Ambev SA
BOVESPA:ABEV3
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
11.09
14.7
|
| Price Target |
|
We'll email you a reminder when the closing price reaches BRL.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Ambev SA
You don't have any saved screeners yet
Good morning, and thank you for waiting. We would like to welcome everyone to Ambev's Fourth Quarter 2018 Results Conference Call. Today with us, we have Mr. Bernardo Paiva, CEO for Ambev; and Mr. Fernando Tennenbaum, CFO and Investor Relations Officer.
As a reminder, a slide presentation is available for downloading on our website at ri.ambev.com.br, as well as through the webcast link of this call. We would like to inform you that this event is being recorded [Operator Instructions].
Before proceeding, let me mention that forward-looking statements are made under the Safe Harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of Ambev's management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to the future events and therefore, depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Ambev, and could cause results to differ materially from those expressed in such forward-looking statements.
I would also like to remind everyone that as usual, the percentage changes that will be discussed during today's call are both organic and normalized in nature, and unless otherwise stated, percentages, changes refer to comparisons with fourth quarter 2017 results.
Normalized figures refer to performance measures before exceptional items, which are either income or expenses that do not occur regularly as part of Ambev's normal activities. As normalized figures are non-GAAP measures, the company discloses the consolidated profit, EPS, EBIT and EBITDA on a fully reported basis on the earnings release.
Now I would like to turn the conference over to Mr. Fernando Tennenbaum, CFO and Investor Relations officer. Mr. Tennenbaum, you may begin your conference.
Thank you. Hello, everyone, thank you for joining our 2018 fourth quarter earnings call. I will guide you through our financial highlights of Brazil, [ CAC, LAS and Canada, including our below the line items and cash flow.
After that, Bernardo will give more details about our operations in Brazil.
Beginning with the main highlights of our consolidated results. The first quarter was marked by different challenges across all regions, though we saw success from many of our initiatives, including innovation and continued premiumization.
On a consolidated basis in the fourth quarter, top line was up 5.3%, as volume drop 3.8% was more than offset by the growth in net revenue per hectoliter of 9.4%.
In the full year, net revenue was up 6.9% with volume declining 2.6% and net revenue per hectoliter growing 9.7%.
EBITDA grew organically by 5.3% reaching BRL 7.5 billion with an EBITDA margin of 46.7%, which organically was flat in relation to fourth quarter 2017. In the full year, EBITDA was up 9.4% with margin expansion of 100 basis points to 42%. Normalized net profit was BRL 3.7 billion, 17.3% lower than in Q4 2017. In the full year, normalized profit was BRL 11.6 billion, 5% lower than 2017.
Following the categorization of Argentina as a country for 3-year cumulative inflation rate greater than 100%, the country is considered highly inflationary in accordance with IFRS. This fourth quarter, we will continue to report the results of our operations in Argentina applying Hyperinflation Accounting.
This quarter adjustments are the same but with different impacts due to the favorable appreciation in relation to real. Nonmonetary assets and liabilities had to be restated using an inflation index, translating to higher cost of goods sold and depreciation values but in this time only for the past 3 months. And second, the full year P&L, which used to be converted to Brazil reals at the average exchange rate of the period had to be adjusted for the cumulative inflation from January 1, 2018 on and then converted using the end-of-the-period exchange rates, which is the closing rate of December 31, 2018.
The fourth quarter P&L is the difference between the full year and the 9 months results reported in the last quarter. Given that the peso real appreciated in the quarter, we reported Hyperinflation Accounting positive impact of BRL 685 million on net revenues and of up 220 million on normalized EBITDA, which contributed to a negative impact on the normalized profit attributable to equity holder of BRL 15 million.
In the full year, the impact was BRL 568 million negative on net revenue and BRL 353 million negative on normalized EBITDA, which contributed to a negative impact of BRL 291 million on the normalized profit attributable to equity shareholders.
Having said that, I will now move to our divisional results and start with Brazil. In the quarter, Brazil EBITDA was down 7.4%, reaching BRL 4.1 billion, with margin contraction of 360 basis points to 47.9%. In the full year, Brazil EBITDA grew 3.3% with margin expansion of 70 basis points to 43.9%.
In Beer Brazil in the first quarter, top line was up 0.9% supported by net revenue per hectoliter growth of 3.1% is slightly below inflation for the period as price increase was offset by geographical mix.
Volume in the quarter was down 2.1%, outperforming the industry. In the full year, net revenue was up 2.2% with net revenues per hectoliter growing 5.4%.
Volume was down 3.1% is slightly underperforming the beer industry. Bernardo will give you further comments on this matter.
EBITDA for Beer Brazil was slightly down in the quarter, with margin contraction of 80 basis points to 50.4%.
In the full year, EBITDA was up by 3% with margin expansion of 40 basis points to 45%.
Regarding costs and expenses in the quarter. Cash cost per hectoliter grew by 27.9%, mainly impacted by commodity prices, especially aluminum and barley and by a hard comparable 4Q '17, marginally offset by favorable FX.
Cash SG&A was down 20%, mostly driven by saving of bonus accruals, which were fully booked in the first quarter of 2017 and in this year was split between 3Q and 4Q as well as projects related to nonworking money expenses.
In the full year, cash COGS per hectoliter grew 8.2% and cash SG&A was down 3.2%.
We expect the full year cash total COGS per hectoliter in Brazil to increase by mid-teens in 2019 as we will face pressures from currency, depreciation and commodity prices.
In NAB Brazil, top line was down by 9.4% in the fourth quarter with net revenue per hectoliter growth of 0.8%, driven by geographic mix. Volume declined by 9.8%, underperforming the industry. In the full year, top line was down 1% with net revenues per hectoliter grow from 8.4% more than offset by volume decline of 8.7%.
EBITDA in the quarter was down by 44.9% with margin contraction of approximately 2,100 basis points to 31.9%.
In the full year, EBITDA was up by 5.4% with margin expansion of 210 basis points to 37.1%. In terms of cost and expenses, cash COGS per hectoliter was up 31.9%, as we already anticipated that there would be volatility between quarters. In the full year, cash COGS per hectoliter was down 1.1%.
Cash SG&A in the quarter was up 0.5%, also due to phasing of bonus accruals and the savings related to nonworking money expenses. In the full year, cash SG&A was up by 2.2%.
Moving now to Central America and the Caribbean. In the quarter, net revenue in Central America and Caribbean rose 9.6% as a result of strong volume of 7.9%, coupled with the net revenue per hectoliter increase of 1.5%.
In the full year, top line increased to 12.6% with volume growing 8.3% and net revenues per hectoliter growing 4%.
EBITDA in the quarter reached at BRL 712 million, increasing organically by 12.4% with margin expansion of 110 basis points to 41.5%. In the full year, EBITDA was BRL 2.3 billion, up 14.1% with margin expansion of 50 basis points to 39.4%.
Cash COGS per hectoliter increased 8.6% negatively affected by Panama who had the strong volume evolution since 2017, has driven additional temporary costs in order to supply the market with no disruption.
In the full year, cash COGS per hectoliter was up by 6.6%. Further, cash SG&A in the region was down 18.8%, supported by lower SG&A expenses mainly due to savings to nonworking money expenses and savings of bonus accruals.
In the full year, cash SG&A was up 0.3%.
Despite short-term cost pressures, our commercial strategy in CAC remained on track, supporting the healthy volume performance in virtually all countries in which we operate.
In the core segments, we continue to invest in our trade problems, in strengthening our connection with our consumers through commercial platforms to further enhance the Presidente brands in the Dominican Republic. In Panama, we keep investing our main brand, Atlas Golden Light, by creating experience through proprietary events.
We also continue developing our premiumization strategy in the region by investing our brand Corona, Stella Artois and Budweiser, to optimize the execution both for the on-premise and off-premise channels. It is important to point out premium accounts for less than 5% of the beer industry volume in CAC, representing a great opportunity for the future.
I'd like to take this occasion to say that we are very excited about our business development and strong volume performance in Central America, Caribbean, reinforcing our outlook for region moving forward.
Switching now to Latin America South. Net revenue in Latin America South grew organically by 21.8% in the quarter, with net revenue per hectoliter increasing 30.3%. Volume was down 7.3%, mostly driven by Argentina, where volume declined by low double digits as a consequence of a challenging macro environment.
In the full year, top line was up by 21.5% with net revenue per hectoliter increasing 22.1% and volume down 0.8%. EBITDA LAS for the quarter was up 38.9% with margin expansion of 700 basis points to 51.4%.
In the full year, EBITDA reached BRL 4.9 billion with margin expansion of 310 basis points to 45.5%. Cash COGS per hectoliter in the quarter went up 9.1%, mostly driven by favorable FX while cash SG&A increased by 16.8%. In the full year, cash COGS per hectoliter and cash SG&A were below inflation, increasing 10.8% and 22.2%, respectively. Despite the macroeconomic volatility throughout the region, we remain focused on what we can control in our business and had positive development.
In Argentina, we maintained a strategy of differentiating the core brands, Quilmes, our classic lager; and Brahma, our easy drinking larger. In addition, we launched the Brahma 269 ML with the can, a product for the summer season reinforcing our single serve strategy.
Regarding the core plus segment, Budweiser continued to embrace the music platform. BUDx hosted the main parties in the quarter sponsoring several DJs. We also launched a limited edition IPA for Andes
Origen, which was just presented for the first time in the most important gastronomic festival in Mendoza.
Our premiumization strategy has also shown promising results in LAS, with our premium portfolio outpacing the industry across all countries in which we operate.
Looking ahead at 2019, it should to be a divided year for Argentina. In the first half, consumer environment should be challenging but costs will not be significantly impacted by FX due to our 12-month floating hedge policy.
In the second half, we will face FX headwinds reflecting our 12 months hedging policy and the significant devaluation of the peso starting May 2018, where at this point, we believe consumer environment is likely to be in a better shape.
Going forward, while cash [ was impacted ] in the short term, we have positive medium-long-term perspective in accounting and we remain confident in our ability to deliver solid top line and EBITDA in the whole region, supported by strong brands.
Turning now to Canada. In the fourth quarter, top line in Canada was down 2.2%, a combination of net revenue per hectoliter increase of 1.5% and our volume decline of 3.6%, which was mostly driven by a slowdown in the beer industry.
In the full year, top line was down 0.9%, which is explained by volume decline of 1.9% and a net revenue per hectoliter growth of 1%. EBITDA reached BRL 575 million, which is 3.4% lower than in the fourth quarter of 2017. In the full year, EBITDA was down by 8.1% to BRL 2.2 billion with margin contraction of 250 basis points. In the quarter, cash COGS per hectoliter was 1.4%, mainly due to higher commodity prices, especially aluminum.
In the full year, cash COGS per hectoliter increased 9.6%. Cash SG&A declined by 2.5% in the quarter, driven by lower administrative costs that benefited from saving initiatives and lower variable compensation accruals.
In the full year, cash SG&A declined 2%. Despite industry challenges, we had good achievements with our portfolio during the quarter. In the core segments, Bud Light kept its momentum supported by strong commercial and trade activations and Michelob Ultra has continued its fast start, accelerating growth in the quarter.
In the premium segment, Stella Artois and Corona volume ramped up enabling us to sustain our leadership position in the country. Moreover, the craft portfolio continues to perform well growing by double digits, already accounting for approximately 5% of our beer volume in the country.
Now back to consolidated figures below EBITDA. In the fourth quarter, our net financial results totaling other expense of BRL 1.6 billion, 29.8% higher than in Q4 2017.
Main items in the financial expense in the quarter were: first, interest in terms of BRL 152 million driven by our cash balance; second, interest expense of BRL 345 million that also included interest expense in connection with the Brazilian Tax Rehabilitation Program as well as a noncash accrual of approximately BRL 60 million related to the full option associated to our investment in the Dominican Republic business.
Third, BRL 586 million of losses on derivative instruments, which were up year-over-year explained by equity swap losses and the increase of carry cost of FX hedges linked to our COGS and CapEx exposures in Argentina. Fourth, losses on nonderivative instruments in the amount of BRL 360 million mainly related to an adjustment in the fair value of the put option in the Dominican Republic. Fifth, taxes on financial transactions on the amount of BRL 103 million; sixth, BRL 265 million of other financial expenses, partially explained by intercompany transactions; seven, BRL 179 million of exceptional financial expenses related to noncash expenses due to foreign exchange variations on intercompany loans; finally, eighth, BRL 67 million of financial income related to noncash income resulting from the adoption of Hyperinflation Accounting in Argentina. The normalized effective tax rate was 24.6% in the quarter, lower than Q4 of 2017.
In the full year, the normalized effective tax rate was 13.6% versus 17.7% in the full year of 2017.
Cash generated from operating activity in Q4 2018, was of BRL 8.8 billion, which is 1.3% lower than last year.
In the full year, the cash generated from operating activities was BRL 17.9 billion which is 0.2% higher than 2017.
CapEx reached BRL 1.4 billion in the quarter and BRL 3.6 billion in the full year, increasing 11.5% versus the full year of 2017.
Finally, during 2018, we announced that approximately BRL 8.6 billion direct to holders in dividend, BRL 7.5 billion of which related to 2018 net profits and BRL 1.1 billion related to 2017 net profit.
Thank you very much. Bernardo will now share some initiatives and thoughts on the Brazilian market before going to Q&A.
Thank you, Fernando. Hello, everyone. As mentioned by Fernando, during this fourth quarter, we saw success for many of our initiatives. We highlight for innovation and continued premiumization.
Before detailing the fourth quarter, let's recap how was 2018 in Brazil, which was a year marked by external volatility. In the first four months, we had a tough industry affected by bad weather across the country and a earlier Carnival.
The good consumption momentum of June and July were offset by the Truckers strike in May. From August to October, we had a price increase and the uncertainty around election, which led to a challenged consumption environment. This fourth quarter was a divided quarter. In October, the industry was still impacted by low consumer confidence, but in November and December, we started to see some better trends.
To illustrate that, the better segment, that had peaked has started to reduce its share of the industry throughout the quarter. And also, the industry was gradually reducing to the client base. As a result in this quarter, our Beer Brazil volume declined 2.1%, which was better than the industry. In the full year, our market share declined 0.4 percentage points after a 0.6 percentage points gain in 2017 according to our estimates.
Now let's talk about this year's performance.
We made structured investments in our portfolio with innovation in new liquids and new packets. As always, we always focus on sustainable value creation and as we've been saying, we are leaving this crisis in Brazil a much better shape than we got in, and ready to full benefit of the economy recovery going forward.
The structure of the premium segment. Premiumization is a continued strength and it's always important to enforce that our strength in the segment is a great portfolio of brands, combining global and domestic brands. We are certain that the premium market is a portfolio gain as you can see in many mature markets and that we are in very strong competitive position to continue to gain share in the segment.
Each of our premium brands maintains its own territory, for a position and price point, reaching different consumers and occasions. Our premium portfolio combining is growing in a solid way and we're gaining share in the past several months. Our global brands comprised of Budweiser, Stella and Corona grew more than 35% in the quarter with robust expansion of our client base.
In the full year, the group represents way more than 1 million hectoliters. Budweiser is our largest global brand and the leading [ trade up] alternative for consumers entering in the premium segment. Budweiser is used in drinking lager which stands for authenticity and inspires people to follow their own values. It has been part of the pop culture worldwide, exploring the nightlife, rock-pop concerts and great moments of consumer's life and continues to grow double-digit quarter after quarter.
Stella Artois is the reference of premium beer quality in Brazil; a classic Belgian lager with distinctive taste that experienced accelerated growth for the second semester.
In 2018, we expanded the brand presence in gastronomic cultural events. We've highlighted Stella Artois in proprietary events successfully deployed during this quarter in Rio de Janeiro, one of the main cities of Stella in Brazil.
Stella Artois volume grew more than 50% in the fourth quarter. This amazing result was also supported by the expansion of pack formats such as the sharing size bottles and the new cans that offer to Stella block of consumers' new options to take Stella in different occasions and venues.
Corona is [ a true ] of our global brands portfolio. A brand that invites a disconnect from routine and reconnect for essential nature. After a few years of careful introduction in Brazil, it is now ready to lead its potential and in the fourth quarter more than doubled its volume. Corona has an unmatchable lime ritual and is part of the international surf community, sponsoring the World Surf League and since this quarter we are also proudly supporting our Brazilian award champion, Gabriel Medina.
Corona is strongly connected to the beach surrounded by the ocean and has teamed with Parley for the Oceans to clean Brazilian beach in 2019. And since Brazilians are also proud of our traditions and values. Our premium portfolio is also stressed by the domestic brands, Original and Serramalte. Our domestic premium portfolio also had important results in the quarter, with Serramalte growing more than 50% mainly driven by recently launched cans.
Now let's talk about the core segments. Brahma, our classic lager beer, continues to grow always above the industry quarter-after-quarter, reinforcing the brands beer expertise across all consumer touch-points such as: first, a complete portfolio of 7 different liquids with the united quality and tradition that go from Brahma Chopp, beloved bestselling classic Lager; to Brahma Extra, a pure malt alternative; up to [ short ] Brahma, the best experience within draft beer; and second, Brahma's quality message in communication, to create activations and brand experience. The brand had a strong commercial plan and calendar activations in 2018.
Certain Asian soccer events were boosted by FIFA World Cup in the first semester, a major occasion increased selling moment for Brahma. In addition, Brahma 130 year celebration campaign in the second half of 2018 bring forth the brand's tradition and Brahma's beer knowledge while interacting real time with consumers, increasing even further the brand relevance.
Now moving to Skol. Our main highlight of the year were the line extensions of Skol. So now I will take time to tell you about the journey of a single liquid that goes down well to become a family of liquids that go down well. Rolled out nationally in the end of third quarter, Skol Hops opened the way of new easy drinking territories, Skol Hops is inspired in the IPA beers. It is an innovative beer brewed with extra aromatic hops that provide a unique combination of lightness, freshness and light beer flavor.
It provides relevant beer credentials to the Skol brand.
With summer approaching, easy drinking brands become more evident in the market and so we invested in the new more than visual brand identities of Skol highlighting its liquid, aggregating more quality perception to the brand. The Skol brand communication in the fourth quarter was 'the wheel never stops turning'. Not only in the reference of the new visual brand identity but also preparing the market for another Skol innovation Skol Malt.
Skol Malt is a pure malt beer, which maintains the unique lightness associated with Skol brand and also bring the signature flavor of a pure malt beer. It's a 100% natural process with no additives and no preserving agents, like all of our beers. The distinct balance between drinkability and flavor is a result of years of research and development. The result is a pioneer easy drinking pure malt beer. Skol Malt is the only pure malt beer that really goes down round.
Early result of the launch are very, very promising. [ indiscernible] has spent some time to talk about this market affordability initiatives. To tackle affordability in the core segment, we have developed, in the past several initiatives related to packaging such as the 1 liter bottle, the 300 mL RGB and more recently, the 18-can pack. We are already boosting these affordable packs to make them available to all around the country with price accessible to every consumer in the brands they like most.
When it comes to the value segment, it is always important to highlight that although the segment is somewhat relevant in terms of volume, each share of the industry support pool is significant. It's also important to remind that it is a segment marked by the importance of brand equity and we believe that when disposable income begins to improve, consumers will trade up.
We have seen that happening in other markets of the world. By the way, we have been seeing a contraction of the value segment in the short-term as the economy shows signs of recovery.
When it comes to better segment brands, our strategy is to launch brands with regional connection but always looking to healthy margins as we did with Nossa, cassava-based beer launching in the third quarter. That already posted strong growth in Pernambuco, reaching 5 percentage points of market share in the state. Following this successful initiative, we are launching in December the Beer Magnifica in the state of Maranh�o. Magnifica replicates the same successful strategy and is also brewed from cassava from local farmers and connects with local culture while delivering affordability to consumers.
Regarding our strategy to Shape in Home and Boost Out of Home, on on-premise side, [ Parceiro Ambegi ], is one of the largest e-commerce in the country and has reached approximately 100,000 clients. On the off-trade channel, we are doing several initiatives guided by the idea that consumers should always be able to have our products close, cold and at the right price.
We've been putting great efforts to ensure high service level both in the on-premise and the off-premise. We have been setting up our road to market across the country by several different initiatives always focusing on excellence in client service.
Regarding NAB decision, we continue invest in the premiumization with brands such as Lipton, H2OH!, Monster, T�nica and Gatorade. Premium accounts for more than 30% of our total volumes. We also continue to do important investments in our main brand Guaran� Antarctica.
To conclude, it's important to highlight, how we evolved on sustainability in 2018. Sustainability is an important part of us to pursue the dream of being a better world and also, enhance the best reputation. We already took some relevant steps towards these achievements. We completed that phase of the first Volkswagen electric truck, powered 100% by clean energy, which was integrated into the fleet that serves our brewery. Our plan is to have 1,600 trucks by 2023. In the water business, there is also AMA, our mineral water, which 100% of its profit goes to projects that facilitate the access to drink the water in the semi-arid region of Brazil. AMA has just reached the mark of BRL 3 million conversion to this social cause, benefiting 26,000 people.
Another highlight is our program [ Vola], created to help NGOs to optimize their process, projects and also manage people and careers. We are proud to help by doing what we do best. The project has impacted socially over 2 million people, with 185 NGOs and 200 company volunteers.
Finally, we also highlight the 100-plus accelerator, which focus on boosting startups that develops solutions to forest sustainability.
Only Brazil had more than 400 projects interest in being part of it.
Let's talk about the outlook for 2019. In the past few years, we've implemented transformation in initiatives in our business, which puts us in a strong position to compete in each of the segments of the Brazilian beer market and to fully benefit of the rebound of the economy.
We see plenty of opportunities ahead of us and we are confident that we have a strong portfolio to capitalize on such opportunities. We have a solid premium portfolio and stronger belief in the portfolio gain strategy. We will keep investing and increasing it.
For the core segment, we have the best-selling strong beloved brands that we will continue to innovate and renovate. We'll also continue to deliver its mass affordability and play regionally with healthy margins.
Finally, we are optimistic about Brazil this year, confident in our strategy and the initial signs of the year shows we are in the right path.
We can now move to the Q&A. Thank you.
[Operator Instructions] And our first question comes from Antonio Gonzalez with Cr�dit Suisse.
Just 2 quick ones, please. The first one is Brito at ABI's conference call gave a pretty detailed presentation on the high end and he qualified it as the single largest opportunity for the company in the next few years. So I just wanted to ask, even if you cannot quantify at the Ambev level, just conceptually, do you see this as your largest opportunity as well or -- because obviously, we've seen a down trading from mainstream to value and the Brazilian industry arguably is in a different stage compared to the rest of the ABI portfolio. I just wanted to ask if you can mention qualitatively whether you see a more balanced growth or more SKUs versus premium or mainstream in the very specific case of Brazil. And then secondly, Bernardo, you seem very bullish about innovation at Skol, right, and this is perhaps a second iteration, the pure malt variant. And so I wanted to ask if you have an early reading of how much is genuine growth. How much is cannibalization of the mother brand? And is the mother brand starting to grow a sort of as a halo effect from the line extensions that you're putting in the market?
Thanks, Antonio, for the question. I think first of all in premium, we really think that premium will grow in the future in Brazil. It has been growing even with the crisis, and it's been gaining share in the segment in the past several months. It's a strong portfolio of brands that meets multiple consumer needs and occasions. So there isn't a market in the world that the premium segment is dominated by a single brand. So it's a portfolio strategy, and it's a portfolio gain. And as we said, I mean, we're in very good shape to win this gain. By the way, again, we were gaining share in the last several months with this portfolio of international brands and domestic brands. I mean, for the premium segment overall, there's a strong preference for premium beers in Brazil, and the segment is 200 -- I mean, it's not growing in the pace that we think compared to the other markets. Just to give an example, in Paraguay, the weight of the segment is 20%. In Brazil, it's around 10%, 10-plus. So if the rebound of the economy is for sure, the premium segment, it's our reading, will grow. And I think that the execution and the road to market and the excellence in how to execute better our brands in the tray, I mean, have been evolving overall. So not only the message of the brands that I mentioned in my speech, but in the way that we get those brands in the market. So yes, we think that the premium segment will continue to grow and in a faster pace in Brazil. And yes, we think that we'll continue to gain share in the segment because it's a portfolio gain. You can check in all the information. It's very hard for one single brand in the premium segment in a mature market to have more than 15%, 17% of the market. So it's a portfolio gain. We have been building a portfolio in stage. So I mean, feeding the brand, Corona in the past, in the last 3 years, and then it go to Stella and then Budweiser was there to really win this gain via a portfolio approach. So the second question is linked to the Skol family. I think it was very, very important for the Skol, as we did with Brahma, to bring, I would say, all the beer knowledge to the brand. So we will start to talk even more about the Skol family. And then based on all the research that we've done, not only Skol Hops, but Skol pure malt is accretive. Not only helps the mother brand in terms of equity, but really help us to expand the industry and to gain share with Skol. So again, the initial signs that we have, [ that comment of ] Skol pure malt but I've said in my speech, are promising, as I can say to you -- that I could say to you. So it will be a family gain for Skol as well that was with Brahma in the past, and I think that all the research that we have shown that we are in the right path with this approach.
And our question comes from Luca Cipiccia with Goldman Sachs.
I actually wanted to ask about the guidance. I think the wording and the structure has changed a little bit over the last few years, 1 year from the other. And I think this time around I was a little surprised that even in light of the consolidation that you made earlier about -- the fourth quarter has improved sequentially in November and December, the relatively comfortable comps that you kind of face in Q1 and to some extent also in the second quarter, the macro environment in Brazil getting better, some of the qualitative comments that you made, you didn't really mention or commented much about the top line that you expect in 2019. I don't expect you to do that now, but I was wondering if you could maybe elaborate a little bit more and explain why that is the case. And also -- or more generally, do you expect the industry to grow, at least even -- if you could make some comments on that point? And then also on the guidance, I think your message is that EBITDA growth should be faster than in 2018. I would assume that refers to the comparable of organic EBITDA growth that we had in 2018 of 9.4%. So just want to confirm that that's the right way to interpret the guidance, so 2019 organically should grow more than 9.4% that we did in 2018. That will be my questions.
So I'm going to start with the second one, just to clarify. The EBITDA growth should be, for Brazil, that should be faster than the 2018. And then we are not giving any guidance. We are just providing an outlook. The only guidance that we are providing is the guidance on cost of goods sold. That should be growing for Brazil, should be growing midteens for next year. What -- on the outlook, what we are saying, and this is not a guidance, is that we are optimistic about Brazil. We are excited about what we've been seeing so far, but we cannot say much more than that.
And Luca, thanks for the question. I mean, your question about the fourth quarter and some of the comments about the fourth quarter, what we have been saying is that we've been doing structural change in our evolution in our business in the last years during the crisis to be ready to full benefit when the economy of the country Brazil rebounds. So what I said is that, I mean, the fourth quarter was a kind of mixed feelings. October was a tough month in terms of the industry. I mean, the economic environment was not good and the industry's very bad. And then after the election, we started to see growing a better, I would say, industry and a better -- [ way better ] consumer confidence. And then that's why it was a mix of quarters. That's exactly what I said to you. And there's another short-term sign that we saw, that November and December, we saw the value segment that had peaked. That was a big headwind for us because we know our participation in that segment is not relevant. I mean, we are doing lots of things and new brands like Nossa and the other things, but still below our fair share. So the market -- the value segment had peaked, but in the short term started to contract. That's another sign that the economy, at least in the fourth quarter, was better in November and in the end of the year.
And Bernardo, so just 2 quick follow-up. I would assume that, that trajectory should have continued in 2019. I mean, we only have 2 months in to the year, but it's already something. But I wouldn't think there's anything to suggest that those trends would've been better or if they did, that would be somewhat surprising. Is that correct?
What I could say -- what I said in my speech, Luca, that the initial signs of 2019 shows that we are in the right path, that's what I can say. Just repeating what I said in my speech.
And the next question comes from Thiago Duarte with BTG.
Yes, 2 questions on my side. First, I would like to go back to the discussion on premiumization. It's clear from the ABI call and even from your initial remarks, Bernardo, that -- well, it looks like, I believe, that you guys are doubling down on the strategy even more than you used to, which was a lot already. But I want to -- if you could please elaborate a little bit on how we should think of premiumization in the numbers. I mean, if you look at the quarter, what we saw in Beer Brazil, for instance, even though it looks like your premium portfolio grew even faster than it was growing the previous quarter, we still saw revenue per hectoliter growing somewhat in line with the general beer inflation that we've been seeing around, right? So if you could elaborate a little bit more on why net revenue has failed to capture some of that or what were the effects that are offsetting what we believe is the positive impact from premiumization in your average pricing, I think that would be very helpful. And the second question is regarding government grants. ABI, in their release, they said something about the phasing of the government grants. If you look in Brazil, we saw that as a percentage of revenues going down substantially in the fourth quarter, particularly in the nonalcoholic segment. So just if you could guide us through a little bit where we should think of that number going forward, if it was something specific for the fourth quarter, because I would -- actually, with the increase in -- with the growth of brands like Nossa and Magn�fica, I would expect the government grants to start growing again as a percentage of revenue. So it would be nice to hear from that as well.
This is Fernando. Thanks for the question. Let me start by the last one, the government grants. At the end of the day, the government grants, they are a function of volume. So since volume was down in the quarter due to the headwind, if you could say so, in government grants and is also on your volume mix depends on the state. So I don't think there is any structural change here. It's much more a function of volume mix and actually overall volume. You mentioned specifically Nossa and Magn�fica, but it's fair to say I think these brands, they carry a very healthy margin on the value segment, but I wouldn't boil all that down to governmental grants. I think they had much more than that. I think that since we work with the local communities, the cost of goods sold of the liquid is actually cheaper. Since you have a much more local marketing and selling expenses, you ended up costing less. And also, we focus on the most profitable packages, mostly the 600 mL, and this helps a lot [ profitability ]. So I wouldn't be thinking that it's all to do with relevant brands, but there is a lot of other factors that impact the profitability, and actually sometimes they're even more relevant. On your question on premiumization and net revenue, there is an effect. The problem is that sometimes given package mix and other things, you ended up not seeing that very clearly. But it's definitely -- and then we're not breaking down to the outer world, but I can say that definitely there is a benefit both from top line and in margins.
And I think [ the last few -- I think what we have been ] seeing a lot now is the economy of Brazil depends on the region. I mean, you could have a -- one could have [ default ] rebounds. The trade up will happen. Yes, I would say if the next 3 -- in the last 3 to 4 years, if the economy were better, for sure based on -- every mature market that we know, evolution in many markets, the weight of the premium segment would be high. If you think that Brazil will be in a better shape in terms of the macroeconomic KPIs or whatever, the trade up will happen based on all the markets that we know. And we always -- or we know as well that's a portfolio gain. That's why I have been giving portfolio in stage to be in the right way in the last years. It's not a one trick pony, and we need, I would say, a plan. It's a portfolio one. And then we will see a trade up as well based on the signs in other markets from value to core. By the way, in the short term, we saw a contraction in the value segment. So we still think that the economy of Brazil will be in a better shape, as we have been saying to you a lot and to everyone. We are in a much better shape in the portfolio as a company like -- it's compared to years ago to fully benefit of that rebound of the economy.
Very helpful. And just to follow up of Fernando's comments on the tax grants and specifically for Nossa and Magn�fica. I appreciate the comments that you made on the cost and the profitability of the presentations that you're raising and so on. But would you say it's fair to say that the amount of tax grant as a percentage of revenues for these particular brands that you're launching in the value segment and so on, it's still higher than the rest of the portfolio? I think it's fair to say that. Or am I wrong?
So we don't go into the details, Thiago. We don't disclose to the external world. But as I mentioned, it's not only tax incentives. There are a lot of other components that make the case for these brands to be, at the same time, affordable and quite profitable to us. So it's kind of a win-win-win. You help the community, you deliver an affordable product to the consumer and you also have a very healthy margin.
And all the link of the local culture is very important, Thiago. So I mean, the regional approach, we have been stretching our marketing to be more regional as well or with regional structures, more digital. And I think that in the end is a good thing for the SG&A, the expense that you do in the market and connect much better with the local people there. So it's much more than an affordable product. It's that as well, but it's really build a brand with a regional emotional link with the people in those specific regions.
And our next question comes from Danniela Eiger with Bank of America.
Actually, my first question is regarding the guidance on EBITDA acceleration in the Brazilian operation. If you could just elaborate a little bit further on the drivers for this acceleration. Should it be pricing [indiscernible]? Or what is the main source of this acceleration? And on the last results actually, I wanted to understand a little bit better on the strong results there. What was the hedge effect on the quarter? And how can we expect this effect coming in the next quarters? And also, I don't know if you can disclose that, but what was the effects on your COGS for the quarter? And finally, if you could just answer a third one, a quick one. Just regarding the quick -- the strong decline on SG&A in Brazil. Could you just explain what were the main drivers of this decline in -- so far and if they are sustainable?
Fernando here. So you asked me to elaborate a little bit more in terms of our guidance to accelerate the Brazil EBITDA growth comparing to this year. We don't want to go too much into details because I think we are seeing a dip at the end of the day, and probably what you are trying to look is probably some sort of view on margins. What I can say is that whenever I look at individual lines in our income statement, there are always opportunities to be more efficient, to dilute fixed cost with volume, to improve process and as a consequence, improve margins. Of course, there is always effect when commodity volatility during quarter, years, which might make such improvement harder or easier on a given year. On top of what we've been doing, there are incremental opportunities to our business. One good example is serving [ no-malt ale ] that could come with a very good additional margin, but not necessarily the same margin levels. As long as they also help profitability and help us to expand in those industry, bring incremental profit, we start also exploring it. So my EBITDA growth is going to be a combination of all these different factors going to 2019. And as a summary, I think we still have opportunities to grow margin, but not necessarily we're going to be [ focused ] on specific numbers. But overall, we are committed to consistent EBITDA growth, and I think that we can achieve that in 2019. And more important, this thing about accelerating EBITDA growth is not a guidance, but it's something that we always try to accomplish year-over-year. On the hedge effect, I think it was important to give some guidance especially because the fourth quarter, we saw a meaningful increase on the cost, and this was down to commodities going up, specifically aluminum and barley. And while we've been having the other prior quarters in Brazil where FX was also a huge tailwind [ didn't help ] because FX was a little help but almost flattish. So when we go into next year, I think it was important to give a guidance to set the right expectations, and then we expect our cost throughout the year for Brazil as a whole to grow by midteens.
Okay. Just on the, actually, the cost and the hedge effect, I was mentioning about LAS operations, just to understand there what was the impact.
Okay. On LAS operations, our hedging is always a rolling 12-month hedge. So if you look -- if you want to understand what are the costs for a given year, you need to look 12 months back and see what the currency was. Since the depreciation in Argentina happened in May 2018, you expect that until May, I have a much better cost of goods sold than after May. So I think that's the message. So you should -- so you saw a lot of margin expansion in Argentina throughout the fourth quarter. This has a lot to do that my cost of goods sold, we see 1 year before, while on the top line, you have the benefit of inflation, which also increase prices but your cost didn't follow suit. Eventually, they will follow suit with a year delay. So for 2019, you could expect a better effects in the first half until more or less May. And then throughout the second half of the year, we should expect further effects. But this is a consequence of our rolling 12-month hedging policy.
And our next question comes from Robert Ottenstein with Evercore.
I want to circle back to Skol, and the challenge which I'm getting from talking to some of the players down in Brazil and throughout the supply chain is that Heineken's actually been doing a very good job at a kind of a core plus level with brands like Amstel and Eisenbahn. And so the question is kind of 3-part on Skol. One, kind of the brand -- health of the brand, how are the brand health indicators? Two, I know you're seeing some good signs from spreading out the brand a little bit that you think it's got broad shoulders. But how do we have comfort that that's not going to be a, at the end of the day, dilutive to brand equity? And three, what about bringing in a brand like Beck's if it appears that there is a strong interest in Brazil for more European-type beers?
Robert, very good question. And yes, let's talk a little bit about the core and core plus segment. So I think that the brand that's really goes to the core and core plus is more liquid. And so initially, it was Brahma -- so Brahma -- with Brahma Extra. That has been growing a lot. So Brahma is a huge success, growing quarter-over-quarter in the last 3 years. So Brahma really is a big winning -- winner brand in the, I would say, in the market in the core/core plus segment. For specifically the core plus, so we have been growing a lot with Bohemia. Bohemia is really -- I mean, it's amazing the kind of growth that we've been having with this brand. So it's very, very important to highlight that. And then we can -- I mean, I can expand a little bit about Skol, what we saw -- I mean, the brand power, all the indication from the old brand]. The leading brand in Brazil in terms of brand power is Skol. Second is Brahma. And I mean, almost -- I mean, [ 50% ] of the brand power of those brands, we have the third one in the market. So I think it's -- and Skol is the leader brand on that. We thought it was important to bring the concept of a family of beers that goes down round for Skol, to bring more attributes of beer knowledge for this brand because people are very emotional maybe to this brand. It's the leading brand in Brazil. It has an amazing brand power. So that's what we have been doing. So why we're launching Skol Hops? First, as I said, that was exactly because of the volume. It's a good volume. It's as [ good ] as Brahma Extra. But because Skol Hops really bring all the beer knowledge where -- I mean, including we won a prize of the best hops and lager, in liquid, that's completely different. So it's fresh, it's light, but with this kind of slightly bitter flavor that the aromatic hops brings. So that's very, very good. So when we researched that Skol Hops helps the mother brand, the equity of the mother brand, and this happened. And then after that, we saw opportunity in the Brazilian markets to launch the only pure malt beer really that's drinkable. So it was a drinkable liquid. So a drinkable liquid, but with still the signature of a pure malt beer. It's not easy to do. I mean, that's why all the pure malt beers in the market -- or they are bitter or they have a kind of a note -- a flavor that not goes down round. So we have a patent process to really brew a liquid that's really fresh, really light, that's drinkable, but with this signature. We tested a lot. We learned, in terms of the liquid design, a lot in the last years. All the research that we've done, that's not only volume accretive for the brand, expand the industry, gain share for the brand and help the mother brand like [ in the experience ] of Brahma, did with Brahma. So in my reading based on the research and the initial, I would say, results that we have for the family of Skol and for Skol pure malt, we're very excited about this concept of the family of beers that goes down round and excited about the launch of Skol pure malt than the last variant that's just launched in the market. By the way, the carnival of this year will be a great opportunity for the Brazilians to try Skol pure malt. That's really -- and maybe if you come here to Brazil, we invite you to drink and to understand what we're saying: drinkable, light, but with the signature in terms of the flavor of a pure malt. The only one in the market that has that.
And our next question comes from Alex Robarts with Citi.
So it really is just around your big picture thoughts on innovation. We've seen now in the last 6 months 4 launches, right, in Brazil Beer and a couple responding to the value segment growth, a couple to this flavor malt hops concept that you're just describing. And so it's an unprecedented amount of innovation when we think about the history of your company. So the question is twofold. Are we kind at the point where you're feeling comfortable with the portfolio? Are we in midstream of a spur of innovation? Just kind of getting your sense on the kind of phasing of this innovation as we think about this year. And then the benefits clearly you're describing to us, volume uplift, consumer preference and alignment and such. What about if you could comment on the cost side or the expense/cost side of this innovation? You've told us in the past that there's room for efficiencies in OpEx. I would assume these small batch type of productions in the northern states are costly or more malt and more hops are costlier than rice and corn. And I guess just, do you feel comfortable on the cost side and expense side that there is not expected to be an incremental change this year in Brazil Beer? Or any comments around that would be great.
Alex, thanks for the question. I think, yes, let's go back and talk again about the long-term plan that we have and the pillars of the top line growth and EBITDA growth that we -- in terms of growing volumes and revenues. So first thing is to accelerate premium, second [ one is to elevate ] the core and the third one is drive smart affordability. And innovation is part of all of those things. So it's part of the DNA of the company, have been investing a lot not only in process but in training our team, investments in terms of trying to find the best liquids. For instance, 2 years ago, we launched a new innovation center in Rio de Janeiro. That is an amazing place with technology with the best brewmasters of the world really to test liquids. And then we have been working on that in the last, I mean, 3 years, so bit time. And sometimes, the process is not so 2 plus 2 is 4. Sometimes you find a liquid and then that's not that perfect to us because you are talking about big, big brands. You need to really, I mean, do it right. Sometimes -- I mean, we could launch Skol pure malt in July, but we thought that was important to go to Skol Hops first to bring this knowledge, the quality -- I mean, knowledge of beer that Skol -- it's a wheat beer [ and needed. And then I go ], let's go to Skol Hops [ with knowing that the quality will not be ] amazing for Skol because [ we know ] it's hops lager. It's a slightly bitter, drinkable. So we'd assure that we would launch Skol Hops during the summer, during the carnival. That's what we're doing. So we don't manage the innovation process that we have, I mean, quarter-by-quarter to come here in the call and I mean, please ourselves to no damage. I mean, we think long term and we really make the calls to do the right things. So we ask, maybe -- I mean, given all the things that I've been [ seeding ] in all of those years, last year was a year that lots of innovation were [ reputable ] and then if then with the route to market, our execution systems here to deal with them. We are doing very, very well, and I think that will always be a part of our DNA, continue to innovate for the future. But yes, we -- I'm very happy with the portfolio that we are -- that we have. So premium, it's amazing. It's growing. It's gaining share. It's a portfolio gain, and we continue to gain share. I can see not only in the numbers of market share, but I could see when I go to the street, talk to people. So -- I mean, people who drink premium brands in different occasions. And the portfolio is there. I see [indiscernible] talk about that maybe. We are [ steady ]. The portfolio is really good for us to offer that. And then you have the 2 most important brands in Brazil of the brand -- the brand power, that's Skol and Brahma, and I think innovation is part of that. The variants are doing well, and then we have all the initiatives of smart affordability there. I mean, just a comment [ in the orders that could come ] as well. So -- and in terms of the cost of the liquids and stuff like that, I think that we know -- I mean, we have this culture of [ onus ] to be efficient really to try to find the money with better process, technology helping us to really make sure that our cost base is low. But we will never, and we never in the past, and we will never compromise the quality of our liquids. Everything starts from the liquid that's in a bottle, in a can and this is -- I mean, it's always been a part and even more, a mantra. We have the better -- the best liquids in the market, and we will not compromise the quality, I mean, never in terms -- because of cost. We could find the cost elsewhere and we -- and then we have the [ B2Bs ] and have all of this stuff, but make sure that the liquid is the best liquid that we have, the best quality in all of our brands. So I'm really confident and happy with the portfolio that we have nowadays and pushing the team to continue to innovate because this is a market that will continue to change and I need to be ready for the next 5 years. But currently, happy with the portfolio.
And our next question comes from Leandro Fontanesi with Bradesco.
I also have 2 questions. The first one is we have been seeing bottle makers in Brazil reporting that they are at a high capacity utilization. I was just wondering if you have been seeing any sort of restrictions or bottlenecks so far. Or if this is a concern for you, do you think these volumes are accelerating in the market going forward? And the second thing is if we could bring some more color on Canada. So volumes decreased 4%. Correct me if I'm wrong, this used to be a fairly stable market and we saw this big decrease in volume. So just wondering what happened there. Is this something related to cannabis-infused drinks or something like that?
Thanks for your question. On the first one on the bottle makers, we have no issues at all. Not only we have -- we see no issues from our suppliers, but we also have some of our own bottle brands. So combining both, it's not an issue, and then we are not even hearing anything about it in our operations. On the second question in Canada, I think Canada is a very mature market. It's a very profitable market. But of course, as all mature markets, it has its own challenges. I think what we've been seeing is that similar to other places, it's getting more and more premium and we are investing a lot behind that. Our premium strategy is working, but it's even more of a portfolio gain in other less mature markets. So you should expect like consistent growth over time. Although it's fair to say that 2018 was not necessarily a great year. On your question about cannabis, it's too early to say. But there is a lot of discussions about it, but there is no hard evidence that it's helping, working against or making any meaningful impact on the beer category so far. I think it's something we have to learn about.
Got it. Just a follow up on the first question, you can -- what percentage of your production you can supply internally for bottles? Do you disclose that?
We -- it's around 50%. So 50% of our volume we can supply by our own [indiscernible] facilities.
And this concludes our question-and-answer session. I'd like to turn the conference back over to Mr. Bernardo Paiva for any closing remarks.
Okay. Thanks for the attention, everyone. Before we finish our call, I'd like to close saying that we are confident -- very confident that we are evolving in a consistent way with our commercial strategy and the innovation pipeline. In Brazil specifically, we are certain that the premium market is a portfolio gain, as I said and I have been saying a lot, and that we are in a very strong path with the portfolio that we have to continue to gain share in this segment, like we have been doing in the past several months. We're also very positive about the rebound of the economy in the country, in Brazil. We have a portfolio of brands in our core that are really, I mean, amazing as Brahma, as Skol. [indiscernible] Brahma and Skol really leading the way. The innovations behind those brands, Brahma in the past and Skol now, are really proving to be a success. So the core segment is even more strong.
We have been launching initiatives for the various segment to increase our share of segment, but we think that the segment will contract like we saw in the last 2 or 3 months because, I mean, if the economy is doing better, if you think that [ it will and I think it will ], there should be a trade up. So the premium will grow and the core will grow and we will be in a much better shape that -- to really fully benefit of this rebound of Brazil. I think that we are exiting this crisis -- I mean, the country, I hope, and a very -- much better place and shape that [ we'd like to enter ] years ago. So we're ready to fully benefit for the rebound of the economy that everyone here expect in the country.
So thank you. Have a great day. Enjoy the rest of your day. Thanks again.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.