World’s Worst Currency to Weigh on Ambev’s Margins Through 2021

World’s Worst Currency to Weigh on Ambev’s Margins Through 2021

Brazilian brewer Ambev SA expects margins to recover at a slower pace than sales volumes in coming months as currency moves are likely to weigh on production costs throughout 2021, Chief Financial Officer Lucas Lira said.

The Latin American unit of Anheuser Busch InBev has a 12-month hedge policy in place, which helped the company blunt the impact a weaker real on the costs of good sold this year. The real is down about 30% this year against the U.S. dollar, the worst performance among major currencies.

“About 50% of our costs are dollarized,” Lira said in an interview, adding that Ambev is stepping up efforts to cut discretionary expenses while focusing more on customers. “We still don’t know yet which hedge level will be adopted for 2021 but it will certainly be above this year’s.”

Read More: Brazilians Used Covid Aid to Buy More Beer, Fueling Ambev Sales

Even with the cost pressure, the company has chosen not to lift prices to bars and restaurants, among its hardest hit customers amid the coronavirus pandemic. In other segments, such as supermarkets, price hikes were made later in the third quarter.

In the long-run, Lira added, Ambev’s pricing strategy tends to follow inflation.

The maker of Budweiser, Stella Artois and Corona lagers also sees potential to keep growing its market share in Brazil, as a more assertive commercial strategy and ongoing investments in innovation sustain a V-shaped recovery in volumes and revenues, he said.

©2020 Bloomberg L.P.

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