William von Mueffling’s Cantillon Capital raises its AmBev stake


May. 14 2014, Published 4:39 p.m. ET

Cantillon Capital and AmBev

William von Mueffling’s Cantillon Capital Management’s saw one new position in its 1Q 2014 portfolio, in Sirona Dental Systems Inc. (SIRO), but no stake sales. Existing position increases included Fidelity National Information Services (FIS), W.W. Grainger Inc. (GWW), and Ambev SA-ADR (ABEV). Stake reductions included The Coca-Cola Co. (KO) and Waters Corp. (WAT).

Cantillon’s 3.9% position in AmBev SA (ABEV) in 4Q 2013 increased to 5.06% in 1Q 2014. Companhia de Bebidas das Americas (AmBev) is a Brazil-based company and a unit of Anheuser-Busch InBev NV.

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AmBev and its subsidiaries produce, distribute, and sell beer, carbonated soft drinks (CSDs), and other non-alcoholic and non-carbonated products in over 15 countries across the Americas. The company also has exclusive bottler and distributor rights for Pepsi CSD products in Brazil. AmBev’s portfolio includes beers like Antarctica, Brahma, Bohemia, Skol, and Stella Artois and soft drinks like Guarana Antarctica, Soda Antarctica, Sukita, and the innovations H2OH! and Guarah. The company conducts its operations through its business units: Brazil’s carbonated soft drinks (or CSD) and non-alcoholic and non-carbonated (or NANC) businesses, HILA-Ex (Hispanic Latin America excluding LAS), LAS (Latin America South), and Canada.

The São Paulo–based AmBev saw shares fall last month after the Brazilian government said it will raise taxes on beverages including beer, soda, and bottled water from June 1 after the country saw its first sovereign credit downgrade by S&P. But shares gained on news that the tax implementation has been postponed until September. The tax is expected to generate 1.5 billion reals ($680 million) through the end of the year and will have a minimum impact on inflation, according to newswires.

AmBev and its beverage peers, including Coca-Cola (KO), have been persuading the government to raise taxes following the FIFA World Cup soccer tournament, which begins in June.

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AmBev posted a 9.4% increase in first-quarter 2014 profit to 2.6 billion reals ($1.17 billion), from 2.37 billion reals ($1.07 billion) a year earlier, with quarterly earnings per share increasing to 0.16 reals from 0.15 reals last year. It saw 16.9% net revenue growth. The performance was mainly driven by Brazil Beer, with a strong 21.1% net revenue growth. In Brazil, volume performance was driven by a strong commercial execution supported by the success of Ambev’s “summer without price increase” campaign, good weather, reduced pressure from food inflation, and an easier comparable versus last year, including the benefit of a later Carnival holiday in 2014. The company’s market share was flat on a sequential basis at 67.5%.

HILA-Ex saw strong EBITDA growth, as AmBev continued to increase top line and capture margin expansion opportunities, mainly in the Dominican Republic. LAS reported double-digit EBITDA growth, driven by industry volume expansion of both beer and CSD in most of the countries AmBev operates in, along with gross and EBITDA margin expansion. However, Canada’s results were negatively impacted by poor weather, the impact of Easter sliding to late April in 2014, and the phasing of sales and marketing investments, leading to an EBITDA decrease.

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In terms of guidance, AmBev expects Brazil’s beer industry to resume growth in 2014 and net revenue growth in high single to low double digits in the full year. It said it’s revising downwards its capex guidance in Brazil as a result of the expected negative volume impact from the recent tax increase announcement. Capex in Brazil is now foreseen to be below last year’s level of 2.8 billion reals. AmBev said it’s focused on making the most out of the “unique opportunity” from the FIFA World Cup to leverage the equity of its brands and pave the way for future growth.

CSD & NANC should continue to outpace industry growth with successful initiatives expanding, such as the new Pepsi one-liter returnable bottle, Ambev said. The company will continue to pursue top line and margin expansion opportunities in HILA-Ex. In LAS, while cautious about the Argentinean macroeconomic environment, AmBev remains confident in its ability to continuously deliver solid results in the region, while in Canada, it’s working on the transition of Corona into its operations. Ambev said it’s continuing to manage the optimal balance between price, mix, and volume in order to keep growing its top line profitably for 2014.


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