No boundaries to growth

Transcription

1 No boundaries to growth 2004 Annual Report

2 1 Highlights 01 2 Footprint 02 3 Brands 04 4 Message to Shareholders 06 5 People and Culture 11 6 Beer Brazil 15 7 Soft Drinks Brazil 21 8 Hispanic Latin America (HILA) 25 9 North America Business Sustainability Social Responsibility Environment Corporate Governance Investment Alternatives The Team Financial Section 47

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4 Highlights % 2004 R$m R$m change US$m Income Statement Net Sales 8,684 12, % 4,103 Gross Profit 4,640 7, % 2,470 SG&A Expenses 2,334 3, % 1,234 EBIT 2,306 3, % 1,235 Net Income 1,412 1, % 397 Balance Sheet Total Assets 14,830 33, % 12,438 Cash and Cash Equivalents 2,534 1, % 567 Total Debt 5,980 7, % 2,943 Shareholders' Equity 4,363 16, % 6,395 Cash Flow and Profitability EBITDA 3,072 4, % 1,551 EBITDA margin 35.4% 37.8% - - Capital Expenditures 862 1, % 433 Return on Equity (%)* 32.7% 10.8% - - Per Share ($/1.000 shares) Book Value % EPS % 7.27 Dividends (ON) % 7.92 Dividends (PN) % 8.71 Dividends Payout 71% 114% - - Capitalization Market Capitalization (R$ million) 26,392 40, % 15,229 Net Debt 3,447 6, % 2,375 Minority Interest % 82 Shares Outstanding (000) 37,913 54, % - ADRs Equivalent (000) % - *Net Income/Shareholder's Equity (quarterly average). US$ Dollar amounts have been converted at an average exchange rate of R$2.93 or year-end exchange rate of R$2.65. Dividends include payments of regular dividends and interest on capital (net amount). Numbers may not add up due to rounding. Stock performance AmBev PN Bovespa EBITDA evolution R$ billion * % 31% 37% 35% 38% /15/00 12/28/00 06/29/01 12/28/01 06/28/02 *Announcement of business combination with Interbrew. Note: Indexed series = 100 (date of AmBev ADRs listing on NYSE). 12/30/02 06/30/03 12/30/03 06/30/04 12/30/ % Net sales % total % 2% 9% 64% Beer Brazil Soft Drinks Brazil Other Brazil HILA EBITDA EBITDA Margin North America* *North America consolidated since 08/27/04. 01

5 Footprint BRAZIL 02 AmBev Annual Report 2004

6 North America 22 million HL Canadian beer market 2 million HL exports to the USA 4 million HL of beer sold* US$208 million EBITDA* 37% EBITDA margin* *4 months of consolidation. Note: EBITDA margin for fiscal year 2004 around 30%. Brazil 85 million HL beer market 58 million HL of beer sold 19 million HL of soft drinks sold US$1,162 million EBITDA 40% EBITDA margin Hispanic Latin America (HILA) 51 million HL beer market* 18 million HL of beer sold** 10 million HL of soft drinks sold** US$189 million EBITDA 29% EBITDA margin * Considering only current markets. ** Considering 100% of Quinsa volumes. 03

7 From Alaska to Patagonia With operations in 13 countries across the Americas, we are a genuine American beverage company.

8 Argentina Beer market size (m HL) 13.2 Per capita consumption (liters) 34 Installed capacity (m HL) 16.1 Bolivia Beer market size (m HL) 1.9 Per capita consumption (liters) 21 Installed capacity (m HL) 2.8 Brazil Beer market size (m HL) 84.5 Per capita consumption (liters) 47 Installed capacity (m HL) 98.3 Canada Beer market size (m HL) 21.7 Per capita consumption (liters) 69 Installed capacity (m HL) 15.0 Chile Beer market size (m HL) 4.3 Per capita consumption (liters) 27 Installed capacity (m HL) 0.8 Dominican Republic Beer market size (m HL) 2.7 Per capita consumption (liters) 31 Installed capacity (m HL)* 1.0 Ecuador Beer market size (m HL) 3.2 Per capita consumption (liters) 24 Installed capacity (m HL) 1.0 Guatemala Beer market size (m HL) 1.7 Per capita consumption (liters) 14 Installed capacity (m HL) 1.4 Nicaragua Beer market size (m HL) 0.7 Per capita consumption (liters) 13 Installed capacity (m HL) - Paraguay Beer market size (m HL) 1.6 Per capita consumption (liters) 27 Installed capacity (m HL) 2.2 Peru Beer market size (m HL) 6.4 Per capita consumption (liters) 24 Installed capacity (m HL)* 1.0 Uruguay Beer market size (m HL) 0.5 Per capita consumption (liters) 14 Installed capacity (m HL) 1.1 Venezuela Beer market size (m HL) 14.8 Per capita consumption (liters) 57 Installed capacity (m HL) 2.2 * Represents beer plant under construction (estimated completion 2Q05). Note: Installed capacity refers to beer only (excludes soft drinks). Source: AmBev (capacity) and Canadean (market and per capita consumption estimates).

9 Brands Beverages for every occasion AmBev has one of the world s largest and most diversified beer and non-alcoholic beverages portfolios, with market-leading brands in most countries in which we operate. Our innovatively packaged product lines comprise beverages for every occasion, including beer, soft drinks, isotonic sports drinks; iced teas and water. They are products that satisfy widely varying consumer tastes and options, cutting across generations and styles, regions and borders. AmBev produces and markets some the world s top selling and most sought-after beers. Our very wide range of products includes some of the world's most consumed beers: Skol, the 3rd largest selling beer brand on the planet. In Brazil, it is the clear market leader and has held over 30% market share for the past four years. Its bold Skol Beats version, launched in 2002, revolutionized beer packaging in Brazil; Brahma is the most traditional beer brand in Brazil. Launched in 1888, it has held a dominant position in the market through its entire history. With a striking Brazilian personality, Brahma is the 8th largest selling beer brand in the world; Antarctica s origin dates back to 1885, and today is one of the top 20 selling beer brands in the world; Bohemia, founded in 1853, was Brazil s first beer. A century and a half later, it is still one of the country s most respected brands, now also coming in the Bohemia Weiss and Bohemia Royal Ale versions; Labatt Blue is the best selling Canadian beer in the world. In addition to Blue, AmBev s Canadian franchise brews more than 50 different brands, including Kokanee and Alexander Keith s. Quilmes, from Quinsa, comes in some 15 different varieties and is the top selling brand in Argentina; Brahva is our brand in Central America; In Brazil, we complete the offering of great beers with a range of additional 04 AmBev 2004 Annual Report

10 products, including Original, that maintains the original characteristic flavor of Antarctica; Caracu, a strong and nutritive dark beer originally from Ireland; Serramalte and Polar, from Brazil s south; and Kronenbier and Liber, non-alcohol beer brands. AmBev is also one of the major soft drink and non-carbonated producers and distributors in the Americas. Our soft drinks portfolio includes the number two Brazilian carbonated beverage, Guaraná Antarctica, one of the 15 top-selling soft drinks in the world, whose main feature is unique and unsurpassed flavor derived from the Brazilian guaraná fruit. Our portfolio in Brazil includes Fratelli Vita water. Moreover, AmBev is the second largest Pepsi bottler in the world and distributes soft drinks in many countries across the Americas, including the Southern Cone, northern South America, Central America and the Dominican Republic. Brazil alone is the world s third largest market for soft drinks, behind only the United States and Mexico, and AmBev is the second largest Brazilian soda producer. Our Pepsi partnership, initiated in 1997, has made it possible to integrate our soft drink product line with a world-class cola-flavored drink as well as accessing a wider portfolio, know-how and innovative flavor technology and the development of new beverages. It also involves bottling and distributing Pepsi products in Brazil and elsewhere around the Americas, with prominent brands like Pepsi-Cola, Pepsi-Twist and Pepsi X. We also produce and market Sukita, Soda Limonada and Tônica Antarctica, among others. Another outcome of the Pepsi connection is the production and sale in Brazil of the world s top selling isotonic sports beverage, Gatorade. And we also market Lipton Iced Tea in Brazil, the global leader of the ready-to-drink tea segment. 05

11 Message to Shareholders A genuine American beverage company In 2004, we consolidated our position as a genuine American beverage company, with operations in the three regions of the hemisphere extending from Patagonia to Alaska. We maintained a dynamic and expanding presence in the distribution and marketing of beer in each one of the countries in which we operate. We are the leader in the beer markets in Brazil, Canada, Argentina, Bolivia, Uruguay and Paraguay. We fulfilled the promise inherent in our name and the ambitious strategic goal established when Brazil's Brahma and Antarctica brewer-soft drink companies merged to form AmBev just five years previously. At the end of 2004, AmBev was poised for further growth after delivering 22% EBITDA real organic growth. We demonstrated during the year that our company has the people, processes and results-driven culture to be successful not only in our home market of Brazil but also beyond its borders. We have developed effective ways to replicate the best methods and practices that have worked so well for us in Brazil throughout the expanding AmBev network of bottling plants, distribution systems and beverages businesses around the Americas. This has involved a company-wide effort to ensure that we have the best people and policies in place in each one of our operations, enabling us to compete for market leadership in every segment and in every country we choose to enter. The bottom line is that the new, enlarged AmBev is the second-largest brewer in the Americas in terms of volumes and cash generation as well as the second largest Pepsi bottler in the world. Excellence in operations, and point-of-sale execution, strong brands and strict financial discipline were among the factors that 06 AmBev 2004 Annual Report

12 Along with overall market share increases, sales volumes, margins and profits were higher, in some cases spectacularly so, in all of the countries in which we operate. Carlos Alves de Brito Chief Executive Officer Juan Manuel Vergara Galvis International Operations Executive Officer allowed AmBev to engineer a consistent recovery of beer market share in Brazil, grow our Brazilian soft drink and non-alcoholic businesses and raise or maintain share in each one of the Hispanic Latin American markets where we do business. Along with overall market share increases, sales volumes, margins and profits were higher, in some cases spectacularly so, in all of the countries in which we operate. Of special importance was the performance of our strategic partner, Quinsa, which again delivered outstanding growth for us in the Southern Cone region of South America. But 2004 was particularly notable for us as the year we established, as of August 27, 2004, a major foothold in North America. AmBev and Belgium's Interbrew (now InBev) concluded a business combination that included the merger of Labatt Brewing Company Limited, a leading brewer in Canada, as a wholly owned AmBev franchise. The combination with Interbrew has led us into an exceedingly valuable global alliance with a top world player and given us a great platform for exporting to the U.S. and other international destinations, while the merger of Labatt into AmBev provided us a 41% volume share of the Canadian beer market. We are very enthusiastic about our prospects in North America and are working towards catalyzing the exchange of best 07

13 Message to Shareholders practices between Labatt and AmBev. We are focusing on moving up the learning curve to develop a winning strategy for this important new AmBev operation. The Labatt merger also led to an upgrade of AmBev's foreign corporate credit rating to Investment Grade level, the first Brazilian company to achieve such status. In December, Standard & Poor's Ratings Services raised AmBev's corporate credit rating to BBB- from BB- and also raised the local currency corporate credit rating to BBB from BBB-, reflecting the improvement in our business and financial profiles after the Labatt merger and Interbrew combination were concluded. As a result, we will have improved access to less expensive financing. Such recognition comes as no surprise to us. Everyone at AmBev is working on delivering long-term, sustainable results as a part of our performance-driven culture and the drive and leadership quality of our people. It should also be noted that although we are now concentrating on improving our existing operations around the hemisphere, we will continue to evaluate new opportunities in markets and countries where we are not yet present. 08 AmBev 2004 Annual Report

14 As our company's reach in recent years has quickly radiated outwards from Brazil through a combination of alliances, greenfield projects and acquisitions, we decided in 2004 to put a new management structure in place to fully benefit from the new opportunities that will be emerging. Consequently, during the year we designated one general manager for each of the new business units: Brazil, Hispanic Latin America (which we now call HILA ) and North America. The restructuring will substantially enhance our ability to efficiently manage our businesses across borders and continents. AmBev is a company that challenges itself every day. We have an unquenchable thirst for growth and we dream what seem to be impossible dreams - and then our unbeatable and highly motivated team rolls up its sleeves and works hard to make them come true. We became a genuine American beverage company in less than five years by setting very high goals and then systematically surpassing them: we expect nothing less from the future as we strive to achieve increasingly impossible margins and add economic value for shareholders. Around here, that's simply the norm! How we reach our goals 1 People & Culture 2 Top line growth 3 Improving distribution efficiency & execution 4 Continually reducing costs & expenses 5 Enhance profitability Financial discipline 09

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16 People & Culture Talented people, strong culture drive the business Talented people are one of our true competitive advantages. The people we recruit through the active participation of senior management are the best that can be found. The motivation, drive and leadership qualities of our people translate our ambitious goals into accomplishments. We are a youthful company (approximately 80% of employees are 35 years old or younger while the average age of executive officers is 42), made up of energetic overachievers each with many years of experience within the company who put in the long hours necessary to meet or surpass the tough targets we set for ourselves. Our culture helps us maintain market leadership Our always want more culture drives us hard and drives the business. We are different by choice and by conviction and each one of us is its guardian, responsible for the preservation and dissemination of our unique culture. Our culture is widely understood and accepted throughout the AmBev system in Brazil and around the Americas, giving us a further competitive edge leading to maintaining positions of market leadership, increased earnings and reduced costs. AmBev People Industrial 15,670 Sales and Distribution 14,739 Administrative 3,965 Total 37,374 Employees in December 2004, including Quinsa. 11

17 People & Culture Key elements of our culture Think big We achieve the unachievable by thinking big, dreaming the impossible dream. It is just as easy to have large dreams as small ones, so we dream big. We encourage and challenge every AmBev employee to foster change, seek better results and improve processes that come through the urgency of accomplishing demanding goals. We believe people perform better when they feel challenged so we challenge ourselves all the time. Focus on results Sustainable, consistent increases in profits are the only way we will be able to grow and create opportunities for our people. Each of us has a number of targets linked to AmBev s corporate goals and we must all find the best way to fulfill them always based upon ethical behavior and transparency and without sacrificing the quality of our products or brands. A company of owners paid as owners Our people are motivated to work as owners not as employees. Rewarding talent and achievement is at the heart of AmBev s merit-based culture. We compensate employees through an aggressive variable compensation program, while top performing employees participate in a stock ownership plan. Recruit and retain the best people Recruiting, educating, motivating and retaining the best professionals we can find is a key process in our culture and for achieving good results. The executive officers and top managers are all involved in the recruiting process and even the CEO takes part in the final rounds of the selection process. 12 AmBev 2004 Annual Report

18 Work hard and enthusiastically We set demanding targets for ourselves. They not only put pressure on the competition they result in more opportunities, projects and success in a shorter time span. Each one of us must establish priorities and develop our own competitive advantages. Lead by personal example and be where the action is This means spending a lot of time in the field talking to customers and our own frontline teams. We want to see things for ourselves to get a better grasp of what is really going on. There are no internal walls inside our offices a reflection of the simple, open and informal way we do business. Zero tolerance in adhering to and guarding our culture We are absolutely clear in understanding that our culture is the one thing that truly makes us different. Furthermore, we are totally committed to maintaining our culture, respecting and practicing it with zero tolerance. Our passion for our culture is what drives us to achieve what others might consider to be undoable. Ethics We practice our unique culture in a manner that creates value for our shareholders, management and stakeholders, always in strict compliance with the principles and standards contained in AmBev s Code of Ethics. 13

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20 Beer Brazil Proven recovery capacity Even as we expand across the Americas, the huge, diversified and challenging Brazilian beer market remains the main contributor to AmBev s profit pool. While the mix is changing as a result of our growth throughout the hemisphere Beer Brazil has gone from 81% of EBITDA in 2003 to 64% at the end of 2004 it is still our core activity and we remain the undisputed leader of the Brazilian market, with a very strong portfolio that includes the top three selling brands in the country. We were especially satisfied by our ability during the year to consistently recover the market share we lost in 2003, which bottomed at 62.5% when we faced aggressive pricing and higher marketing expenditures by competitors at the same time that exchange rate volatility offset our fixed cost reduction initiatives and production efficiencies. Our Beer Brazil division reacted during the year by going on a war footing, going back to basics and focusing on applying disciplined sales and distribution execution during 2004 that paid off handsomely: by year s end, volumes had increased by 4.6% and our Brazilian market share was back up to 68% (source: ACNeilsen). We delivered R$2,900 million of EBITDA, representing substantial organic growth. The successful turnaround in 2004 was attributable to a combination of aggressive initiatives we rolled out over the course of the year. The fact is, we adore competition: it brings out the best in our people. We introduced marketing campaigns that reinforced preference and loyalty for our core brands, launched trade programs focused on high quality service to points-of-sale and ensured discipline and excellence in execution at points-of-sale, among other practices. Although the battle for market share in 2004 generated higher sales and marketing 68% market share 1 points-ofsale million 15

21 Beer Brazil Performing under adverse conditions expenditures, we were able to increase Beer Brazil s benchmarking operating margins by 100 basis points. This came about through disciplined focus on cost control, efficiency improvements at the plant level and tight control of non-strategic administrative expenses. After the recovery in 2004, we are very well positioned to take advantage of the continued upswing in the Brazilian economy that began during the year. Market growth should help drive top line increases and expansion of margins. To this end, we expect higher consumer purchasing power to propel beer sales above the pace of organic economic There is no doubt recovery of the Brazilian economy and consumer confidence has finally made its way to the beer market. brand positioning to point-of-sale execution. We consistently continued to implement our sub-zero cooler program, and by year s end, we were close to reaching our target number of growth. There is no doubt that recovery of the Brazilian economy and consumer confidence units in points-of-sale in Brazil during the year. We also reshaped most of our direct Volume by brand 2% 2% has finally made its way to the beer market. distribution system sales force. The former 15% But we do not plan to accept business-as- portfolio criteria, based on separate single- usual: every AmBev employee in Brazil is being brand sales teams, has been replaced. We now challenged to be a part of the ongoing effort to raise beer market share even further and we have multi-brand sales teams for each direct distribution territory. The new portfolio strategy 27% 54% have taken specific steps to assure that this provides strong support for our revenue goal is met. This means we must continue to outperform the competition at every level, from management initiatives. This strategy is also being rolled out to our third party distributors Skol Brahma Antarctica Bohemia Others 16 AmBev 2004 Annual Report

22 network, transforming previously single-brand operators into multi-brand distributors. Our distributors network represents an extremely important pool of marketing and distribution know-how and we are seeking to share and exchange best practices with them in a more structured manner. During the year we hit hundreds of thousands of points-of-sales and reached an audience of millions with a strong media campaign with our responsible consumption of alcohol initiative, also raising brand awareness while at the same time demonstrating corporate responsibility. Another key to our good results in 2004 was our ability to be innovative, always an important AmBev competitive edge. We introduced a number of new brands or new packaging designed to give us a more bottle with a twist-off cap especially developed for consumers who want practicality and pleasure when drinking. BOHEMIA ESCURA: We upgraded seasonal production and distribution of this special dark beer into a year-round operation due to popular demand. It also began to be bottled in a long neck, 355 ml version. BOHEMIA WEISS: This special seasonallyproduced beer, brewed from wheat, became so popular selling out a four-month stock in just 15 days that we also decided to produce it during the entire year. BOHEMIA ROYAL ALE: Our newly introduced pale ale beer is the result of a unique mixture of special malts imported from Europe and EBITDA evolution R$ billion 42% EBITDA margin balanced and diversified beer brand portfolio in Brazil, thus adding value to the market. The product introductions included: SKOL BIG NECK: We launched this popular brand in a new 500 ml wide-mouth long-neck US$1.0 billion EBITDA

23 Beer Brazil Introducing exciting new products to the market is the first typically English ale produced in large scale in Brazil. DRAFT BEER INITIATIVES: We developed a draft beer franchise for shopping malls, under the Ilha do Chopp (Draft Island) trade name. A similar franchising concept launched in 2004 was a draft beer pushcart for airports and other public areas. LIBER: We introduced the first and only no-alcohol beer in August, with smell and taste approved by consumers. The result of more than three years of research and a large investment in processes and equipment, Liber is more than a new product launch: it opens a R$700 million annually in taxes while leading to the elimination of artificial discounts in the beer segment, subsidized by tax evasion. We are excited about the economic recovery in Brazil that got underway in 2004 and the prospects for sustainable growth in upcoming years favorably impacting the beer market. A long-term initiative we developed with the federal government culminated during the year with successful implementation of flow meters in the Brazilian beer market AmBev s current infrastructure supports larger volumes: if we grow sales volumes at expected whole new market segment. We encountered a healthier pricing situation in Brazil in We were particularly satisfied that a long-term initiative we developed levels, this will not imply significant increase in fixed costs or capital expenditures, thus permitting a widening of our margins. Coupled with better point-of-sale service and execution Market share (Dec 2004) 12% 10% together with the federal government culminated during the year with successful implementation of flow meters in the Brazilian and pinpoint pricing strategies designed to enhance brand performance, we believe Beer Brazil s prospects for increasing market 10% 68% beer market. This measure should enable the federal government to collect a further share, the bottom line and adding value to AmBev are now better than ever. AmBev Molson Schincariol Others Source: ACNielsen 18 AmBev 2004 Annual Report

24 Focus Driving Achievement Market Share 70% 68% 66% 64% 62% 60% sep/03 Source: ACNielsen dec/03 mar/04 jun/04 sep/04 dec/04 We are extremely proud to have engineered consistent recovery of our beer market share in Brazil during This success was the result of extraordinary commitment and great execution ability of our team. Carlos Brito 19

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26 Soft Drinks Brazil Record margins in our soft drinks business 2004 was a year when everything seemed to go right for our soft drinks business unit in Brazil, which is the second strong player in this market, the world's third largest behind only the U.S. and Mexico. We have a complete portfolio of non-alcoholic beverages, including the number one guaraná and the number two cola, as well as bottled water, isotonic drinks and iced tea. We delivered R$429.1 million of total EBITDA compared to R$245.9 million the previous year and posted margins never before seen in the beverage industry, of 29%. We improved net sales per hectoliter and drove volumes upwards while overall market share rose by 30 basis points, reinforcing our potential to grow our brands in Operating efficiencies were key to the results. Fixed costs remained stable while we pared variable costs, substantially helping the company's bottom line. Another important factor was the performance of our trading desk, which concluded timely hedging deals during the year that offset price hikes for some commodities we use in our manufacturing processes, especially sugar and aluminum. The Carbonated Soft Drinks (CSD) and Non- Alcoholic Non-Carbonated Beverages (NANC) segments continue to be important components in our strategy for long-term sustainable growth, taking advantage of significant synergies with our core beer business. The underlying approach is to complement AmBev's intense focus on beer sales; for example, the CSD and NANC businesses have directly profited from the successful application of our beer market pricing techniques. Furthermore, 17% market share 19 million hectoliters sold 21

27 Soft Drinks Brazil Economies of scale and improved distribution almost 50% of the division's products come from mixed plants that bottle both beer and soft drinks, where there are many opportunities for applying manufacturing synergies. The improvement in price positioning coupled with emphasis on higher margin products in the core soft drinks portfolio such as Guaraná Antarctica, Pepsi-Cola, Pepsi Twist and Gatorade led to an increase of net sales in 2004 by close to 10% and EBITDA margin expansion of 11 percentage points over We were able to take good advantage of our economies of scale and consistent execution Antarctica ZON, an energetic soft drink that combines the original formula of our most popular soft drink with enhanced special energy content extracted from the guaraná berry, and Pepsi X, Pepsi's new energetic cola. Our sales force and dedicated merchandising teams visited thousands of establishments to encourage better display of AmBev brands and create stronger personal relationships with retailers We are constantly seeking ways to improve soft drinks distribution and point-of-sale of best distribution practices through execution. The Clube dos Craques campaign a distribution system that reaches one million points-of-sale in Brazil. This unparalleled and sophisticated system ensures that consumers to boost sales at small supermarkets is an example. Our sales force and specially dedicated merchandising teams visited Market share (Dec 2004) throughout our continental-sized nation can always find our diversified portfolio of soft thousands of such establishments during the year to encourage better display of AmBev 31% 17% drink brands, which includes Guaraná brands and to create stronger personal Antarctica, Pepsi Cola and Gatorade. As in the case of beer, soft drinks also presented innovations in The major relationships with the retailers. The operational ties with Pepsi-Cola that we have maintained since 1997 for the 52% examples were the launch of Guaraná nationwide distribution of that company's AmBev Coca-Cola Others Source: ACNielsen 22 AmBev 2004 Annual Report

28 US$147 million EBITDA products around Brazil were also strengthened in The partnership, which made it possible to integrate our soft drink portfolio with a world-class cola-flavored drink, provides AmBev access to a wider portfolio, know-how and innovation technology in flavors and development of new beverages. 29% EBITDA margin Our soft drink businesses are clearly benefiting from the trend in Brazil of consumers seeking healthier, more active lifestyles along with rising disposable income. The soft drinks market in Brazil is even bigger than its huge beer market and a resumption of economic growth in the country makes us confident that AmBev will make strong inroads in the immediate future. EBITDA evolution R$ million

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30 Hispanic Latin America (HILA) Strong growth and regional consolidation Encompassing a total population equivalent to that of Brazil, the Hispanic Latin America (HILA) division posted very good results in 2004, largely driven by organic growth at Quinsa, our strategic alliance partner for the Southern Cone, and ongoing solid returns in northern South America. Each one of the 11 countries represented in the division contributed to its overall success. The HILA division posted a 83.7% growth in revenues and 114.7% growth in EBITDA. HILA's EBITDA was in the range of 13% of AmBev's total operations. Improvements in earnings and sales throughout the HILA region during the year also could be attributed to implementation of a program to replicate our successful Brazilian lessons in other countries. This included a yearlong project to introduce best management practices in all non-quinsa HILA operations using a flight-plan-like checklist to assure alignment with processes and practices benchmarked on our Brazilian experiences. We also began centralizing HILA management functions by integrating their facilities with AmBev's main computer operations through our SAP/R3 enterprise system. Keeping it simple, sticking to basics and copying what actually works, the program delivered results: in 2004, we either gained or maintained market share in every country in the HILA division. QUINSA: Our strategic alliance partner since 2002, Quinsa was the division's main profit contributor, improving volumes and delivering an exceptional EBITDA margin of 39% for the year while also surpassing pre-agreed objectives in the implementation of best practices and synergies captured through the Quinsa-AmBev alliance. Quinsa enhanced its position as the number one brewer in 11 markets 28 million hectoliters sold 25

31 Hispanic Latin America (HILA) Impressive performance of Quinsa's operations Argentina, Bolivia, Uruguay and Paraguay while looking to increase its share of the market in Chile. The following are highlights of Quinsa's operations: Argentina: Per capita beer consumption overtook table wine for the first time in several years. The replacement of table wine for beer has accelerated during the last year as a result of a favorable relative pricing to beer. Beer market volume grew 3% in 2004, reaching an all time high record for the country. Soft drinks improving quality and efficiencies across-theboard. An important initiative in November 2004 was the launch of the Stella Artois brand, from the InBev portfolio. EBITDA margin grew 360 basis points to 37.8%. Quinsa surpassed pre-agreed objectives in the implementation of best practices and synergies captured through the Quinsa-AmBev alliance Bolivia: This highly profitable Quinsa operation grew volumes by approximately 16% volumes grew 10%, also posting all time high in 2004, putting the industrial infrastructure in Volume by country market volumes. During 2004, Cervecería y Bolivia to maximum capacity. The year was Maltería Quilmes ( CMQ ) finalized the full notable for implementation of a Sales and 1%1% 3% 1% merger between its beer and soft drinks Distribution Master Plan, standardizing 8% 5% divisions and was successful in consolidating three distribution systems into a single one at no loss of market share. CMQ also continued to centralize the administrative functions of processes and management practices. Bolivia is an important part of the Quinsa profit pool, representing nearly one-third of Argentina's contribution. 6% 7% 8% 60% Paraguay, Uruguay and Chile without increasing staff. Through industrial benchmarking with AmBev, CMQ was able to continue reducing raw material costs, Chile: Efforts in this country in 2004 were to prepare Cervecería Chile to grow market share into sustainable double-digit territory even after the loss of the Heineken brand. Argentina Bolivia Venezuela Paraguay Peru Dominican Republic Uruguay Chile Guatemala Ecuador Note: Considering 100% of Quinsa volumes. 26 AmBev 2004 Annual Report

32 Becker beer was relaunched in a new returnable bottle with screw cap, which should win greater market participation. Paraguay: Cervepar's sales volumes rose approximately 14% in 2004, recovering from market sluggishness in The Ypane plant Beer volumes were approximately 30% higher than the previous year, ending the trend of declines posted since A strong cost reduction program and significant improvement in soft drinks were also drivers of the exceptional results. operated at maximum capacity for much of the CENTRAL AMERICA: Our strategy to year. The splitting of the sales force between Brahma and Pilsen permitted Brahma to gain distribution and to become the market leader in the country. Operating cash generation rose approximately 45% over the previous year and management has earmarked US$10 million in capital expenditures for construction of a new glass bottle plant with capacity for 100 tons/day, to supply more than 20% of Quinsa's total demand. Uruguay: In 2004, Quinsa's operations in the country recovered from two very difficult combine AmBev expertise in delivering high quality beer at the best cost possible and our technology in driving beer sales, coupled with the strong distribution platform belonging to our joint venture partner CabCorp (PepsiCo's primary bottler in Central America), is working. The Brahva beer brand obtained a mid-20s market share and strong brand equity indicators in Guatemala in less than one year EBITDA evolution R$ million US$37net sales per hectoliter years in 2002 and The turnaround efforts delivered remarkable results: operating cash flow rose approximately 150%, well above the original goal, making it the best performer in US$657 million net sales the Quinsa universe during the year

33 Hispanic Latin America (HILA) New units already generating good results from startup of the greenfield Cerveceria Rio operation. Profits have been posted since its early months and we have expanded into Nicaragua through the unit, where we have achieved mid-10s market share in less than six months. DOMINICAN REPUBLIC: We announced the acquisition of 51% of Embotelladora Dominicana (Embodom), PepsiCo's anchor bottler in the Caribbean in February, modeled on the CabCorp deal in Guatemala. beer market in November 2003 through 80% acquisition of Cerveceria Sulamericana and its state-of-the-art brewery in Guayaquil, this year we launched the Brahma brand in early October and are very encouraged by the first results. Brahma sales took off, supported by a By year's end, Brahma had already achieved double-digit market share in Ecuador while an upgrade of the soft drinks distribution system advanced quickly in Peru Embodom is the Dominican Republic's leading soft drinks bottling company, with capacity to produce 2.5 million hectoliters a year. This unit already is generating important financial results for the company, with EBITDA margins consistently around 25%. It is currently expanding its distribution system to bolster its already leading soft drinks market position, part of a three-year US$100 million investment plan that includes construction of a greenfield brewery, with production scheduled to start up in mid ECUADOR: After entering the Ecuadorian very well executed marketing plan. More important, customer and consumer demand is being well serviced by a fully restructured AmBev Ecuador direct distribution system based in Guayaquil and Quito and the most relevant markets in the hinterland. By year's end, Brahma had already achieved double-digit market share in the country. PERU: An upgrade of the soft drinks distribution system advanced quickly during the year. We introduced AmBev sales tools to our direct distribution system in Lima and we EBITDA contribution 9% 91% Quinsa HILA-ex* *Excluding Quinsa. 28 AmBev 2004 Annual Report

34 29% EBITDA margin initiated direct distribution in key areas in the north, previously handled by a distributor. The transition went smoothly and coverage and volumes reacted favorably. Construction of a new beer plant in Lima advanced at full speed; beer sales are expected to begin through our US$189 million EBITDA rapidly expanding soft drinks system in the first half of VENEZUELA: We were encouraged by strong improvements in Venezuela, where our focus is on superior customer service, branding and advertising to drive sales in Caracas. The strategy led to an increase of 44% of beer and malt beverages sales volume. In October, Brahma Light, our main product, was given an image makeover, which helped increase sales; at year's end its market share hit a record level of 14%. EBITDA evolution million HL

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36 North America Poised for higher margins after Labatt's merger into AmBev We directly entered the North American market for the first time in 2004 through conclusion of the merger of one of Canada's two leading brewers, Labatt Brewing Company Limited, into AmBev, an outcome of our business combination with Belgium's Interbrew (now InBev). The Canadian beer industry was not originally an expansion target; the Labatt merger was another example of how being agile, creative and taking advantage of opportunities is creating value for AmBev. We are very excited about Labatt. The company, which has a consistent track record of growth in volumes and prices, brews or distributes an extensive portfolio of brands in the specialty import, specialty domestic, produced in Canada at eight breweries located around the country. Labatt presented us with some significant advantages and opportunities: Entrance into a large pool of revenues with an immediate major share of the Canadian beer market, which at 22 million hectoliters is larger than any of our current Latin American markets except for Brazil. This is a market where consumer purchasing 42% market share premium and value segments. Labatt power is very high: net sales per hectoliter in also brews and distributes Budweiser, the number one and fastest-growing beer brand in Canada, under effective license for more than 90 years from Anheuser-Busch. All of the company's beer, except for specialty imports, is Canada, at over US$160, are four times greater than in Brazil. Ownership of a great business: Labatt's EBITDA margin in 2004 was close to 30% and it was co-leader of the Canadian beer market, 22 million hectoliters market 31

37 North America Focus on delivering synergies and increasing margins with a 42% market share in volume and the number one brand in the country. It has a very fight high discount brands in Canada, streamlining Labatt's execution. strong portfolio of brands, including top sellers In addition to Canada, the business Labatt Blue, Alexander Keith s, Kokanee and Budweiser. Substantial opportunities for reducing costs and improving revenue balance, leveraging sales techniques developed in Brazil. We have identified and scheduled US$60 million in cost reductions to be captured over three years. combination with InBev presents AmBev a worldwide platform to establish an export business. Through InBev's operations in the We will use proven expertise specifically developed in Brazil to fight discount brands in Canada, streamlining Labatt's execution A more balanced mix of revenues in different currencies that already has led to the upgrade to Investment Grade of the company's foreign currency corporate credit rating by Standard & Poors, to BBB-, leading to easier access to less expensive financing. We recognize that the recent growth in the value segment of the beer market in Ontario represents a concern, but this is not a new situation for us: AmBev has successfully confronted similar price gaps in its home and core market. In 2005, we plan to use proven expertise specifically developed in Brazil to United States, Europe and Asia, Brahma is now poised to become a strong global brand. We also will study how to enhance Labatt's export operation into the U.S.: although it underperformed in 2004, this is a sizeable business involving more than 1.5 million hectoliters and we are reassessing strategy to resume positive momentum. The integration of Labatt and AmBev is being carried out without disruption. We assigned Carlos Brito, one of our top executives, to oversee the North American business unit 32 AmBev 2004 Annual Report

38 US$208 million EBITDA in four months while keeping the company's high quality Canadian management team in place. We are now carefully beginning to implement our best practices, target setting methodology, performance measurement and employee compensation, bringing the AmBev culture, business expertise and values into Labatt. We US$153 net sales per hectoliter are focusing on making sure that Labatt's people are becoming integrated with AmBev's Brazil and Latin American operations, effectively extending our culture throughout the Americas. Volume by region 11% 30% 31% 28% West Quebec Ontario Atlantic 33

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40 Business Sustainability A business and moral imperative We are certain that as one of the largest beverage companies in the world and the only one spanning the Americas, practicing social responsibility, respect and preservation of the environment and good corporate governance is not just a duty it is a business and moral imperative. We believe that a serious commitment to our corporate and social responsibilities is directly tied in with our essential purpose as a company and we work to inculcate these values throughout the AmBev international network, encouraging each affiliated company to go beyond legal requirements and minimum recognized standards. To ensure the sustainability of our business, we assume four levels of responsibility: the need to be profitable, because AmBev must be profitable to further its overall philosophy and core beliefs, which is to generate jobs and income, to improve the quality of life in the communities where it has operations, to be responsible towards its human capital. It is this, at the end of the day, which will allow us to grow and create shareholder value. Then there is the need for legal responsibility, which means we pay all taxes strictly on time, comply with The need for voluntary responsibility is at the top of the pyramid environmental regulations and legislation and all other legal obligations in the communities and companies where we have operations. A third level of our responsibility encompasses the need for ethical responsibility: this is reflected daily in the attitudes of AmBev's people, who have committed themselves to the standards enunciated in our Code of Ethics. And at the top of the pyramid of responsibilities is the need for voluntary responsibility. This category demonstrates that the company takes its duty to be a good corporate citizen and proactive member of society seriously, and it is the responsibility that guides our actions on behalf of local communities and organizations. 35

41 Business Sustainability Social Responsibility Going beyond what is expected 36 AmBev 2004 Annual Report

42 In Brazil, AmBev's social actions are focused on three basic projects: fostering the responsible consumption of alcohol, the recycling of packaging materials and the encouragement of the cultivation of guaraná fruit to benefit the social and economic development of Brazil's Amazon region. Furthermore, as one of the largest beverage companies in the world, we understand that we must go beyond what is merely expected of us to foster corporate responsibility. To this end, AmBev is an active member of the Brazilian Business Council for Sustainable Development (CEBDS), an organization whose main objective is to actively contribute to an economically developed, fairer and environmentally sustainable society in Brazil. We also belong to the Ethos Institute, a prestigious Brazilian non-government organization that helps companies manage their businesses in a socially responsible manner. Responsible consumption of alcohol: Our Responsible Drinking program is a groundbreaking project in Brazil that is in step with similar initiatives run by other large international beverage companies. It seeks to make consumers aware of the dangers of mixing drinking and driving and to put measures into place prohibiting the sale of alcoholic beverages to minors. In 2004, the major action of the project was the launch of the Responsible Consumption on the Highways program through a pilot project on the heavily traveled President Dutra highway between Rio de Janeiro and Our Responsible Drinking program is pioneer in Brazil and aligned with international initiatives Sao Paulo. Besides large billboards and banners displaying the main message about the risks of drinking and driving, the project trained employees of some 400 restaurants and bars along the route in techniques for educating motorists to the dangers. New lots of breath test kits were given to the Federal Highway Police in addition to the 14,000 disposable and digital models donated in In April, some 10,000 AmBev employees delivered responsible consumption materials to 35,000 point-of-sale locations around Brazil, kicking off a campaign encouraging beverage servers to check IDs to ensure that their customers were of drinking age. By the end of the year, 250,000 locations around the country had received the materials, which also were distributed during music festivals, broadcast on TV and radio and handed out on university campuses. 37

43 Business Sustainability Social Responsibility Recycling of packaging materials: Since 2002, AmBev has run a program in Brazil that helps entire communities of waste scavengers improve their income-earning capacity by encouraging the recycling of reusable garbage. By the end of 2004, the program had benefited 27 cooperatives in five states and the federal capital of Brasilia. Among other actions, AmBev provides hydraulic presses for crushing cans and teaches recycling techniques. Along the same line, we continued to support the Recicloteca, the largest library in Latin America devoted to recycling. Located in Rio de Janeiro, Recicloteca is run by the Ecomarapendi NGO. The Maués Project: We have been encouraging the raising of the guaraná plant - the key raw material of our Guaraná Antarctica through the Maués Project. Located in the heart of the Amazon region, the municipality We support waste recycling, guaraná growing and social work projects, among others of Maués is considered the guaraná-growing capital of Brazil. All of the berries used by AmBev to manufacture Guaraná Antarctica come from the Maués area. Initiated in 2002, the Maués Project benefits about 2,000 families that live in a 44,000-square kilometer region around the municipality. We train local farmers how to raise the plant, including the substitution of old plants for enhanced seedlings that have higher productivity and greater resistance to pests and diseases. AmBev has financed the establishment of 12 model farms and the Maués city government hires agronomists to help the farmers. Among other accomplishments, our contributions through the program have helped finance 600 houses in rural districts, funded a seamstress business that generated 300 jobs and has been instrumental in the establishment of new poultry and sheep raising projects. The Fundação Antonio e Helena Zerrenner Instituição Nacional de Beneficência ( FAHZ ): FAHZ runs hospitals, schools and daycare centers, providing free medical, educational and social assistance for the company's employees, their dependents and other parties. An example of FAHZ initiatives is the Walter Belian Technical School in São Paulo, which offers grade and middle school education along with vocational training in secretarial services, electronics, graphic arts and industrial information technology. The school, which reserves some places for students living in communities located near its facilities, has an annual enrollment of some 1,000 youths. 38 AmBev 2004 Annual Report

44 The Maués Project in the Amazon region benefits about 2,000 families living in a 44,000 square kilometer region around the municipality. We train local farmers how to raise the guaraná plant, generating income and enhancing their quality of life. 39

45 Business Sustainability The Environment Clean technologies, constant research 40 AmBev 2004 Annual Report

46 Over the past years, we have invested substantial resources in environmental preservation and control projects in AmBev operations. We are proactive when it comes to environmental controls, embracing the principle of sustainable development. For instance, we make extensive use of clean technologies, running machinery and equipment that generate lower levels of wastes and residues. Our technological advances put into place in AmBev's Brazilian facilities have made post-bottling disposal of toxic wastes, chemicals or heavy metals unnecessary. We also conduct continuous research into new technology and for improving manufacturing processes and raw materials to upgrade existing environmental protection requirements. A key objective is to increasingly reduce the use of water in our industrial processes along with generation of lower levels of industrial wastes. In 2004, we further reduced the average volume of water needed to produce a liter of beer: it went from 4.9 liters in 2003 to 4.4 liters in Not so long ago, this figure was 8 liters. All of our manufacturing units are equipped with modern effluent treatment stations. Together, they have the capacity to treat 230,000 cubic meters per day, which is the equivalent to a water treatment station for a city One of the main targets is to continuously reduce water consumption of five million inhabitants. Moreover, five of our facilities have installed a biogas system, which lowers carbon dioxide (CO 2 ) emissions into the atmosphere. We also recycle some 95% of the byproducts produced by our manufacturing operations. Pulp from labels is used to make cardboard. Malt, hops and other products used in the fermentation process are subsequently used as animal feed. 41

47 Business Sustainability Corporate Governance Transparency, fair treatment and compliance with the Sarbanes-Oxley Act 42 AmBev 2004 Annual Report

48 Applying sound and recognized corporate governance practices is of utmost importance to us. AmBev's corporate governance values encompass maximum transparency and disclosure to the market, efficient bilateral communication with stakeholders and suitable decision-making and control processes. We also are dedicated to assuring fair treatment and compensation of shareholders, ensuring that profits that are generated are equitably distributed and during the year, we returned R$2.9 billion to all classes of shareholders. In 2004, as a company with American Depositary Shares (ADRs) traded on the New York Stock Exchange, we focused on bringing AmBev's corporate governance into total compliance with the Sarbanes-Oxley Act of the U.S., which is designed to protect investors by improving the accuracy and reliability of corporate disclosures. The Act requires international companies listed on U.S. stock exchanges to comply with a series of measures involving independent directors, auditor rotation, tax services by auditors and internal reporting, among many others. We are fully committed to conforming to the Act and are taking the appropriate administrative and management steps to put Sarbanes-Oxley requirements into practice. We are taking appropriate steps to put Sarbanes- Oxley requirements into practice The following are important elements of our corporate governance: Shareholding structure: As a result of the AmBev/Inbev combination of 2004, the controlling block of AmBev shareholders is formed by two entities that together have as of December 31, % of voting capital and 56.4% of the company's total capital: InBev, with 68.4% voting/48.9% total capital; and Fundação Antonio e Helena Zerrenner Instituição Nacional de Beneficência ("FAHZ"), with 16.1% voting/7.5% total capital. 43

49 Business Sustainability Corporate Governance The two shareholders in the controlling block entered into a Shareholders Agreement valid through 2019 that, regardless of the substantial difference in their voting rights, provides for quite balanced controlling power: FAHZ has veto rights for any major decision related to a broad set of sensitive matters, such as acquisitions and new debt issuance. At the next Annual Shareholders' Meeting, the Board of Directors shall propose the indication of independent members to comprise the company's Fiscal Council, which shall become a permanent body. Besides the functions attributed to it under Brazilian law, the Fiscal Council shall also assume the Audit Committee duties required under the Sarbanes-Oxley Act of the U.S. in view of the fact that our shares are traded on the New York Stock Exchange (NYSE). Strong decision-making and controls: The Board of Directors, supported by a number of specific committees and councils, uses the extensive business knowledge of its members to guarantee that AmBev A disclosure policy that is recognized as one of the best in the industry reaches its long-term goals and maintains short-term competitiveness while ensuring that the company's corporate values are practiced and disseminated. Additionaly, the Economic Value Added EVA technique is widely used to support business decisions. Furthermore, AmBev's job rotation policy assures managers have a broad and deep understanding on the core areas of the beverage business. Our management team is very experienced - current senior officers have been with the company an average of 10 years. Management compensation aligned with shareholders: We are dedicated to a disciplined payout policy through large dividends and share buyback programs no excess cash is retained in the balance sheet. And to ensure that management and shareholders' interests remain aligned, our top 200 employees participate in a stock ownership plan in which they invest the major portion of their bonuses, assuming an obligation of holding these shares for at least five years. Moreover, more than 4,000 employees are subject to an aggressive variable compensation system based upon stretched targets to trigger bonuses. Transparent communication: We believe that an open and transparent communication policy is an excellent way to create shareholder value. To this end, we follow a disclosure policy that is recognized as one of the best in the industry. We provide the market with detailed analyses of quarterly reports, aimed at ensuring that people understand our fundamentals and our main business drivers. We conduct quarterly conference calls, frequent road shows and hundreds of meetings with analysts in any given year. 44 AmBev 2004 Annual Report

50 Investiment Alternatives Equity A world class investment vehicle Debt Investment Grade rating AmBev ticker symbols (NYSE): Long term foreign currency rating by S&P Dividend payout R$ million 1,500 1,000 62% 43% 32% 71% % 1,327 AmBev Brazilian Sovereign AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC+ CCC CCC- CC CD Dividends Payout (%) 45

51 The Team A 2004 Board of Directors B 2004 Executive Directors 01 / Carlos Alves de Brito Chief Executive Officer 02 / Juan Manuel Vergara Galvis International Operations Executive Officer Co-Chairman A / Victório Carlos De Marchi B / Marcel Herrmann Telles Board Members Brent David Willis Carlos Alberto da Veiga Sicupira Diego Fernando Miguens Bemberg John Franklin Brock III José Heitor Attilio Gracioso Roberto Herbster Gusmão Vicente Falconi Campos 2004 Fiscal Council Antonio Luiz Benevides Xavier Everardo de Almeida Maciel José Fiorita 03 / Luiz Fernando Edmond Sales Executive Officer 04 / Bernardo Pinto Paiva Logistics Executive Officer 05 / Claudio Braz Ferro Industrial Executive Officer 06 / Claudio Garcia Shared Services and IT Executive Officer 07 / João Castro Neves Soft Drinks Executive Officer 08 / José Adilson Miguel Third-Party Distribution Executive Officer 09 / Luis Felipe Pedreira Dutra Chief Financial Officer and Investor Relations Officer / Miguel Nuno da Mata Patrício Marketing Executive Officer 11 / Milton Seligman Corporate Affairs Executive Officer 12 / Pedro de Abreu Mariani Legal Executive Officer / Ricardo Wuerkert People and Management Executive Officer Agustín García Mansilla Quinsa Chief Executive Officer AmBev Relatório Anual