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No Fear on Long-Term Investment: AmBev 0

May 29, 2013

Brazilian brewer AmBev will not shy from long-term investments, its chief financial officer Nelson José Jamel has said, despite a challenging marketplace and weak first quarter earnings.

Jamel told LatinFinance in an interview that the company is considering further acquisitions and organic growth. He added that Ebitda remained strong in recent years despite difficulties in the industry.

"We doubt [the value of] cutting investments for the longer term," he said. "We still have a view that in the longer term volumes should grow, the industry should grow. The trick is how to go through tough times without jeopardizing the future.

"In the end, the big question we always face – even when we’re going through a softer industry – it is important not to lose sight of the growth opportunity you have in the medium to longer term."

Ambev expects to increase its capex spending in Brazil to accommodate growth in the regions, particularly in the north and the north east, Jamel said.

Capex in Brazil is set to triple this year from pre-crisis levels, although the company is unlikely to look to debt markets for funding, given its strong free cash flow, Jamel said.

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"We’re very pleased with the fact that over last years while more than doubling our capex we were also able to increase our payout to shareholders," he said.

Capex in Brazil this year is expected to come to around 3 billion reais, a record for the company, up from 2.1 billion reais last year and 1 billion reais in 2008.

AmBev moved quickly to crack down on costs, increase productivity and roll out new products in 2011 and 2012. That helped steady earnings as the industry faced pressures, including from higher taxes and lower consumer spending power as a result of food inflation.

"We’re exposed to commodities and currency," Jamel said. "In Brazil almost half of all our costs are exposed to the dollar."

Jamel said that an "important" depreciation of the Brazilian real over the past year hit the company’s costs. Earnings were further hit by prices swings for commodities including barley, sugar and aluminum.

The company posted net profit of 2.34 billion reais ($4.68 billion) at the end of the first quarter, up slightly from 2.31 billion reais in the same period last year. It revised its outlook downward for the remainder of the year on the back of weakening beer sales in Brazil, its core market. LF

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