirements for the presentation of full annual financial statements and thus should be read in conjunction with the consolidated financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”) for the year ended December 31, 2020. To avoid duplication of disclosures which are included in the annual financial statements, the following notes were not subject to full filling:

 

(a) Summary of significant accounting policies (Note 3);
(b) Trade receivables (Note 20);
(c) Investments securities (Note 16);
(d) Intangibles (Note 15);
(e) Goodwill (Note 14);
(f) Trade payables (Note 26);
(g) Interest-bearing loans and borrowings (Note 23);
(h) Employee benefits (Note 24);
(i) Changes in equity (Note 22);
(j) Additional information on operating expenses by nature (Note 10);
(k) Payroll and related benefits (Note 09);
(l) Contingencies (Note 30);
(m) Group companies (Note 33); and
(n) Insurance (Note 34)
15 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended March 31, 2021

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

 

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

There were no significant changes in the accounting policies and calculation methods used for the interim financial statements as at March 31, 2021 compared to those presented in the financial statements for the years ended December 31, 2020.

 

(a) Basis of preparation and measurement

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

(b) Recently issued IFRS

 

There were no new standards for the period ended March 31, 2021 for the preparation of these interim financial statements.

 

Other Standards, Interpretations and Amendments to Standards

 

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 interim consolidated financial statements on the entity in the current or future reporting periods, or on foreseeable future transactions.

 

4. USE OF ESTIMATES AND JUDGMENTS

 

The preparation of interim 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.

16 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended March 31, 2021

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

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:

(i) Predecessor basis of accounting;

(ii) Business combinations;

(iii) Impairment;

(iv) Provisions;

(v) Share-based payments;

(vi) Employee benefits;

(vii) Current and deferred tax;

(viii) Joint arrangements;

(ix) Measurement of financial instruments, including derivatives;

(x) Assets and liabilities recognition related to extemporaneous tax credits and debits;

(xi) Accounting and financial reporting in hyperinflationary economies; and

(xii) Leases.

 

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 choose 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. Such estimates are reviewed annually by independent actuaries.

 

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.

17 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended March 31, 2021

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

 

To measure the amounts of extemporaneous tax credits arising from lawsuits, the Company evaluates the documents for the period covered by the lawsuit, and applies the guidelines for the final decision, applicable legislation or other elements that enable the amount to be estimated with sufficient reliability.

 

5. CASH AND CASH EQUIVALENTS

 

  03/31/2021 12/31/2020
     
Cash 208,444 261,426
Current bank accounts 6,370,255 5,860,939
Short term bank deposits (i) 10,707,369 10,967,970
Cash and cash equivalents 17,286,068 17,090,335

 

(i) The balance refers mostly to Bank Deposit Certificates - CDB, high liquidity, which are readily convertible into known amounts of cash and which are subject to an insignificant risk of change in value.

 

The current account balance includes the amount of R$492 million as at March 31, 2021 (R$449 million in 2020) which is held in Cuba and is not freely transferable to the parent company due to remittance restrictions.

 

6. INVESTMENT SECURITIES

 

  03/31/2021 12/31/2020
     
Financial assets at fair value through profit or loss 2,049,628 1,700,028
Current investment securities 2,049,628 1,700,028
     
Investment on debt securities (i) 218,335 213,907
Non-current investment securities 218,335 213,907
     
Total 2,267,963 1,913,935

 

(i) The balance refers substantially to Bank Deposit Certificates (“CDBs”) which are linked to tax incentives and do not have immediate convertibility into a known amount of cash.

18 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended March 31, 2021

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

 

7. INVENTORY

 

  03/31/2021 12/31/2020
     
Finished goods 3,759,651 2,575,516
Work in progress 612,236 518,345
Raw materials and consumables 4,208,120 3,513,022
Spare parts and others 834,308 758,809
Prepayments 438,859 381,361
Impairment losses (154,945) (141,148)
  9,698,229 7,605,905

 

Write-offs/losses on inventory recognized in the income statement amounting to R$24,395 in period ended on March 31, 2021 (R$34,330 in the period ended on March 31, 2020).

 

8. RECOVERABLE TAXES

  03/31/2021 12/31/2020
PIS/COFINS exclusion of ICMS (i) 54,430 -
PIS/COFINS 457,334 711,991
ICMS 585,095 563,422
IPI 192,079 177,041
Others 77,864 75,441
Current 1,366,802 1,527,895
     
PIS/COFINS exclusion of ICMS (i) 5,143,506 5,183,354
ICMS 298,656 266,528
Others 255,586 245,924
Non-current 5,697,748 5,695,806
     
Total 7,064,550 7,223,701
     
     

(i) As detailed in Note 24 - Contingencies, the Company has been recognizing PIS and COFINS credits arising from the exclusion of ICMS from the calculation basis. The corresponding entry for recognition is recorded in the item Recoverable PIS/COFINS - exclusion of ICMS, and of the values recognized in this line item, those that still remain in assets amount to R$4.3 billion for the period called- REFRI; and R$0.9 billion referring mainly to the period after the STF decision up to December 31, 2020.

9. DEFERRED INCOME TAX AND SOCIAL CONTRIBUTION

 

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

 

19 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended March 31, 2021

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

 

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

 

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

 

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

 

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

  03/31/2021   12/31/2020
   Assets  Liabilities  Net    Assets  Liabilities  Net
Investment securities 12,409 (2,345) 10,064   10,113 - 10,113
Intangible - (1,406,901) (1,406,901)   - (1,253,015) (1,253,015)
Employee benefits 1,097,296 (2,968) 1,094,328   971,180 (3,004) 968,176
Trade payables 4,641,867 (217,389) 4,424,478   3,917,100 (230,244) 3,686,856
Trade receivable 53,264 (4) 53,260   53,066 (4) 53,062
Derivatives 30,307 (148,641) (118,334)   36,331 (118,744) (82,413)
Interest-Bearing Loans and Borrowings - (1,873) (1,873)   - (1,805) (1,805)
Inventories 273,012 (85,022) 187,990   288,709 (67,590) 221,119
Property, plant and equipment 455,145 (1,662,158) (1,207,013)   430,760 (1,608,996) (1,178,236)
Withholding tax on undistributed profits and royalties - (1,704,427) (1,704,427)   - (1,538,850) (1,538,850)
Investments in joint ventures - (421,589) (421,589)   - (421,589) (421,589)
Interest on shareholders' equity 592,679 - 592,679   - - -
Losses carried forward 1,730,036 - 1,730,036   1,739,680 - 1,739,680
Provisions 606,272 (1,973) 604,299   636,030 (1,266) 634,764
Complement of income tax of foreign subsidiaries due in Brazil - (21,452) (21,452)   - - -
Impact of the adoption of IFRS 16 (Leases) 111,693 (1,892) 109,801   124,160 (1,635) 122,525
ICMS on the assessment bases of PIS/COFINS - (1,465,011) (1,465,011)   - (1,460,795) (1,460,795)
Other items 119,065 (92,513) 26,552   79,215 (61,361) 17,854
Gross deferred tax assets / (liabilities) 9,723,045 (7,236,158) 2,486,887   8,286,344 (6,768,898) 1,517,446
Netting by taxable entity (3,796,792) 3,796,792 -   (3,725,536) 3,725,536 -
Net deferred tax assets / (liabilities) 5,926,253 (3,439,366) 2,486,887   4,560,808 (3,043,362) 1,517,446

 

The Company only reclassifies the balances of deferred income tax and social contribution assets against liabilities to a net presentation basis when the applicable compensation criteria are met.

The critical estimates of Ambev’s Management, as well the main contingencies related to uncertainty about the tax treatment of income, are disclosed in Notes 4 (i) and 24, respectively.

 

20 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended March 31, 2021

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

 

As at March 31, 2021 the deferred tax assets and liabilities related to combined tax losses which are expected to be utilized or settled using temporary differences, as follows:

 

  03/31/2021
Deferred taxes not related to tax losses to be realized until 12 months to be realized after 12 months Total
       
Investment securities - 10,064 10,064
Intangible (1,689) (1,405,212) (1,406,901)
Employee benefits 97,493 996,835 1,094,328
Trade payables (197,854) 4,622,332 4,424,478
Trade receivable 44,366 8,894 53,260
Derivatives (108,606) (9,728) (118,334)
Interest-bearing loans and borrowings (1,641) (232) (1,873)
Inventories 225,236 (37,246) 187,990
Property, plant and equipment 18,880 (1,225,893) (1,207,013)
Withholding tax on undistributed profits and royalties (145,516) (1,558,911) (1,704,427)
Investments in joint ventures - (421,589) (421,589)
Interest on shareholders' equity 592,679 - 592,679
Provisions 310,719 293,580 604,299
Complement of income tax of foreign subsidiaries due in Brazil (21,452) - (21,452)
Impact of the adoption of IFRS 16 (Leases) (842) 110,643 109,801
ICMS on the assessment bases of PIS/COFINS - (1,465,011) (1,465,011)
Other items 68,997 (42,445) 26,552
Total 880,770 (123,919) 756,851

 

The majority of tax losses and negative social contribution bases on which deferred income tax and social contribution were calculated do not have a statute of limitations. The use of credits related to tax losses is based on the projected future existence of taxable profits, limited to 30% of taxable income for the year, according to the actual figures for prior years, and the projections of the Company's business in the economies in which it is located, and thus is in compliance with the applicable fiscal and accounting rules.

 

Deferred tax related to tax losses 03/31/2021
2021 604,223
2022 329,589
2023 156,810
2024 270,636
2025 106,248
2026 to 2028 221,828
2029 to 2030 (i) 40,702
Total 1,730,036

 

(i) There is no expectation of realization beyond a term of ten years.

 

As at March 31, 2021, the tax credits related to tax losses in the amount of R$1,016,108 (R$969,966 in 2020) were not recorded, as realization is not probable.

 

21 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended March 31, 2021

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

A significant portion of the deferred tax assets related to tax losses amount do not have any limits on carrying forward or utilization, and the tax losses carried forward in relation to credit are equivalent to R$4,064,333 at March 31, 2021 (R$3,879,773 in December 31, 2020).

 

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

 

At December 31, 2020 1,517,446
Recognition of actuarial gains/(losses) 12
Investment hedge - put option granted on subsidiaries 83,971
Cash flow hedge - gains/(losses) (199,056)
Gains/(losses) on translation of other foreign operations 627,676
Recognized in other comprehensive income 512,603
Recognized in the income statement 333,895
Changes directly in the balance sheet 122,943
Recognized in other group of balance sheet 122,943
At March 31, 2021 2,486,887
10. PROPERTY, PLANT AND EQUIPMENT

 

  03/31/2021 12/31/2020
Property, plant and equipment 24,159,792 22,852,861
Right of use assets 2,517,113 1,915,494
  26,676,905 24,768,355

 

  Land and buildings Plant and equipment Fixtures and fittings Under construction Total
Acquisition cost          
At December 31, 2019 10,886,903 29,676,067 6,367,458 2,184,297 49,114,725
Effects of movements in foreign exchange in the balance sheet 724,849 1,811,929 392,109 173,154 3,102,041
Effects of application of IAS 29 (hyperinflation) 310,492 1,160,364 291,754 130,284 1,892,894
Acquisition through business combinations 4,009 9,841 1,716 - 15,566
Acquisitions 17,203 514,754 74,318 3,815,601 4,421,876
Disposals and write-offs (23,714) (1,422,230) (247,003) 153 (1,692,794)
Transfers to other asset categories 465,366 2,286,586 338,800 (3,472,946) (382,194)
At December 31, 2020 12,385,108 34,037,311 7,219,152 2,830,543 56,472,114
Effects of movements in foreign exchange in the balance sheet 406,076 1,140,285 278,488 90,578 1,915,427
Effects of application of IAS 29 (hyperinflation) 141,629 (1,564,896) (886,709) 37,510 (2,272,466)
Acquisitions 6,442 153,768 (4,541) 1,134,016 1,289,685
Disposals and write-offs - (195,294) (19,567) (27) (214,888)
Transfers to other asset categories 145,475 273,563 121,605 (639,837) (99,194)
At March 31, 2021 13,084,730 33,844,737 6,708,428 3,452,783 57,090,678

 

 

22 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended March 31, 2021

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

 

 

  Land and buildings Plant and equipment Fixtures and fittings Under construction Total
Depreciation          
At December 31, 2019 (3,400,533) (20,381,204) (4,785,318) - (28,567,055)
Effects of movements in foreign exchange in the balance sheet (174,260) (1,205,742) (278,491) - (1,658,493)
Effects of application of IAS 29 (hyperinflation) (51,432) (670,356) (299,978) - (1,021,766)
Depreciation (401,768) (2,795,364) (699,221) - (3,896,353)
Disposals and write-offs 7,825 1,409,014 245,876 - 1,662,715
Transfers to other asset categories 29,822 (3,578) 22,026 - 48,270
Others (3,092) (183,195) (284) - (186,571)
At December 31, 2020 (3,993,438) (23,830,425) (5,795,390) - (33,619,253)
Effects of movements in foreign exchange in the balance sheet (102,925) (762,346) (212,788) - (1,078,059)
Effects of application of IAS 29 (hyperinflation) (16,421) 1,727,387 908,564 - 2,619,530
Depreciation (102,084) (740,086) (160,502) - (1,002,672)
Disposals and write-offs - 183,764 19,027 - 202,791
Transfers to other asset categories (4,878) 3,896 23 - (959)
Others (51) (49,070) (3,143) - (52,264)
At March 31, 2021 (4,219,797) (23,466,880) (5,244,209) - (32,930,886)
           
Carrying amount:          
At December 31, 2020 8,391,670 10,206,886 1,423,762 2,830,543 22,852,861
At March 31, 2021 8,864,933 10,377,857 1,464,219 3,452,783 24,159,792

 

The balances of capitalized interests and fixed assets provided as security are not material.

 

Right-of-use asset:

  Buildings Machinery and equipment Others Total
Acquisition cost        
At December 31, 2019 (i) 1,339,771 1,865,109 156,221 3,361,101
Effects of movements in foreign exchange in the balance sheet 131,765 8,215 9,284 149,264
Additions 321,794 32,566 12,243 366,603
Transfers from (to) other asset categories (1,812) - (2,207) (4,019)
At December 31, 2020 1,791,518 1,905,890 175,541 3,872,949
Effects of movements in foreign exchange in the balance sheet 82,467 7,755 5,069 95,291
Additions 118,084 578,282 - 696,366
Write-offs (188,538) (662,620) (55,623) (906,781)
Transfers from (to) other asset categories (9,269) (2,315) (406) (11,990)
At March 31, 2021 1,794,262 1,826,992 124,581 3,745,835

 

 

23 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended March 31, 2021

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

 

 

         
  Buildings Machinery and equipment Others Total
Depreciation        
At December 31, 2019 (494,488) (756,906) (81,078) (1,332,472)
Effects of movements in foreign exchange in the balance sheet (40,931) (4,482) (3,855) (49,268)
Depreciation (280,672) (256,519) (43,416) (580,607)
Transfers (from) to other asset categories 3,217 - 1,675 4,892
At December 31, 2020 (812,874) (1,017,907) (126,674) (1,957,455)
Effects of movements in foreign exchange in the balance sheet (33,387) (2,987) (2,693) (39,067)
Depreciation (61,095) (79,840) (8,289) (149,224)
Write-offs 188,538 662,620 54,317 905,475
Transfers (from) to other asset categories (5,202) 4,884 11,867 11,549
At March 31, 2021 (724,020) (433,230) (71,472) (1,228,722)
         
Carrying amount:        
At December 31, 2020 978,644 887,983 48,867 1,915,494
At March 31, 2021 1,070,242 1,393,762 53,109 2,517,113

 

(i) Adjusted balances for comparative purposes.

 

Term contracts and discount rate

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

 

Lease Term Rate %
03/31/2021 12/31/2020
2021-2025 8.53% 10.54%
2026-2030 6.44% 8.19%
2031-2035 4.20% 10.97%

 

 

   
11. GOODWILL

 

  03/31/2021 12/31/2020
     
Balance at the end of the previous year 40,023,457 35,009,909
Effects of movements in foreign exchange in the balance sheet 2,249,903 4,006,854
Effect of application of IAS 29 (hyperinflation) 314,252 605,432
Acquisitions, (write-offs) and disposal through business combinations 18,654 401,262
Balance at the end of the year 42,606,266 40,023,457

 

24 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended March 31, 2021

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

 

The carrying amount of goodwill was allocated to the different CGUs as follows:

 

  Functional currency 03/31/2021 12/31/2020
       
Brazil BRL 17,696,645 17,696,645
  Goodwill   102,939,278 102,939,278
  Non-controlling transactions (i)   (85,242,633) (85,242,633)
       
CAC:      
Dominican Republic DOP 4,570,630 4,080,709
Panama PAB 1,980,497 1,806,467
       
Latin America - South:      
Argentina ARS 2,755,054 2,415,231
Bolivia BOB 2,015,253 1,838,188
Chile CLP 68,058 63,904
Paraguay PYG 1,207,405 998,888
Uruguay UYU 191,223 182,023
       
Canada CAD 12,121,501 10,941,402
    42,606,266 40,023,457

 

(i) This refers to the shareholding exchange transaction in 2013 as a result of the adoption of the predecessor basis of accounting.

 

Impairment testing

The impairment test was updated to the base date of March 31, 2021 considering the most accurate estimates calculated by management. For the second year of the model, we used the assumptions that were already considered for the projection of the other years, considering that they are still valid. The conclusion of the revaluation is that there were no indications of impairment until March 31, 2021.

12. INTEREST-BEARING LOANS AND BORROWING

 

  03/31/2021 12/31/2020
     
Secured bank loans (i) 1,905,389 1,940,773
Unsecured bank loans (i) 1,963 246,744
Debentures and unsecured bond issues 109,032 108,548
Other unsecured loans 33,453 36,702
Lease liabilities 549,072 406,006
Current liabilities 2,598,909 2,738,773
     
Secured bank loans (i) 204,993 238,369
Unsecured bank loans (i) - 1,074
Other unsecured loans 94,399 98,950
Lease liabilities 2,128,860 1,715,062
Non-current liabilities 2,428,252 2,053,455

 

(i) In the second quarter Ambev approved new loans for working capital financing. These include the issuance of promissory notes and bank credit notes (CCB), among other types of loans, for a total amount of R$1,906 million at March 31, 2021 (R$1,551 million at December 31, 2020).

25 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended March 31, 2021

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

 

Additional information regarding the exposure of the Company to interest rate, foreign currency risk and debt repayment schedule are disclosed in Note 22 - Financial instruments and risks.

 

Contractual clauses (Covenants)

 

As at March 31, 2021, the Company's loans had equal rights to payment without subordination clauses. For the credit lines due to FINAME contracted by the Company with Banco Nacional de Desenvolvimento Econômico e Social (“BNDES”), the assets acquired using the credit granted were placed as collateral. Other loans and financing contracted by the Company require only personal guarantees as collateral, or are unsecured. Most loan contracts contain contractual covenants, including: financial covenants, including limitations on new indebtedness; going-concern basis; maintenance, in use or in good condition for the business, of the Company's assets; restrictions on acquisitions, mergers, sales or disposals of its assets; disclosure of financial statements and the balance sheet; no prohibitions related to new guarantees for loans contracted, except if: (i) expressly authorized under the agreement; (ii) new loans contracted from financial institutions linked to the Brazilian government including BNDES or foreign governments; or foreign governments, multilateral financial institutions (e.g. the World Bank) or in jurisdictions in which the Company operates.

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

These clauses are applicable from the date of execution and effectiveness of each contract, to the extent that the events mentioned in the contract occur. Depending on the materiality of each event and its potential adverse effects on the Company and /or its subsidiaries or the rights of its creditors, contractual penalties may be applied, including the early maturity of the respective contract. In certain contracts, in the event of occurrence of any of the events set out in the restrictive clauses, the Company may be granted a grace period to resolve any contractual defaults, in order to avoid any penalties resulting from the breach of its obligations.

26 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended March 31, 2021

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

As at March 31, 2021, the Company was in compliance with all of its contractual obligations for its loans and financing.

 

13. PROVISIONS

(a) Provision changes

  Balance as at December 31, 2019 Effect of changes in foreign exchange rates Additions  Provisions used Provisions reversed Balance as at December 31, 2020
             
Provision for disputes and litigations            
Taxes on sales 182,339 204 49,303 (17,178) (30,472) 184,196
Labor 120,127 (133) 173,969 (142,187) (21,934) 129,842
Civil 64,023 (788) 167,280 (132,175) (11,484) 86,856
Other taxes 105,907 991 58,158 (8,045) (399) 156,612
Total provision for disputes and litigations 472,396 274 448,710 (299,585) (64,289) 557,506
             
Restructuring 8,609 2,918 7,128 - (4,163) 14,492
             
Total provisions 481,005 3,192 455,838 (299,585) (68,452) 571,998

 

 

  Balance as at December 31, 2020 Effect of changes in foreign exchange rates Additions  Provisions used Provisions reversed Balance as at March 31, 2021
             
Provision for disputes and litigations            
Taxes on sales 184,196 - 5,021 (4,755) (2,646) 181,816
Labor 129,842 625 31,840 (29,281) (2,581) 130,445
Civil 86,856 2,093 11,384 (2,107) (87) 98,139
Other taxes 156,612 4,727 3,769 (3,570) (915) 160,623
Total provision for disputes and litigations 557,506 7,445 52,014 (39,713) (6,229) 571,023
             
Restructuring 14,492 1,373 - (2,810) - 13,055
             
Total provisions 571,998 8,818 52,014 (42,523) (6,229) 584,078

 

27 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended March 31, 2021

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

 

(b) Expected settlement

 

  03/31/2021
  Current Non-current
Provision for disputes and litigations    
Taxes on sales 52.287 129.529
Labor 31.791 98.654
Civil 23.622 74.517
Other taxes 21.626 138.997
Total provision for disputes and litigations 129.326 441.697
     
Restructuring 9.323 3.732
     
Total provisions 138.649 445.429

 

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

(c) Main lawsuits with a probable likelihood of loss:

(c.1) Sales taxes

 

In Brazil, the Company and its subsidiaries are parties to various administrative and judicial proceedings related to ICMS, IPI, PIS and COFINS taxes. Such proceedings include, among others, tax offsetting, credits and judicial injunctions exempting the Company from the payment of the respective taxes.

 

(c.2) Labor

The Company and its subsidiaries are parties to labor proceedings with former employees or former employees of service providers. The main issues involve overtime and related effects and respective charges.

 

(c.3) Civil

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

 

The processes representing possible probabilities are disclosed in Note 24 - Contingencies.

28 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended March 31, 2021

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

 

14. CHANGES IN EQUITY

 

(a) Capital stock

 

    03/31/2021     03/31/2020
  Thousands of common shares Thousands of Real   Thousands of common shares Thousands of Real
Beginning balance 15,735,118 57,899,073   15,733,575 57,866,759
Capital increase (i) 4,125 74,801   1,543 32,314
Final balance (ii) 15,739,243 57,973,874   15,735,118 57,899,073

 

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

 

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

 

(b) Capital reserves

 

   Capital Reserves    
  Treasury shares Share Premium Other capital reserves Share-based Payments  Total
At January 1, 2020 (955,135) 53,662,811 700,898 1,402,888 54,811,462
Capital Increase - - - (32,314) (32,314)
Purchase of shares and results from treasury shares (2,150) - - - (2,150)
Share-based payments - - - 50,529 50,529
At March 31, 2020 (957,285) 53,662,811 700,898 1,421,103 54,827,527

 

   Capital Reserves    
  Treasury shares Share Premium Other capital reserves Share-based Payments  Total
At January 1, 2021 (941,637) 53,662,811 700,898 1,563,439 54,985,511
Capital Increase - - - (74,333) (74,333)
Purchase of shares and results from treasury shares (32,061) - - - (32,061)
Share-based payments - - - 98,639 98,639
At March 31, 2021 (973,698) 53,662,811 700,898 1,587,745 54,977,756

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

 

Treasury shares represent the Company’s own issued shares reacquired by the Company, and the results of treasury shares related to gains and losses on share-based payment transactions and others.

The changes in treasury shares are as follow:

 

  Acquisition /realization of shares   Result on Treasury Shares   Total Treasury Shares
  Thousands of  shares   Thousands of  Brazilian Reais   Thousands of shares   Thousands of Brazilian Reais
       
At January 1, 2020 3,622   (68,017)   (887,118)   (955,135)
Changes during the year (1,590)   30,953   (33,103)   (2,150)
At March 31, 2020 2,032   (37,064)   (920,221)   (957,285)
29 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended March 31, 2021

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

 

  Acquisition /realization of shares   Result on Treasury Shares   Total Treasury Shares
  Thousands of  shares   Thousands of  Brazilian Reais   Thousands of shares   Thousands of Brazilian Reais
       
At January 1, 2021 203   (3,045)   (938,592)   (941,637)
Changes during the year 2,027   (31,372)   (689)   (32,061)
At March 31, 2021 2,230   (34,417)   (939,281)   (973,698)

 

(b.2) Share premium

 

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

(b.3) Share-based payment

Different share-based payment programs and stock purchase option plans allow the senior management from Ambev’s economic group to acquire shares in the Company.

The share-based payment reserve recorded a charge of R$105,142 on March 31, 2021 (R$51,797 at March 31, 2020) (Note 21 - Share-based payments).

 

(c) Net income reserves

  Net income reserves  
  Investments reserve Statutory reserve Fiscal incentive Total
At January 1, 2020 10,798,106 4,456 10,071,706 20,874,268
         
At March 31, 2020 10,798,106 4,456 10,071,706 20,874,268

 

  Net income reserves  
  Investments reserve Statutory reserve Fiscal incentive Total
At January 1, 2021 14,511,147 4,456 11,404,458 25,920,061
         
At March 31, 2021 14,511,147 4,456 11,404,458 25,920,061

 

There was no change in net income reserves in the first quarter of 2020 and 2021.

 

(c.1) Investments reserve

From the net income after applicable deductions, there will be a target allocation of no more than 60% of the adjusted net profit to the investment reserve, to be used to support future investments.

30 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended March 31, 2021

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

(c.2) Statutory reserve

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

(c.3) Tax incentives

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

 

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

  03/31/2021 03/31/2020
 ICMS (brazilian state value-added tax) 398,479 404,985
 Income tax 43,188 15,136
  441,667 420,121

 

(c.4) Interest on shareholders’ equity / Dividends

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

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

There was no payment of dividends or interest on shareholders' equity in the tree-month period ended March 31, 2020 and March 31, 2021.

31 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended March 31, 2021

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

(d) Carrying value adjustments

 

   Carrying value adjustments  
  Translation reserves Cash flow hedge Actuarial gains/ (losses) Options granted on subsidiaries Gains/(losses) of non-controlling interest's share Business combination Accounting adjustments for transactions between shareholders Total
At January 1, 2020 3,583,386 644,965 (1,220,882) (120,083) 84,434 156,091 (75,402,375) (72,274,464)
Comprehensive income:                
Gains/(losses) on the translation of foreign operations 7,103,805 - - - - - - 7,103,805
Cash flow hedges - 543,944 - - - - - 543,944
Actuarial gains/(losses) - - (4,698) - - - - (4,698)
Total Comprehensive income 7,103,805 543,944 (4,698) - - - - 7,643,051
Gains/(losses) of controlling interest - - - - (756) - - (756)
Tax on deemed dividends - - - - (772) - - (772)
At March 31, 2020 10,687,191 1,188,909 (1,225,580) (120,083) 82,906 156,091 (75,402,375) (64,632,941)

 

   Carrying value adjustments  
  Translation reserves Cash flow hedge Actuarial gains/ (losses) Options granted on subsidiaries Gains/(losses) of non-controlling interest's share Business combination Accounting adjustments for transactions between shareholders Total
At January 1, 2021 11,076,439 744,441 (1,473,230) (4,783) (73,777) 156,091 (75,414,198) (64,989,017)
Comprehensive income:                
Gains/(losses) on the translation of foreign operations 4,340,712 - - - - - - 4,340,712
Cash flow hedges - 655,880 - - - - - 655,880
Actuarial gains/(losses) - - (56,230) - - - - (56,230)
Total Comprehensive income 4,340,712 655,880 (56,230) - - - - 4,940,362
Gains/(losses) of controlling interest - - - - 382 - - 382
At March 31, 2021 15,417,151 1,400,321 (1,529,460) (4,783) (73,395) 156,091 (75,414,198) (60,048,273)

 

 

32 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended March 31, 2021

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

 

(d.1) Translation reserves

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

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

 

(d.2) Cash flow hedge reserves

 

The hedging reserves represent the effective portion of the cumulative net change in the fair value of cash flow hedges to the extent that the hedged risk has not yet impacted profit or loss (for additional information, see Note 22 - Financial instruments and risks).

 

(d.3) Actuarial gains and losses

Actuarial gains and losses include expectations regarding future pension plan obligations. Consequently, the results of actuarial gains and losses are recognized on a timely basis considering the best estimates available to Management. Accordingly, the Company recognizes the results of these estimated actuarial gains and losses, on a monthly basis, based on the expectations presented in the independent actuarial report.

In March, 2021, an actuarial loss of R$56,940 arising from deficit on the defined benefits plan was fully recorded under actuarial gains and losses as a counterpart to the balance receivable originally recorded. There were no actuarial gains or losses arising from surplus or deficit in 2020.

(d.4) Accounting adjustments for transactions between shareholders

 

As determined by IFRS 10, any difference between the amount paid (fair value) for the acquisition of a non-controlling interest and the carrying amount of such non-controlling interest shall be recognized directly in the controlling shareholders’ equity. The acquisition of the non-controlling interest related to Former Ambev, the abovementioned adjustment was recognized in Carrying value adjustments when applicable.

 

33 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended March 31, 2021

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

15. SEGMENT REPORTING

 

(a) Reportable segments – three-month period ended in:
  Brazil CAC (i) Latin America - South (ii) Canada Consolidated
  03/31/2021 03/31/2020 03/31/2021 03/31/2020 03/31/2021 03/31/2020 03/31/2021 03/31/2020 03/31/2021 03/31/2020
                     
Net sales 8,225,294 6,525,145 2,159,507 1,424,426 4,192,524 3,120,181 2,062,436 1,532,845 16,639,761 12,602,597
Cost of sales (3,981,483) (2,950,072) (1,015,443) (678,366) (2,103,728) (1,414,620) (844,676) (600,131) (7,945,330) (5,643,189)
Gross profit 4,243,811 3,575,073 1,144,064 746,060 2,088,796 1,705,561 1,217,760 932,714 8,694,431 6,959,408
Distribution expenses (1,069,112) (1,018,005) (209,541) (153,968) (469,921) (366,246) (381,019) (313,094) (2,129,593) (1,851,313)
Sales and marketing expenses (709,406) (827,626) (160,677) (150,935) (325,764) (323,389) (249,193) (253,589) (1,445,040) (1,555,539)
Administrative expenses (789,386) (406,607) (110,359) (51,190) (201,554) (120,796) (132,760) (86,753) (1,234,059) (665,346)
Other operating income/(expenses) 191,580 162,468 35 5,320 (4,673) 16,650 (9,002) (13,169) 177,940 171,269
Exceptional items (18,761) (12,387) (16,867) (3,781) (35,302) (4,933) (495) (2,974) (71,425) (24,075)
Income from operations (EBIT) 1,848,726 1,472,916 646,655 391,506 1,051,582 906,847 445,291 263,135 3,992,254 3,034,404
Net finance costs (390,122) (1,069,031) (49,693) 121,582 (587,733) (558,555) (36,752) (30,863) (1,064,300) (1,536,867)
Share of results of joint ventures (1,600) (1,660) (3,282) 212 - - (7,664) (5,169) (12,546) (6,617)
Income before income tax 1,457,004 402,225 593,680 513,300 463,849 348,292 400,875 227,103 2,915,408 1,490,920
Income tax expense 262,623 56,000 (190,120) (119,722) (94,865) (106,322) (159,735) (109,624) (182,097) (279,668)
Net income 1,719,627 458,225 403,560 393,578 368,984 241,970 241,140 117,479 2,733,311 1,211,252
                     
Normalized EBITDA 2,558,987 2,178,017 839,304 523,107 1,370,791 1,168,978 558,127 362,389 5,327,209 4,232,491
Exceptional items (18,761) (12,387) (16,867) (3,781) (35,302) (4,933) (495) (2,974) (71,425) (24,075)
Depreciation. amortization and impairment (691,500) (692,714) (175,782) (127,820) (283,907) (257,198) (112,341) (96,280) (1,263,530) (1,174,012)
Net finance cost (390,122) (1,069,031) (49,693) 121,582 (587,733) (558,555) (36,752) (30,863) (1,064,300) (1,536,867)
Share of results of joint ventures (1,600) (1,660) (3,282) 212 - - (7,664) (5,169) (12,546) (6,617)
Income tax expense 262,623 56,000 (190,120) (119,722) (94,865) (106,322) (159,735) (109,624) (182,097) (279,668)
Net income 1,719,627 458,225 403,560 393,578 368,984 241,970 241,140 117,479 2,733,311 1,211,252
                     
Normalized EBITDA margin as a % 31.1% 33.4% 38.9% 36.7% 32.7% 37.5% 27.1% 23.6% 32.0% 33.6%
                     
Acquisition of property, plant and equipment 963,353 1,104,508 109,053 109,240 182,311 101,412 72,618 31,159 1,327,335 1,346,319

 

 

34 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended March 31, 2021

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

(continued)

 

  Brazil CAC (i) Latin America - South (ii) Canada Consolidated
  03/31/2021 03/31/2020 03/31/2021 03/31/2020 03/31/2021 03/31/2021 03/31/2020 03/31/2021 03/31/2020 03/31/2021
                     
Segment assets 49,859,034 48,970,286 15,348,895 13,521,469 18,934,440 17,211,235 18,721,640 16,487,918 102,864,009 96,190,908
Intersegment elimination                 (2,484,596) (2,187,599)
Non-segmented assets                 33,038,418 31,193,270
Total assets                 133,417,831 125,196,579
                     
Segment liabilities 22,553,945 25,032,608 4,742,167 4,114,212 5,840,017 5,156,535 6,590,193 6,256,608 39,726,322 40,559,963
Intersegment elimination                 (2,484,895) (2,187,353)
Non-segmented liabilities                 96,176,404 86,823,969
Total liabilities                 133,417,831 125,196,579

 

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

 

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

 

 

35 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended March 31, 2021

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

 

(b) Additional information - by business unit:
  Brazil
  Beer Soft drink and
Non-alcoholic and
non-carbonated
Total
  03/31/2021 03/31/2020 03/31/2021 03/31/2020 03/31/2021 03/31/2020
             
Net sales 7,124,812 5,454,627 1,100,482 1,070,518 8,225,294 6,525,145
Cost of sales (3,401,491) (2,401,356) (579,992) (548,716) (3,981,483) (2,950,072)
Gross profit 3,723,321 3,053,271 520,490 521,802 4,243,811 3,575,073
Distribution expenses (891,668) (824,826) (177,444) (193,179) (1,069,112) (1,018,005)
Sales and marketing expenses (641,327) (747,281) (68,079) (80,345) (709,406) (827,626)
Administrative expenses (679,847) (348,030) (109,539) (58,577) (789,386) (406,607)
Other operating income/(expenses) 152,251 130,853 39,329 31,615 191,580 162,468
Exceptional items (18,716) (12,387) (45) - (18,761) (12,387)
Income from operations (EBIT) 1,644,014 1,251,600 204,712 221,316 1,848,726 1,472,916
Net finance costs (390,122) (1,069,031) - - (390,122) (1,069,031)
Share of results of joint ventures (1,600) (1,660) - - (1,600) (1,660)
Income before income tax 1,252,292 180,909 204,712 221,316 1,457,004 402,225
Income tax expense 262,623 56,000 - - 262,623 56,000
Net income 1,514,915 236,909 204,712 221,316 1,719,627 458,225
             
Normalized EBITDA 2,263,908 1,866,250 295,079 311,767 2,558,987 2,178,017
Exceptional items (18,716) (12,387) (45) - (18,761) (12,387)
Depreciation. amortization and impairment (601,178) (602,263) (90,322) (90,451) (691,500) (692,714)
Net finance cost (390,122) (1,069,031) - - (390,122) (1,069,031)
Share of results of joint ventures (1,600) (1,660) - - (1,600) (1,660)
Income tax expense 262,623 56,000 - - 262,623 56,000
Net income 1,514,915 236,909 204,712 221,316 1,719,627 458,225
             
Normalized EBITDA margin as a % 31.8% 34.2% 26.8% 29.1% 31.1% 33.4%

 

16. NET SALES

 

Reconciliation between gross sales and net sales:

 

  03/31/2021 03/31/2020
Gross sales and/or services 24,544,855 18,742,618
Excise duty (5,036,196) (3,939,979)
Discounts (2,868,898) (2,200,042)
  16,639,761 12,602,597

 

36 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended March 31, 2021

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

 

17. OTHER OPERATING INCOME / (EXPENSES)

 

  03/31/2021 03/31/2020
Government grants/NPV of long-term fiscal incentives 171,638 156,556
(Additions)/reversals of provisions (8,980) (2,550)
Gains/(losses) on disposals of property, plant and equipment, intangible assets and the operations of associates 12,667 15,951
Other operating income/(expenses), net 2,615 1,312
  177,940 171,269

 

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.

 

18. EXCEPTIONAL ITEMS

 

  03/31/2021 03/31/2020
Restructuring (i) (39,185) (13,880)
COVID-19 impacts (ii) (31,051) (10,195)
Effect of application of IAS 29 (hyperinflation) (1,189) -
  (71,425) (24,075)

 

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

 

(ii) COVID-19 expenses refer to (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.

 

19. FINANCE EXPENSES AND INCOME

 

(a) Finance expenses

 

  03/31/2021 03/31/2020
Interest expense (334,589) (426,471)
Net Interest on pension plans (27,827) (25,563)
Losses on hedging instruments and exclusive investment funds (i) (770,864) (945,408)
Interest on provision for disputes and litigation (17,730) (16,274)
Exchange variations (178,421) (195,622)
Interest and foreign exchange rate on loans to/from related parties - (8,608)
Financial instruments at fair value through profit or loss - (2,133)
Tax on financial transactions (11,369) (86,603)
Bank guarantee expenses (30,914) (35,834)
Other financial results (72,681) (40,127)
  (1,444,395) (1,782,643)

 

 

(i) The variation refers, for the most part, to the equity swap, which changes according to the changes in share price.

37 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended March 31, 2021

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

Interest expenses are presented net of the effects of interest rate derivative financial instruments which mitigate Ambev’s interest rate risk (Note 22 - Financial instruments and risks). The interest expenses are as follow:

 

  03/31/2021 03/31/2020
Financial instruments measured at amortized cost (190,744) (116,103)
Financial instruments at fair value through profit or loss (143,845) (310,368)
  (334,589) (426,471)

 

(b) Finance income

 

  03/31/2021 03/31/2020
Interest income 107,353 147,575
Interest and foreign exchange rate on loans to/from related parties 12,992 -
Other financial results 7,957 18,060
  128,302 165,635
     
Effect of application of IAS 29 (hyperinflation) 251,793 80,141
  380,095 245,776

Interest income arises from the following financial assets:

  03/31/2021 03/31/2020
Cash and cash equivalents 52,008 84,000
Investment securities held for trading 9,697 124
Other receivables (i) 45,648 63,451
  107,353 147,575

 

(i) Mainly related to monetary adjustments related to the exclusion of ICMS (VAT tax) from the basis of PIS and COFINS calculation, more details in Note 24 - Contingencies.

 

20. INCOME TAX AND SOCIAL CONTRIBUTION

Income taxes reported in the income statement are analyzed as follow:

  03/31/2021 03/31/2020
Income tax expense - current (515,992) (295,033)
     
Deferred tax expense on temporary differences 343,539 (128,782)
Deferred tax over taxes losses carryforwards movements in the current period (9,644) 144,147
Total deferred tax (expense)/income 333,895 15,365
     
Total income tax expenses (182,097) (279,668)

 

38 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended March 31, 2021

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

 

The reconciliation between the weighted nominal tax rate and the effective tax rate is summarized as follows:

  03/31/2021 03/31/2020
Profit before tax 2,915,408 1,490,920
Government grants related to sales taxes (398,479) (404,985)
Share of result of joint ventures 12,546 6,617
Non-deductible expenses 15,522 12,006
Worldwide Taxation (80,802) (34,081)
  2,464,195 1,070,477
Aggregated weighted nominal tax rate 28.31% 29.35%
Taxes payable – nominal rate (697,582) (314,167)
Adjustment on tax expense    
Income tax Incentives 43,188 15,136
Deductible interest on shareholders' equity 592,679 141,389
Tax savings from goodwill amortization 19,366 19,366
Withholding income tax (288,996) (241,628)
Recognition/(write-off) of deferred charges on tax losses (52,361) (46,070)
Effect of application of IAS 29 (hyperinflation) (14,404) (19,553)
Others with reduced taxation 216,013 165,859
Income tax and social contribution expense (182,097) (279,668)
Effective tax rate 6.25% 18.76%

 

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

 

· Government subsidy for sales taxes: for regional incentives, these are related primarily to local production, and, when reinvested, are not subject to income tax and social contribution purposes, which explains the impact on the effective tax rate. The amount above is impacted by fluctuations in the volume, price and any eventual increases in State VAT (“ICMS”).

 

· Complement of income tax on foreign subsidiaries due in Brazil: shows the result of the calculation of universal taxation of profits, according to the regulations of Law 12,973/14.

 

· Withholding income tax: the amount is mainly related to dividends already distributed and to be distributed by subsidiaries located outside of Brazil, applicable according to local tax legislation. The increase in the amount in 2021 is mainly due to the exchange rate variation of the balances held in liabilities.

 

· Deductible interest on shareholders’ equity: under Brazilian law, companies have an option to remunerate its shareholders’ through the payment of Interest on Capital (“IOC”), which is deductible for income tax purposes.
39 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended March 31, 2021

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

 

21. SHARE-BASED PAYMENTS

 

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

 

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

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

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

The weighted average fair value of the options and assumptions used to apply the Company’s option pricing model for 2021 and 2020 was as follows:

In R$ 03/31/2021 (i) 12/31/2020 (i)
         
Fair value of options granted -   4.04  
Share price -   18.05  
Exercise price -   18.05  
Expected volatility -   22.3%  
Vesting year -   5  
Expected dividends 5%   5%  
Risk-free interest rate - (ii) 6.8% (ii)

 

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

 

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

40 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended March 31, 2021

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

 

The total number of outstanding options developed was as follows:

Thousand options 03/31/2021   12/31/2020
       
Options outstanding at January 1st 127,265   141,736
Options issued during the period -   22
Options exercised during the period (38)   (5,730)
Options forfeited during the period (2,290)   (8,763)
Options outstanding  at the end of the period 124,937   127,265

 

The range of exercise prices of the outstanding options is from R$11.97 (R$11.97 in 2020) to R$46.08 (R$43.95 in 2020) and the weighted average remaining contractual life is approximately 6.41 years (6.43 years in 2020).

 

Of the 124,937 thousand outstanding options (127,265 thousand in 2020), 51,670 thousand options were vested in 2021 (36,459 thousand in 2020).

 

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

In R$ per share 03/31/2021   12/31/2020
       
Options outstanding at January 1st 19.81   18.53
Options issued during the period -   18.05
Options forfeited during the period 18.17   22.96
Options exercised during the period 11.97   8.30
Options outstanding at the end of the period 20.03   19.81
Options exercisable at the end of the period 22.60   23.70

 

For the options exercised during the period ended March 31, 2021, the weighted average share price as at the exercise date was R$15.59 (R$15.23 in December 31, 2020).

 

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

During the period, the Company granted 30 thousand deferred shares under the stock option plan (153 thousand deferred shares in 2020) which are valued based on the share price for the trading session immediately prior to the grant, which represents a fair value of R$462 in 2021 (R$2,401 in 2020). Such deferred shares are subject to a grace period of five years from the grant date.

During the period, the Company granted 2,008 thousand restricted shares under the Share-Based Plan (21,066 thousand in 2020), which are valued based on the share price of the trading session immediately prior to the granting of the shares, representing a fair value of approximately R$28,450 in 2021 (R$315,399 in 2020). Such restricted share units are subject to a grace period which can vary from three to five years counted from the grant date.

41 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended March 31, 2021

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

Stated below is the total number of shares purchased by or granted to employees, as the case may be, under the Stock Option Plan and Share-Based Plan which will be delivered in the future based on the fulfilment of certain conditions (deferred stock and restricted shares):

Thousand deferred shares 03/31/2021   12/31/2020
       
Deferred shares outstanding at January 1st 6,065   7,926
New deferred shares during the period 30   153
Deferred shares granted during the period (4,010)   (1,901)
Deferred shares forfeited during the period (20)   (113)
Deferred shares outstanding at the end of the period 2,065   6,065

 

Thousand restricted shares 03/31/2021   12/31/2020
       
Restricted shares outstanding at January 1st 43,458   23,836
New restricted shares during the period 2,008   21,066
Restricted shares granted during the period -   -
Restricted shares forfeited during the period (747)   (1,444)
Restricted shares outstanding at the end of the period 44,719   43,458

 

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

The transactions with share-based payments described above generated an expense of R$105,960 on March 31, 2021 (R$37,697 on March 31, 2020), recorded as administrative expenses.

 

22. FINANCIAL INSTRUMENTS AND RISKS

 

Risk factors

 

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

 

The Company’s use of derivatives strictly follows the Financial Risk Management Policy approved by the Board of Directors. The policy is intended to provide guidelines for the management of the financial risks inherent to the capital markets in which Ambev operates. The policy includes four main aspects: (i) capital structure; financing and liquidity; (ii) transactional risks related to the business; (iii) financial statement translation risk; and (iv) credit risks of financial counterparties.

42 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended March 31, 2021

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

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

Derivative financial instruments

 

The derivative financial instruments authorized under the Financial Risk Management Policy include futures contracts traded on exchanges, full deliverable forwards, non-deliverable forwards, swaps and options. At March 31, 2021, the Company and its subsidiaries had no target forwards, swaps with currency verification, or any other derivative transactions representing a risk level above the nominal value of the contracts. The derivative operations are managed on a consolidated basis and classified based on the strategy according to their purposes, as follows:

 

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

 

ii) Fair value hedge derivative instruments - operations contracted for the purpose of mitigating the Company’s net indebtedness against foreign exchange and interest rate risk. Net cash positions and foreign currency debts are continually assessed to identify new indications of exposure.

 

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

 

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

43 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended March 31, 2021

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

 

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

 

Operational hedges: Refers to exposure arising from the core business of the Company, such as purchases of inputs, purchases of fixed assets and service contracts linked to foreign currency, which are protected using derivatives.

 

Financial hedge: Refers to exposure arising from cash and financing activities, such as foreign currency cash and foreign currency debt, which is protected t using derivatives.

 

Investment hedges abroad: Refers mainly to exposure arising from cash held in foreign currency in foreign subsidiaries, with a functional currency different from the consolidation currency.

 

Investment hedge - put options granted on subsidiaries: As detailed in item IV (d), the Company constituted a liability related to the acquisition of a non-controlling interest of the operations in the Dominican Republic. This financial instrument is denominated in US Dollars (Tranche A) and Dominican Pesos (Tranche B) and is recorded by an entity, whose functional currency is the Real. The Company assigned this financial instrument as a hedging instrument for a portion of its net assets located in subsidiaries whose functional currency is the US Dollar and the Dominican Peso, in such a manner that the hedge result can be recorded in other comprehensive income of the group, following the result of the hedged item.

44 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended March 31, 2021

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

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

 

                   03/31/2021
               Fair Value    Gain / (Losses)
Exposure   Risk     Notional   Assets Liability   Finance Result Operational Result Equity
                         
Cost     (18,718,097)   18,444,627   598,517 (476,167)   (565,405) 380,447 1,180,937
    Commodities (3,866,958)   3,593,488   567,760 (5,448)   (40,204) 149,074 157,425
     US Dollars (14,733,745)   14,733,745   3,144 (465,927)   (524,149) 248,358 1,049,036
    Euros (50,388)   50,388   19,030 (2,651)   (72) 1,120 (2,170)
    Mexican Pesos (67,006)   67,006   8,583 (2,141)   (980) (18,105) (23,354)
                         
Fixed Assets     (1,153,348)   1,153,348   559 (50,698)   (136,798) 33,714 37,404
    US Dollars (1,153,348)   1,153,348   559 (50,698)   (136,798) 33,714 37,404
                         
Expenses     (361,820)   361,820   170 (9,070)   (44,404) 13,049 65,247
    US Dollars (361,820)   361,820   170 (9,070)   (44,404) 13,049 65,247
                         
Debts     (213,386)   -   - -   - - -
    US Dollars (1,709)   -   - -   - - -
    Interest rates (211,677)   -   - -   - - -
                         
Equity Instrument     (1,645,019)   796,181   38,538 (6,562)   (55,339) - -
    Stock exchange prices (1,645,019)   796,181   38,538 (6,562)   (55,339) - -
March 31, 2021     (22,091,670)   20,755,976   637,784 (542,497)   (801,946) 427,210 1,283,588

 

 

 

45 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended March 31, 2021

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

 

 

                   03/31/2020
               Fair Value    Gain / (Losses)
Exposure   Risk     Notional   Assets Liability   Finance Result Operational Result Equity
                         
Cost     (15,837,905)   15,588,464   364,496 (287,838)   (288,837) 314,270 1,132,072
    Commodities (2,629,145)   2,379,704   343,852 (7,831)   (30,129) (20,212) (334,933)
     US Dollars (13,087,705)   13,087,705   8,728 (271,832)   (260,461) 353,600 1,455,510
    Euros (50,817)   50,817   1,942 (287)   (1,923) (521) 13,108
    Mexican Pesos (70,238)   70,238   9,974 (7,888)   3,676 (18,597) (1,613)
                         
Fixed Assets     (1,042,485)   1,042,485   1,733 (31,276)   (98,847) 32,031 36,645
    US Dollars (1,042,485)   1,042,485   1,733 (31,276)   (98,847) 32,031 36,645
                         
Expenses     (345,832)   345,832   473 (10,674)   (481) 474 178
    US Dollars (345,832)   345,832   473 (10,674)   (481) 474 178
                         
Debts     (233,216)   -   - -   - - -
    US Dollars (4,864)   -   - -   - - -
    Interest rates (228,352)   -   - -   - - -
                         
Equity Instrument     (1,740,543)   700,901   142,634 -   (541,225) - -
    Stock Exchange Prices (1,740,543)   700,901   142,634 -   (541,225) - -
Total     (19,199,981)   17,677,682   509,336 (329,788)   (929,390) 346,775 1,168,895

 

46 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended March 31, 2021

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 

 

I.        Market risk

 

a.1) Foreign currency risk

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

 

a.2) Commodity Risk

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

 

a.3) Interest rate risk

The Company applies a dynamic interest rate hedging approach, whereby the target mix between fixed- and floating-rate debt is reviewed periodically. The purpose of the Company’s policy is to achieve an optimal balance between the cost of funding and the volatility of financial results, considering market conditions, as well as the Company’s overall business strategy, which is reviewed periodically.

 

The table below demonstrates the Company’s exposure related to debts, before and after the application of the interest rate hedging strategy, within the limits established by the risk policy. As at March 31, 2021, the Company was not applying hedges to the exposure described below:

 

  03/31/2021
  Risk
  Interest rate Amount in Brazilian Real
Brazilian Reais 5.4% 3,473,609
Argentinean Pesos 22.8% 3,924
Dominican Pesos 10.9% 102,202
Guatemalan Quetzal 8.4% 16,909
Other 7.6% 59,796
Bolivian Pesos 5.4% 133,996
US Dollars 4.2% 1,709
Canadian Dollars 3.5% 383,053
Pre-fixed interest rate   4,175,198
     
     
Brazilian Reais 3.9% 851,963
Post fixed interest rate   851,963
47 

AMBEV S.A.

 

Notes to the interim consolidated financial statements

For the period ended March 31, 2021

All amounts in thousand of Brazilian Reais unless otherwise stated

 

 


 

  12/31/2020
  Risk
  Interest rate Amount in Brazilian Real
Brazilian Reais 5.4% 3,002,394
Argentinean Pesos 23.3% 4,468
Dominican Pesos 9.8% 342,684
Guatemalan Quetzal 8.4% 15,346
Other