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Ambev S.A (NYSE:ABEV)
Q4 2019 Earnings Call
Feb 27, 2020, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

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 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.ir as well as through the webcast link of this call. [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 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.

Fernando Tennenbaum -- Chief Financial, Investor Relations and Shared Services Officer

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 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 BRL6.9 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 BRL4.6 billion. In the full year normalized net profit was BRL12.5 billion 8.5% higher than 2018. Our cash flow from operating activities was BRL18.4 billion in line with 2018. capex in 2019 was 42% higher than in 2018 with most of the increment driven toward 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 four billion a decline of 6.6% versus Q4 2018 while margins contracted 450 basis points to 45%. In the full year Brazil EBITDA was BRL11.7 billion with a decline of 4.5% versus 2019 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%. We see 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 measured 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 reported industry growth of 2.4%. EBITDA was down 6.5% with margin contraction of 530 basis points to 41.6%. Such a 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 in the quarter increased 51.8% with margin expansion of 1160 basis points to 45.3%. In the full year top line in NAB Brazil increased by 16.1%. Volume grew 11.3% and EBIT 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 Central American 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. EBIT in the quarter reached BRL285 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 three billion with margin expansion of 440 basis points to 43.8%. The other operating income increased in the year is mainly explained by the $18.5 million insurance compensation we received for the damage caused by the Q3 2017 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 rest in Chile and especially in Bolivia both affected performance in 4Q 19. EBITDA loss 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 a 0.5% a combination of a 1% net revenue per hectoliter increase and a 1.5% volume decline which was mostly driven by a soft beer industry. EBITDA reached BRL517 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 the volume in our ready to drink category we announced the acquisition of Good Region Winners Distillery the producer of Neutral one of the fastest-growing RGB brands. Now back to consolidated figures below EBITDA. In the fourth quarter net financial results totaled an expense of BRL1.6 billion 6% lower than in 4Q 2018. The main items in the financial expense in the quarter were: first interest income of BRL151 million driven by our cash balance; second interest expense of BRL346 million that also include interest in current in connection with the Brazilian tax realization program as well as a noncash accrual of approximately severe late to the put option associated to our investment in the Dominican Republic business; third BRL576 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 BRL537 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 BRL72 million; sixth BRL183 million of other financial expenses partially explained by accruals on legal contangos and pension plan expenses; seventh BRL93 million of the exceptional financial expenses mostly explained by a state payment; finally eight. BRL92 million of financial income related to noncash income resulting from the adoption of the hyperinflation accounts 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 BRL9.6 billion which is 9.6% higher than last year. In the full year cash generated from operating activities is stable reaching BRL18.4 billion. capex reached BRL two billion in the quarter and BRL5.1 billion in the full year increasing 42% versus 2018. Before I pass on to Jean I'd like to welcome Lukas 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 share some of the initiatives and thoughts on Ambev's operations before going to Q&A.

Jean Jereissati Neto -- Chief Executive Officer, Chief Sales and Marketing Officer

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 two things quickly review 2019 what worked what didn't and share my perspective 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 continues 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 ending the year was stabilized with the launch of Skol Puro Malte. Brahma brand power improved and the brand remains 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. So it's still early days the debut of in the Brazilian market has had a great momentum. Our smart affordability brands such as continues to connect with more regional conditional 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 in the smart affordability. Also our dedicated innovation team for NAB was responsible for the launch of Natu an all natural soft drink made from banana different juices fruits and. And we also came out with the new visual brand identity for Guaran 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 Model Special in Guatemala as well as package innovation.

In last we had a very volatile year with a challenging macroeconomic and political backdrop throughout the region. Volumes 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 unrest 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 CBDs self serves and the ready-to-drink beverages. An example being the recent acquisition of the neutral brand an award-winning spirits company. So all in all a 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 first due to FX headwinds albeit to a lesser extent even commodity 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 the market. And to do that we will focus on three things. First our best 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 trimmed back 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 Irma in Brazil. Our mineral water that reversed all the profits obtained with the products to keep clean water access to Brazilian 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 in the 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 three years ago versus 5% in 2018. We are organized to innovate in five dimensions in Brazil Beer. A flavors profile and bitterness health and wellness regionally convenience and the future beverages. To support this we reshaped the whole organization creating the innovation hubs that work more autonomously in agile modes. We have invested more capex to improve the flexibility of each 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 transformation but we are going deep here and I'm happy with the early stage results. Through the continuous 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 220000 point of sales today from approximately 50000 in the beginning of 2019. The supply chain of the future is another initiative that combines autonomous operators sensors in 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 in new beverage categories just to name a few opportunities. All of this in a company with a strong team in 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 the 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 it. So thank you.

Thank you everybody. I think we can now move to the Q&A.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Isabella Simonato with Bank of America. Please go ahead Isabella. Your line is open.

Isabella Simonato -- Bank of America -- Analyst

Hello and good morning everyone. Jean Fernando I would like to know based on your guidance for Q1 with almost a 20% EBITDA if that if you could address the main lines of the what will contribute to the EBITDA decline if you could give us some more color contribution of which are we trying 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?

Fernando Tennenbaum -- Chief Financial, Investor Relations and Shared Services Officer

Good morning and number thank you for for the question. Isabella Fernando here. Let me put a little bit context behind it. We are excited about 2020. And we expect to grow EBIT 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 two things then it led to active Q1 but we think the strategy 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 a 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 then we have some cost pressures in the beginning but we gain momentum as the year goes by.

Isabella Simonato -- Bank of America -- Analyst

But regarding the cost curve when you look especially in the FX actually we would expect the stronger pressure to come in Q4 right? When BRL depreciated the most. I mean that the hedging policy continues to be the same you have one year or anything different that would explain the cost pressure to be stronger in Q1?

Jean Jereissati Neto -- Chief Executive Officer, Chief Sales and Marketing Officer

No it's a combination. It's a combination of effects and commodities. And it's always whenever you see year-on-year compare to the previous year. So we expect the biggest cost pressure to be Q1.

Fernando Tennenbaum -- Chief Financial, Investor Relations and Shared Services Officer

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.

Operator

The next question is from Antonio Gonzalez with Credit Suisse. Please go ahead.

Antonio Gonzalez -- Credit Suisse -- Analyst

Hi, guys. Good morning. Well firstly Jean and Tennenbaum congrats on your respective appointments recently and my best wishes for both of you. I got two 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 etc. 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 toward 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.

Do not sharing 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 to 5%. So I understand that's providing a very granular number market-by-market for you guys might be competitively sensitive. But I wanted to ask you if directionally you can put in perspective this guidance from ABI would you expect a similar growth rate? Or is there any reason perhaps the profit warning that you're launching for 1Q in Brazil that should drive your overall growth below the range that ABI is indicated.

Fernando Tennenbaum -- Chief Financial, Investor Relations and Shared Services Officer

Antonio let me start by the second question Fernando here and then Jean would take over for 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 one here. I will not say if I would before call 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 hedging dynamics that you know that your cost of goods sold a little bit a little bit harder on the Q1. When we have these two things if we issue the guidance to grow EBITDA and we start with a very low Q1 I believe 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 give guidance on cost of goods sold on such links 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 your question the guidance for Q1 doesn't impact anything at all our view for the full year. It's pretty much how designed our plans since the end of last year.

Jean Jereissati Neto -- Chief Executive Officer, Chief Sales and Marketing Officer

Antonio Jean coming back to your first question. We are we have been very excited about the category expansion framework. And we the full 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 30000 interviews in Brazil with consumers 15000 samplings of products in the market new 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 trapize 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 allocated 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 scope or mout was launched and it was a biggest contributor of our volumes in 2018. 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 legitimate doing good too.

So we are very excited about the way we are picturing the market today in how the market will be in the future. Category expansion is really driving us but in a deeper way because we crucial it. And we saw our volumes back to growth in 2019 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.

Antonio Gonzalez -- Credit Suisse -- Analyst

Right, thank you so much, and congratulations again.

Jean Jereissati Neto -- Chief Executive Officer, Chief Sales and Marketing Officer

Thank you.

Operator

The next question is from Luca Sabic with Goldman Sachs. Please go ahead.

Luca Sabic -- Goldman Sachs -- Analyst

Hi, Good afternoon, Fernando I guess congratulations to both of you for the new roles. And I was going to ask two questions. The first would be on the to Jean on pricing strategy and timing going forward. I was wondering clearly over the last couple of years it's been a friction between supporting 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 Ember possibly being a bit more flexible with the way the prices are passed through into the market? And we used to have a little bit of a calendar fixed 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 nearly down to if you were to mention one particular initiative or one particular capability where do you see things that could have bigger impact for the performance but also where do you see the number actually could have 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 down a little from a priority or impact standpoint?

Jean Jereissati Neto -- Chief Executive Officer, Chief Sales and Marketing Officer

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 that's 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 is that everybody is very optimistic. We see a little bit confidence going up but Brazilian consumers still income is still not recovering with 10. 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 there is an important thing here in Brazil the channels in 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 it's 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 with or 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 work in 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 in. But we have to be is marked 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 OK? 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 it with other FMCGS looks like we are ahead of the FMCGs that that we have in the market not even mention the beverage companies but the FMCGs in general. We already have 220000 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 won 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 is mobile needs to buy all the categories around not just about beverages with a marketplace. We made a deep study on pay points of the on trading. And one important cost and pain point it is the financial cost of machines credit cards. And we are together with this strategy put in place a fintech that reduce big time the cost of the on trade. So this context 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 is 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 we will create an edge for us in the market.

Luca Sabic -- Goldman Sachs -- Analyst

Very clear. Just real quick this 220000 that you mentioned that would be a share of total out of a total? Or is could you put that in context maybe and whether maybe...

Jean Jereissati Neto -- Chief Executive Officer, Chief Sales and Marketing Officer

25% of our clients that 25 some type of connection through digital.

Luca Sabic -- Goldman Sachs -- Analyst

Thank you.

Jean Jereissati Neto -- Chief Executive Officer, Chief Sales and Marketing Officer

Thank you very much.

Operator

The next question is from Robert Ottenstein with Evercore. Please go ahead.

Robert Ottenstein -- Evercore -- Analyst

Great, thank you very much. 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 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 more affordability and the impact on the volume? So that will be the first question. And the second question a little bit follow-up on the technology side. And in some of the new initiatives that you talked about at your sellside 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?

Jean Jereissati Neto -- Chief Executive Officer, Chief Sales and Marketing Officer

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 this market for the? So this market for the for you to know is 10% of my volumes. We are happy with that. It is a because we know we have to do how to do. What really happen 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. So this is what I can tell you about net preference. 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 is the contact strategy of the future. The second one it is part of our innovation hub delineation. We are innovating in five 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 demand from consumers. We are working a lot on packaging lighter bigger smaller more convenient packages but we have a venture that's called delivery is a venture that guarantees beer at supermarket prices cold in 30 minutes at home. So this is a direct transaction with consumers a very a great value proposition. And it's just on fire. So this is the main initiatives that we have for DTC. We are doing two million orders in 2019 and this is expanding their self because we are expanding the series and it's a big opportunity for us. So in terms of DTC delivery is the most important is part of our innovation hub is a venture and is really on fire.

Robert Ottenstein -- Evercore -- Analyst

And what part of the or what percentage of the Brazilian population is today reachable within 30 minutes? And what do you think that will be at the end of the year?

Jean Jereissati Neto -- Chief Executive Officer, Chief Sales and Marketing Officer

Robert I believe for you to understand how delivery works 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.

Fernando Tennenbaum -- Chief Financial, Investor Relations and Shared Services Officer

The app but the app is still with the footprint tap in the advertisement and everything is still in around 40 cities of Brazil and we very fast. So the capability to go all over Brazil in the next three years.

Robert Ottenstein -- Evercore -- Analyst

Very impressive. Thank you.

Operator

The next question is from Thiago Duarte with BTG. Please go ahead.

Thiago Duarte -- BTG -- Analyst

Hello, everybody. Thanks for the opportunity. I have two questions. First of all it's actually related to dividend payments and 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 one-time event for any reason in 2019? That would be the first question. And second going back in or circling back into the discussion about the revenue revenue management initiatives. And as you guys mentioned the first station 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.

Fernando Tennenbaum -- Chief Financial, Investor Relations and Shared Services Officer

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 toward the end of the year. For this year probably the base case should be something similar but these things are dynamic sometimes it depends on FX movements you might have with effects components on our accounts. And you may have a different decision. But more likely than not we should be we should follow a similar pattern. On the revenue front I don't think your kind of assessment of normally 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 your net revenue per hectoliter it slipped 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.

Thiago Duarte -- BTG -- Analyst

Okay, OK, thank you.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Jean Jereisatti Neto for any closing remarks.

Jean Jereissati Neto -- Chief Executive Officer, Chief Sales and Marketing Officer

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 at 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.

Operator

[Operator Closing Remarks]

Duration: 56 minutes

Call participants:

Fernando Tennenbaum -- Chief Financial, Investor Relations and Shared Services Officer

Jean Jereissati Neto -- Chief Executive Officer, Chief Sales and Marketing Officer

Isabella Simonato -- Bank of America -- Analyst

Antonio Gonzalez -- Credit Suisse -- Analyst

Luca Sabic -- Goldman Sachs -- Analyst

Robert Ottenstein -- Evercore -- Analyst

Thiago Duarte -- BTG -- Analyst

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