just On Call - Anheuser-Busch InBev plays down wheat cost fears
- Wheat prices pose little risk
- Global beer markets still depressed
- Good progress on cutting debt
Anheuser-Busch InBev CEO Carlos Brito plans price rise in US
Anheuser-Busch InBev has shrugged off concerns that a spike in wheat prices will affect the brewer's performance.
The Budweiser and Stella Artois brewer said today (12 August) that it "does not expect any material impact in 2010 or 2011" from higher wheat prices. Shares in all the major brewers slipped late last week on concerns that Russia's decision to ban wheat exports, following a major drought in the country, would lead to grain shortages.
"We continue to monitor the situation closely, but we believe the current situation is short-term," Anheuser-Busch InBev's chief financial officer, Felipe Dutra, told analysts during the brewer's half-year results conference call today (12 August). "We also believe there is not a strong correlation between wheat prices and prices for barley."
A-B InBev said that a mixture of strong demand in Brazil, its sponsorship of the FIFA World Cup and good summer weather helped it to increase beer sales ahead of its expectations for the six months to the end of June. Net sales rose by 3% year-on-year to US$17.7bn, with volumes up by 1.5%, against the same period of 2009.
Despite the increase, and the prospect of easier comparison numbers in North America in the back six months of 2009, A-B InBev warned that many beer markets remained depressed. "It's hard to discern real improvement in demand, especially in the US," said the group, which accounts for one in five beers sold globally.
A-B InBev reported a drop in volume sales of 6.4% in Central & Eastern Europe, 1% in Latin America South and 0.5% in Western Europe for the half-year. Volume sales in North America dropped by 5% for the period, reflecting an accelerated market decline amid high unemployment in the US.
The firm said that it plans to increase beer prices in the US in order to offset margin pressure from shrinking volume sales. "Beer continues to be very affordable, so we feel that there is room for a price increase," said the brewer. Price mix in the US improved between the first and the second quarters, it added.
While consumer demand for beer was sluggish in developed markets, there were pockets of good news for A-B InBev. Brazil provided the biggest boon for volume sales, reporting a 15% increase for the half-year. Meanwhile, Brito said that the firm's Sun InBev business gained market share in Russia, thanks in part to the launch of Budweiser there in May.
Budweiser also helped A-B InBev to increase market share in the UK by 2% for the six months, while sales in China also continued to expand.
Dutra hailed the brewer's progress on cutting debt and achieving a rise in EBITDA above its expectations. EBITDA rose by more than 5% to $6.4bn for the half-year and is expected to increase more quickly in the second-half.
At the same time, A-B InBev cut its net debt to EBITDA ration to 3.3 times, versus 3.7 at the end of 2009. It aims to reduce the ration to below 2 times by the end of 2010.
There are sound reasons behind Anheuser-Busch InBev's foray into the cider market with Stella Cidre, but the brand needs to be clear about what it's trying to do if it's going to survive as a latecome...
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