Ambev SA
BOVESPA:ABEV3
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Ambev SA
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Good morning, and thank you for waiting. We would like to welcome everyone to Ambev's Fourth Quarter 2019 Results Conference Call. Today with us, we have Mr. Jean Jereissati Neto, 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, 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 being 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 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 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, percentage changes refer to comparisons with 4Q 2019 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, EBS (sic) [ EPS ], EBIT and EBITDA on a fully reported basis in the earnings release.
Now I'll 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 2019 Fourth Quarter and Full Year Earnings Call. I will guide you through the financial highlights, including below the line items and cash flow. After that, Jean Jereissati will give more details about our operations in Brazil, CAC, LAS and Canada.
Beginning with the main highlights. On a consolidated basis in the fourth quarter, top line grew 5.7%, a combination of volume increasing 3.4% and net revenue per hectoliter up 2.2%. In the full year, net revenue was up 7.9%, with volume growing 2.7% and net revenue per hectoliter growth of 5%. EBITDA reached BRL 6.9 billion in the quarter, an organic decline of 2.7%. And the EBITDA margin decreased 370 basis points to 43.7%. In the full year, EBITDA was up 1.5%, with margin contraction of 260 basis points to 40.2%. Our bottom line performance was impacted mostly by a higher cost of sales resulting from significant commodity and transaction currency headwinds.
Normalized net profit for the quarter was up 24.4%, delivering BRL 4.6 billion. In the full year, normalized net profit was BRL 12.5 billion, 8.5% higher than 2018. Our cash flow from operating activities was BRL 18.4 billion, in line with 2018. CapEx in 2019 was 42% higher than in 2018, with most of the increment driven towards innovation. Similar to last quarters, we continue to report the results of our operations in Argentina applying Hyperinflation Accounting.
I will now move to our divisional results and start with Brazil. In the quarter, Brazil EBITDA reached BRL 4 billion, a decline of 6.6% versus Q4 '18, while margins contracted 450 basis points to 45%. In the full year, Brazil EBITDA was BRL 11.7 billion, with a decline of 4.5% versus 2018, while margins contracted 500 basis points to 40.9%. In the full year, cash COGS per hectoliter increased 18.4%. We missed our guidance of mid-teens mainly due to package mix. In the quarter, Beer Brazil top line grew 1.2%, with a volume increase of 1.4%, while net revenue per hectoliter declined at 0.2%. EBITDA for Beer Brazil was down 12.5% in the quarter, with margin contraction of 710 basis points to 44.9%. Cash COGS per hectoliter grew by 17.5%, impacted by commodities and FX. In the full year, top line in Beer Brazil increased by 5.6%. Volumes were up 3.2%, while Nielsen reported industry growth of 2.4%. EBITDA was down 6.5% with margin contraction of 530 basis points to 41.6%. Such margin contraction was mostly linked to FX and commodity cost pressures.
In NAB Brazil, top line was up by 13% in the fourth quarter, the result of a 16% volume growth and a net revenue per hectoliter decline of 2.5%, driven by a different pricing calendar than in 2018 and affordability initiatives. EBIT (sic) [ EBITDA ] in the quarter increased 51.8%, with margin expansion of 1,160 basis points to 45.3%. In the full year, top line in NAB Brazil increased by 16.1%. Volume grew 11.3% and EBITDA was up 9.5%, with margin contraction of 230 basis points to 37%.
Moving now to Central America and the Caribbean. We continue to be very excited about the Central America and Caribbean. In the fourth quarter, net revenue grew 9.8%, a combination of a 4.3% increase in volume and a 5.3% net revenue per hectoliter growth. EBITDA in the quarter reached BRL 885 million, posting a double-digit growth of 19.1%, once again driven by a strong performance in the Dominican Republic and margin expansion of 350 basis points to 45.3%. In the full year, top line in CAC increased by 10% and EBITDA was up 22% to BRL 3 billion, with margin expansion of 440 basis points to 43.8%. The other operating income increase in the year is mainly explained by the $18.5 million insurance compensation we received for the damage caused by the Q3 '17 hurricane season in the region. Without such compensation, EBITDA growth would have been 19% in the year.
Switching now to Latin America South. Top line grew 13.8% in the quarter with a net revenue per hectoliter growth of 13.7%, while the volume was flattish, increasing 0.1%. In Argentina, we saw the second half of the year with better trends than the first half. Meanwhile, social unrest in Chile and especially in Bolivia, both affected performance in 4Q '19. EBITDA in LAS for the quarter was up 2.2%, with margin contraction of 540 basis points to 46.9%. Cash COGS per hectoliter in the quarter increased 18.7%, mostly driven by FX and inflation. In the full year, top line in LAS increased by 15.1% and EBITDA was up 12.3% with margin contraction of 110 basis points to 43.8%.
Turning now to Canada. In the fourth quarter, top line in Canada declined 0.5%, a combination of a 1.0% net revenue per hectoliter increase and a 1.5% volume decline, which was mostly driven by a soft beer industry. EBITDA reached BRL 517 million, 16.4% lower than in the fourth quarter of 2018, with margin contraction of 560 basis points to 29.3%. Cash COGS per hectoliter increased 17.8%, negatively impacted by increased commodity prices, higher mix of imported beers and lower dilution of fixed costs. In the full year, top line in Canada decreased by 1.9% and EBITDA was down 10.7%, with margin contraction of 290 basis points to 29%. As one of the many efforts to increase volume in our ready-to-drink category, we announced the acquisition of Goodridge & Williams Distillery, the producer of Nütrl, one of the fastest-growing RTD brands.
Now back to consolidated figures below EBITDA. In the fourth quarter, net financial results totaled in an expense of BRL 1.6 billion, 6% lower than in 4Q 2018. The main items in the financial expense in the quarter were: first, interest income of BRL 151 million driven by our cash balance; second, interest expense of BRL 346 million that also include interest incurred in connection with the Brazilian Tax Regularization Program as well as a noncash accrual of approximately BRL 70 million related to the put option associated to our investment in the Dominican Republic business; third, BRL 576 million of losses on derivative instruments, which were up year-over-year, explained by the increase of FX hedges carry costs linked to our cost of goods sold and CapEx exposure in Argentina; fourth, losses on nonderivative instruments in the amount of BRL 537 million mainly explained by an adjustment in the fair value of the put option in the Dominican Republic and by a noncash intercompany FX variation, mostly linked to the Argentinian peso depreciation; fifth, taxes on financial transactions in the amount of BRL 72 million; sixth, BRL 183 million of other financial expenses, partially explained by accruals on legal contingencies and pension plan expenses; seventh, BRL 93 million of exceptional financial expenses, mostly explained by a state amnesty payment; finally, eighth, BRL 92 million of financial income related to noncash income resulting from the adoption of the Hyperinflation Accounting in Argentina. In the full year, the effective tax rate was 5.8% versus 13.5% in 2018.
Cash generated from operating activities in Q4 2019 was of BRL 9.6 billion, which is 9.6% higher than last year. In the full year, cash generated from operating activities is stable, reaching BRL 18.4 billion. CapEx reached BRL 2 billion in the quarter and BRL 5.1 billion in the full year, increasing 42% versus 2018.
Before I pass on to Jean, I'd like to welcome Lucas Lira as incoming CFO as of April 29. I have been working closely with him for the last 15 years, and I couldn't think of anyone better prepared than him for the challenges ahead. Thank you very much. Jean will now share some of the initiatives and thoughts on Ambev's operations before going to Q&A.
Thank you, Fernando. Hello, everybody. Good morning, good afternoon. First of all, I would like to thank Bernardo Paiva for his almost 30 years of service to Ambev. We wish him the best of luck and success going forward. Since this is my first call, I would like to focus on 2 things: quickly review 2019, what worked, what didn't; and share my perspectives on 2020 and beyond.
Facing the brutal facts, 2019 was not an easy year. FX and commodities headwinds, pretty much across the board, significantly impacted our profitability. We had a tough operating environment in important countries like Argentina's macro environment and Bolivia's social unrest.
The second half of the year was not good, particularly in Brazil Beer due to competitive dynamics, and we continued to see industry headwinds in Canada. On the other hand, 2019 was also a year where we delivered some important results and continued to invest behind our future growth. In Brazil, beer volumes were back to growth, and our top line was more balanced. Our high-end portfolio delivered very solid performance, growing double digits. Our innovation pipeline continued to connect with consumers and increase its relevancy in our results. And NAB had an overall excellent performance.
Meanwhile, CAC continued to deliver consistent, strong results, not only in Dominican Republic, but also in Guatemala and Panama. In Canada, we continued to place important bets in our innovation pipeline and beyond beer portfolio. And last but not least, we pushed ahead on our transformation journey of becoming more consumer-centric, more customer-centric and digitally transforming our business.
If we take a closer look at Brazil Beer, volumes grew 3.2% and net revenue per hectoliter increased 2.4%. Meanwhile, industry estimated by Nielsen to have grown 2.4%.
Speaking of our brands, the Skol family was back to growth in the fourth quarter, and the year was stabilized with the launch of Skol Puro Malte. Brahma brand power improved, and the brand remained innovative, such as the recent launch of Brahma Duplo Malte. Each of Budweiser, Stella and Corona grew double digits, as was the case with some of our key domestic premium and craft brands, such as Original and Colorado. Though still early days, the debut of Beck's in the Brazilian market has had a great momentum. Our smart affordability brands such as Nossa, Magnifica and Legtima continues to connect with more and more regional consumers.
Turning to Brazil NAB, we had an outstanding year with 11.3% volume growth, 16.1% net revenue and 9.5% EBITDA growth. This result was driven mainly by initiatives in premiumization and smart affordability. Also, our dedicated innovation team for NAB was responsible for the launch of Natu, an all-natural soft drink made from Guaraná, different juices, fruits and stevia. And we also came out with the new Visual Brand Identity for Guaraná Antarctica.
CAC continued to deliver excellent results in 2019. Balanced top line growth with 5.3% volume and 4.4% net revenue per hectoliter growth, 22% EBITDA growth and 440 basis points of EBITDA margin expansion. These results were driven by the strong brand performance of Presidente in Dominican Republic, Atlas Golden Light in Panama and Corona and Modelo Especial in Guatemala as well as package innovation.
In LAS, we had a very volatile year with a challenging macroeconomic and political backdrop throughout the region. Volume declined 3.5% while net revenue grew 15.1% and EBITDA increased 12.3%. Argentina suffered during the first half, however, volumes started to perform better in H2. Although given the FX devaluation, costs remained under pressure. Both Chile and Bolivia suffered social unrests in Q4, which impacted volumes. On the other hand, we feel that our portfolio is healthy and we are well positioned in all countries to benefit from a more stable operating environment.
Lastly, Canada had a very tough year with volume decline driven by a soft beer industry and commodity headwinds, leading to a 10.7% decline in EBITDA and a margin contraction of 290 basis points. We will continue to focus on further developing our portfolio with brands like Michelob Ultra, while in parallel, we will invest in other categories, such as CBD, seltzers and ready-to-drink beverages, an example being the recent acquisition of the Nütrl brand, an award-winning spirits company. So all in all, strong first half, weak second half, some important accomplishments related to our plans for the future. That's pretty much 2019.
Now let's talk about the future. 2020 is a year where we have to do better, and I believe we can do it, particularly resuming EBITDA growth in Brazil Beer while transforming the company. There will continue to be cost pressures due to FX headwinds, albeit to a lesser extent, given commodities tailwinds, and we will face tough comps in the beginning of the year, particularly in the first quarter, given the peak of cost pressures as well as [ S&M phasing ].
That said, there is still plenty of opportunities going forward. It is up to us to leverage our capabilities and strengths to win in the market. And to do that, we will focus on 3 things: First, Ambev as an ecosystem. We are part of a broader ecosystem that connect farmers to consumers, and we have to be protagonists and collaboratives to accelerate the expansion of this ecosystem in a healthy and sustainable way. In the front line, this translates into customer satisfaction, becoming the best partner to our clients. For instance, in Brazil last year, according to our internal figures, we saw an improvement of 16 points in Net Promoter Score, which measures customer satisfaction. Also, we have dreamed big and set the most ambitious goals in terms of plastic pollution of the industry. We want to get rid of 100% of our plastic pollution by 2025. In addition, we foster our people's creativity and drive to bring positive impact with initiatives like AMA in Brazil, our mineral water that reverts all the profit obtained with the products to give clean water access to Brazilians in need.
Second, innovation as a mindset. The success of our innovation pipeline is the best metric of our consumer centricity. We are working on innovating more and smarter, moving faster, adjusting with learnings and when successful, rolling out leveraging our scale. Just to illustrate how innovation is here to stay, in 2019, 10% of our Brazil Beer revenues came from products that did not exist 3 years ago versus 5% in 2018. We are organized to innovate in 5 dimensions in Brazil Beer: a flavors profile and bitterness, health and wellness, regionalism, convenience, and the future beverages. To support this, we reshaped the whole organization, creating the innovation hubs that work more autonomously and in agile modes. We have invested more CapEx to improve the flexibility of our breweries and ability to innovate, bringing the supply time to market to 2.5 months. We believe this will be a competitive advantage as we continue to evolve along with consumers.
Third, business transformation enabled by technology. I know there is a lot of hype around transformations, but we are going deep here and I'm happy with the early stage results. Through the continued expansion of our B2B platform, we believe we can deliver better service level and create new commercial opportunities for our customers. We will be ready for a 24/7 order taking, to talk in social platforms to drive traffic to customers and have regional marketing structures to have the right timing and create the right content. In Brazil, we are connecting digitally with more than 220,000 point of sales today from approximately 50,000 in the beginning of 2019.
The supply chain of the future is another initiative that combines autonomous operators, sensors and state-of-the-art lines. This way we ensure we bring flexibility to address a more complex world without increasing costs. And on top of that, we are seeding new ventures to address in-home delivery, point-of-sale marketplace and fintech, just to name a few.
So to wrap up, we see a lot of opportunities across our operations, like trade up, trade up to core plus, trade up to premium, per capita growth and new beverage categories, just to name a few opportunities. All of this in a company with a strong team and a talented pipeline, a robust cash flow generation that allow us to have the right resources to invest behind our brands to connect with consumers, a large and diverse portfolio and a clear strategy and priorities. I'm not saying the road ahead will be free of bumps and turns, but we are no strangers to operating in volatile and uncertain markets. And there will always be competitive pressure. We love a good challenge.
Over the last decade, we have delivered consistent results more often than not, and it is up to me and my team to live up to that legacy. And we are looking forward to win.
So thank you. Thank you, everybody. I think we can now move to the Q&A.
[Operator Instructions] Our first question comes from Isabella Simonato with Bank of America.
I would like to know, based on your guidance for Q1 with the almost 20% EBITDA, [indiscernible] so if you could address the main lines of the P&L, what will contribute to the EBITDA decline. If you could give us some more color, contribution of each line to the decline? And moving forward in the year, within those lines, where is the main driver of recovery here so you can deliver an EBITDA growth in the full 2020?
Isabella, Fernando here. Let me put a little bit of context behind it. We are excited about 2020. And we expect to grow EBITDA in 2020. But given when we look at our cost of goods sold kind of quarter-by-quarter, it's fair to say that the peak cost pressure is going to be in the first quarter. And also, we decided to kind of invest a little bit ahead of the curve in terms of sales and marketing because we are excited about the year, so there's going to be more investment in the beginning of the year. When we couple these 2 things, then it leads to a tough Q1, but we've seen the strategies that we have for the year, that's why we decided to be upfront about it, so we don't surprise the market. But our view is actually growth for the year. We just want to highlight that it's going to be starting from a low base because we are investing ahead of the curve and we have some cost pressures in the beginning, but we gain momentum as the year goes by.
But regarding the cost curve, when you look especially at the FX, actually, we would expect the stronger pressure to come in Q4, right when BRL depreciated the most. I mean the hedging policy continued to be the same. You had 1 year in advance. Or was anything different that would explain the cost pressure to be stronger in Q1?
No, it's a combination. It's a combination of FX and commodities. And it's always -- whenever you see year-on-year, you always compare it to the previous year. So we expect the biggest cost pressure to be Q1.
And just -- sorry, just to reinforce. We mentioned that there are FX cost pressures. We have commodity tailwinds, so the net-net is less cost pressure than we had in 2019.
The next question is from Antonio Gonzalez with Crédit Suisse.
Well, firstly, Jean and Tennenbaum, congrats on your respective appointments recently, and my best wishes for both of you. I have 2 questions, if I may. First, Brito referenced this morning at the ABI call, revisiting the category expansion framework, right? I mean, some parameters of the model anyway: affordability, price elasticity and so on. And he cited some examples, Mexico, South Africa, Colombia. And I was wondering if you can elaborate on how this might apply to Brazil. Specifically, I mean, if I look at this quarter, it is obvious that you guys pursued more volume instead of margins, right? And your pricing was a little bit more aggressive, et cetera. So I wanted to ask if you can frame this conversation for the very specific case of Brazil. And if you expect that volume acceleration to materialize already in 2020? Or you would only expect a more gradual progression towards higher volume growth rate into the future? So that's number one.
And then number two, I wanted to ask on your guidance, and I guess the metric that you feel comfortable sharing with the market. You guys are not sharing a specific range of COGS per hectoliter for this year, right, as you did in the last couple of years. And also ABI is providing this range for EBITDA growth, right, 2% to 5%. So I understand that providing a very granular number market by market for you guys might be competitively sensitive. But I wanted to ask if, directionally, you can put in perspective this guidance from ABI. Would you expect a similar growth rate? Or is there any reason, perhaps a profit warning that you're launching for 1Q in Brazil that should drive your overall growth below the range that ABI has indicated.
Antonio, let me start by the second question. Fernando here. And then Jean would take over the first one. I believe our guidance at the end of the day is kind of to grow EBITDA in Beer Brazil. That was the important guidance. I believe they -- you were calling quarter 1 here. I will not say if I would call it the same way because it's much more of a part of our strategy to invest a little bit ahead of curve. And some kind of a hedging dynamics that you know that your cost of goods sold is a little bit a little bit harder on the Q1. When we have these 2 things, if we issue the guidance to grow EBITDA, and we start with a very low Q1, I believe that, that could cause some noise. So we'd rather be upfront about it. It's part of our strategy. We want to invest ahead of the curve because we are excited for the year. And so that's why we kind of give a very clear view on the Q1.
To a similar extent, I believe, a couple of years ago, we also gave guidance on cost of goods sold on such drinks between Q3 and Q4, because the numbers were kind of very volatile, and it was important to give the right direction to the market. So that was the context of the Q1 more than anything else. But to answer the question, the guidance for Q1 doesn't impact anything at all our view for the full year. It's pretty much how we designed our plans since the end of last year.
Antonio, Jean here. Coming back to your first question. We are -- we had been very excited about the category expansion framework. And we -- for the whole year last year, 2019, we have been tropicalizing it with this view about consumer-centric and looking for the Brazilian mindset. We made more than 30,000 interviews in Brazil with consumers, 15,000 samplings of products in the market, new from competitors. We created in our Draftline, internal agency, one area of social listening that we participate. And we captured more than 16 million conversations about beer and based on that, we kind of tropicalized the category expansion that came initially from SAB to Brazil, a little bit more complex, a little bit more deep. And based on that, we are really putting our efforts of resource -- in our efforts of really differentiating the brands based on the occasions. And then fulfill this framework with the pipe of our -- pipeline of innovation. And based on that, it was that Skol Pure Malt was launched and it was a biggest contributor of our volumes in 2019.
With that framework, we brought Bohemia, that it was a brand that was very low profile to the core plus segment in the classic lagers, and it's really on fire. And with that, too, we implemented the smart affordability play with the regional brands and Magnifica is doing amazing, Legitima and Nossa are doing good, too. So we are very excited about the way we are picturing the market today and how the market will be in the future. Category expansion is really driving us but in a deeper way because we tropicalized it. And we saw our volumes back to growth in '19 based on that learnings and based on the first initiatives that we have. And we believe that it will continue moving forward based on that strategy, our volume will continue to gain momentum.
Of course, Brazil is very volatile. For example, the Q1 that we have in 2019 was a very strong Q1 in terms of volumes. And we believe that in the bumps in the road, we want to see volumes really going up consistently.
The next question is from Luca Cipiccia with Goldman Sachs.
I guess congratulations to both of you for the new roles. And I was going to ask 2 questions. The first would be on -- to Jean, on pricing strategy and timing going forward. I was wondering, clearly, over the last couple of years, there's been friction between supportive volume growth, pricing, timing, competitive pressure, promotional activity and so on and so forth. So my question is more, should we think about the future with Ambev possibly being a bit more flexible with the way the prices are passed through into the market. We used to have a little bit of a calendar fix in the third quarter. And I'm curious to hear your views on whether that's still going to be the case. Or you may be more opportunistic or anything may change on that front. That would be the first question.
And then secondly, I think you make reference to a number of investments in technology, digital opportunities and I guess, there's a lot of that is going on in that space. And I was curious if you could maybe nail it down to -- if you were to mention one particular initiative or one particular capability, where do you see things that could have the bigger impact for the performance. But also, where do you see that Ambev actually could have a big competitive advantage in doing some of this, implement some of this initiative, whether it's through scale, whether it's through proprietary capabilities or whatever else? I'm just curious to maybe narrow it down a little from a priority or impact standpoint.
Okay. Thank you very much, Luca, for the question. Look, over the long run, price really should grow in line with inflation, eventually, disposable income. And what we have learned over the last few years, talking about the higher-level strategies, is that depending on the economic environment, sometimes it's preferable to adopt a more inclusive pricing strategy in order to bring more consumers to the category. What we see in Brazil, it is that everybody is very optimistic. We see a little bit confidence going up, but Brazilian consumer is still -- income is still not recovering with strength. And so we have to be very cautious about that, looking at this number.
On top of that, when we lay out on the execution, on the decision of the calendar and the pricings, we always take in consideration besides the macro scenario, the elasticities, the channels. That is an important thing here in Brazil, the channels and the mix trends, the category expansion opportunities, where we are bringing a lot of innovation that we have the mindset of being accretive. So it's part of our plan, and the competitive dynamics.
When we see from 2015 to 2018, with the economic crisis, our volumes declined 10 million hectoliters. In -- and we have a very rigid, and we very disciplined price strategy, independent if we were with a positive macro scenario or if we're in crisis. And we suffered some million hectoliters because of that. In 2019, we saw consumer sentiment improving, even though disposable was not rebounding, but we were making progress to recover 2.3 million hectoliters of volumes with the conduct that we had last year, even though the calendar, it is something that kind of -- it was kind of frustrating a little bit last year because it was very volatile. We see the Q3 a little bit going through the Q4. It was something that we have to working on to do it better.
So having said that, long term should be in line with inflation. Our volumes are really based on our category expansion framework that we want to -- that we are deep, and we want to bring. But we have to be smart in the dynamics of Brazil, in the sentiment of the consumer, in everything.
Regarding technology. So regarding technology, so we are very excited about what we are doing with technology. We are -- so we are doing a lot of things that are in adjacencies, okay? But what I'm really am excited about, it is the transformation of our contact strategy. So we have a window of opportunity. I checked with other FMCGs, looks like we are ahead of the FMCGs that we have in the market, not even mention the beverage companies, but the FMCGs in general. We already have 220,000 clients that connect with us through the digital platforms. Our sales reps are really transforming their activities in a more negotiable, more talking about liquids, talking about innovations. And we want to, around our B2B platform, really protect the on-trade, reduce the cost of on-trade and increase our service satisfaction because we want to put not just beer, but all the categories that a small buyer needs to buy, all the categories around not just about beverages with a marketplace. We made a deep study on pain points of the on-trading. And one important cost and pain point, it is the financial costs of machines, credit cards. And we are, together with this strategy, putting in place a fintech that reduces big time the cost of the on-trade.
So this contact strategy, this upgraded B2B to a broader marketplace with assortment, that can connect with social platforms where we can bring consumers to the customers that we want, it's something that is really having my time. I'm really excited about it. So this contact strategy of the future going much beyond the transactional activities in bringing traffic, reducing pain points and costs, I really think will create an edge for us in the market.
Very clear. Just real quick, this 220,000 that you mentioned, that would be a share of total or out of a total? Or -- could you put that in context maybe or -- and whether maybe...
25% of our clients that...
25%.
Have some type of connection through digital.
The next question is from Robert Ottenstein with Evercore.
Just first one, I want to echo the congratulations to everybody in terms of their terrific accomplishments, Bernardo and the big moves that have been recently announced. In terms of the quarter, I just want to push a little harder on a couple of things. The revenue per hectoliter for the beer being down, if you could talk a little bit about -- kind of piece that apart? And particularly, what impact the smart affordability initiatives had on that? Maybe give us a sense of how much of your mix is smart affordability and the impact on the volume. So that would be the first question.
And the second question, a little bit follow-up on the technology side and some of the new initiatives that you talked about at your sell-side or investor event in Brazil last year is where things stand in the direct-to-consumer initiatives. What sort of progress you've had since then? Perhaps what percentage of the country is now -- with the logistics work, which is now covered by direct-to-consumer, and where do you see that going?
Thank you, Robert. Thank you very much for your question. First of all, talking about net revenue per hectoliter. What happened in Q4? As we anticipated in Q3, it was much more about the competitive dynamics and the stickiness of the price increase than the smart affordability play, okay? So the smart affordability play, for you to know, is 10% of my volumes. We are happy with that. It is smart because we know where to do, how to do. What really happened in Q4, it was a little bit of the dynamics of the Q3 inside a part of the Q4, and we anticipated this in the last quarter.
Having said that, if you look at the level of the net revenue per hectoliter that I had in the Q4, it was a -- it is still with all of that, not in terms of percentage of growth. But in the level, it is a healthy level for us to start the next year, to start 2020, okay? So this is what I can tell you about net revenue per hectoliter.
The second thing is about the direct-to-consumer. Our vision is that this year we should get to 4% of our total net revenue with a direct transaction with consumers. The thing I'm more excited about -- the second thing I'm more excited about in terms of technology -- the first one I mentioned, it's the contact strategy of the future. The second one, it is part of our innovation hub that I mentioned. We are innovating in 5 dimensions: flavors, products with differentiation inside the pure malt, health and wellness, and then I put there, convenience. And in the convenience piece, there is a like a -- so demand from consumers. We are working a lot on packaging, lighter, bigger, smaller, more convenient packages, but we have a venture that's called Ze, Ze Delivery. It's a venture that guarantees beer at supermarket prices, cold, in 30 minutes at home. So this is a direct transaction with consumers, a great value proposition, and it's just on fire, okay? So this is the main initiative that we have for DTC. We are doing 2 million orders in 2019, and this is expanding very fast because we are expanding the cities, and it's a big opportunity for us. So in terms of DTC, Ze Delivery is the most important -- is part of our innovation hub, is a venture, and is really on fire.
And what part of the -- or what percentage of the Brazilian population is today reachable within 30 minutes? And where do you think that'll be at the end of the year?
Robert, I believe, for you to understand how Ze Delivery works, Ze Delivery, we connect consumers to our own -- our traditional point of connections or point of sales. So it's fair to say that pretty much most of the Brazilian population is within 30 minutes from a given point of sale.
But the app is still with the footprint. The app and the advertisement and everything is still in around 40 cities of Brazil, and we are expanding very fast. So the capability to go all over Brazil in the next 3 years.
The next question is from Thiago Duarte with BTG.
I have 2 questions. First of all is actually related to dividend payments and the timing of those dividends last year. I mean, last year, you didn't pay any interim dividends and you ended up paying a larger amount of interest on capital by the end of the year, which provided a bigger tax break in the fourth quarter. So my question would be whether we should expect the same dividend or capital distribution policy in 2020 and beyond? Or whether this was a onetime event, for any reason, in 2019? That would be the first question.
And second, going back and -- or circling back into the discussion about the revenue management initiatives. And as you guys mentioned, the frustration regarding the timing of the price increases last year and how that affected Q3 and into Q4. I think it was Jean who mentioned in the last question about having an adequate entry revenue per hectoliter in 2020. So if you could just elaborate that a little bit more. I mean, my question is whether you would say that the revenue management initiatives that were implemented in Q4 should exist only in Q4? Or we should expect a little bit more of that into the beginning of 2020, particularly with regards to how, historically, revenue per hectoliter has decreased in Q1 relative to the Q4. So just wanted to understand what's the cruise speed there in terms of revenue per hectoliter, would be helpful.
Thiago, Fernando here. So first, on your question on dividend payments, I believe we even have the same question on a couple of calls last year, and I think after the fact, now it's easier to understand the reasons why we postponed the dividend towards the end of the year. For this year, probably the base case should be something similar, but these things are dynamic, sometimes depends on FX movements, you might have FX components on our accounts, and you may have a different decision. But more likely than not, we should be following a similar pattern.
On the revenue front, I don't think your kind of assessment of normally -- you start on a higher base then you get into summer, which is normally a moment that we get a lot of volume, a lot of events. Sometimes you activate a little bit more. So your net revenues per hectoliter, it slips down a little bit. I don't think there is any difference but what I -- what Jean was referring to is that when you look at the absolute levels that we start the year, when you see where the market is, I believe it's a healthy level for us to start the year and implement our price and volume strategy going through 2020.
This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Jean Jereissati Neto for any closing remarks.
So guys, thank you very much. My first call with you. It was a little bit of a one-sided that I'm responding questions. I really want to be closer, have time in my agenda to be closer to you and get more feedback and make this conversation richer for me in this process of this journey that I'm assuming now. So thank you very much for all the questions, and let's keep in touch.
And the conference has now concluded. Thank you for attending today's presentation. You may now disconnect.