Blog: Olly WehringInBev continues quest to go from biggest to best

Olly Wehring | 24 February 2006

Newly-installed InBev CEO Carlos Brito faced analysts and reporters for the first time today as he outlined the brewer’s performance in 2005.

Brito, a veteran of AmBev, the brewing giant’s Latin American business, was appointed to the top job in December and tasked with taking InBev - as its oft-repeated mantra demands - “from being the biggest to the best” brewer on the planet.

Since the merger between Interbrew and AmBev in 2004, the brewer has targeted an EBITDA margin of 30% by the end of 2007. The merger created the world’s largest brewer by volume and, no sooner had the ink dried on that deal, InBev was eyeing Anheuser-Busch’s crown as the world’s most profitable brewer.

Today’s results suggest that, despite continued buoyant sales in the emerging markets of Latin America and Central and Eastern Europe, Brito has some work to do to ensure InBev hits that target.

Like a number of its rival brewers, InBev found the going tough in Western Europe last year. InBev’s volumes in the region were hit by falling sales in the UK and Germany. And, like a number of its rival brewers, InBev has moved to cut costs in Western Europe as part of its attempts to improve profitability. Jobs are to go in France, in Belgium - where the brewer is controversially closing its Hoegaarden brewery - and today it announced a fresh round of cuts in its finance, procurement and export departments across the Continent.

Brito’s rationale for the cuts makes sense. By streamlining these functions, InBev can focus more of its efforts - and crucially devote more cash - to its sales and marketing efforts in the flat beer markets of Western Europe.

Investment behind sales, marketing and, as Brito pointed out, innovation is key to enticing ever-more promiscuous drinkers to a premium beer portfolio that is fighting for share of throat with spirits and wine producers. To that end, the upcoming UK launch of Beck’s Vier and InBev’s decision to include Leffe in its stable of global flagship brands, represent decisive moves to grow sales in increasingly tough beer markets.

Nevertheless, it would be a surprise if InBev did not wield the axe in Western Europe again this year. Driving sales in mature and developed markets is one way to increase profits, but it takes time for marketing initiatives to take hold.

A quicker and easier way to boost earnings - and therefore get closer to the EBITDA target - is to cut costs. And ominously, InBev CFO Felipe Dutra did not rule out further cuts, saying the brewer would “continue to identify opportunities for greater efficiencies” across Europe.

Unlike Heineken, which earlier this week outlined its cost-cutting targets for 2006, InBev declined to put a number a precise figure on its cost cuts for the year ahead.

More jobs look set to go in the pursuit of profitability.


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