E-Malt.com News article: 3235

InBev, the world's largest brewer by volume with 13% of the global beer market, announced on September 9 that it has achieved strong organic profit growth in the first half of 2004. InBev said strong growth in its premium Beck's and Stella Artois brands helped deliver first-half net profits of EUR 205 million, up 20 % from EUR 171 million in the same period last year. The company has registered global volume growth of Beck’s ® by +14.6% and of Stella Artois ® by +6.2%.

Commenting on the results, John Brock, InBev’s Chief Executive Officer said: “ InBev’s strong organic volume and profit growth, and its significant increase in EPS for the first half of 2004, are the direct result of solid brand-marketing programs, coupled with superior sales execution in the marketplace. Especially encouraging is the development of our global flagship brands, Stella Artois ® and Beck’s ® .” InBev chief executive John Brock told a conference call that the relatively cool summer across much of northern Europe would impact the third quarter, although the slow start would not impact overall results. "We did end up having a softer June and July than we would have liked, especially in Europe," Brock told a conference call following the release of the results. "August came back in a meaningful manner." "As we look to the third quarter, our business continues to grow as expected."

InBev was created from a merger between Belgium's Interbrew SA and Brazil's AmBev, completed just last month. But Thursday's results and forecasts relate only to Interbrew; AmBev results will be incorporated into InBev in the second half of the year.

InBev said overall volume was up 5.5 percent, with an 11.6 percent rise in North American sales offsetting weaker performance in Western Europe.

In Western Europe, volume decreased by 1.8 % due to the termination of a large distribution contract in Britain. Otherwise, volume growth in Western Europe would have been up 0.2 %. InBev realized EBITDA growth of +2.2%, due to the disposal of assets in the U.K. and the Netherlands, while EBIT declined by 0.7%. The principal reason for the decline in Western Europe is the higher depreciation and amortization charge linked to increased commercial and distribution investments. InBev achieved stable or higher market shares in 5 of the 7 countries in which it operates: Germany, the U.K., Belgium, the Netherlands and Luxembourg. In Germany, InBev experienced flat volume growth against the background of an industry decline of 2.6%. Lower volumes were realized for Hasseröder ® (12.1%) and for Diebels ® (13.9%), but this volume loss has been partly compensated by the combined growth of Beck’s ® and Beck’s Gold ® (+15.9%). The +8% price increase taken in September 2003 for Beck’s ® has helped the profitability of the German operations. In the U.K., the modest growth of +4.4% for Stella Artois ® was the result of effective management of discounts and promotions. InBev also experienced solid growth of Tennent’s Lager ® (+2.9%) and Castlemaine XXXX ® (+19%). In Belgium, strong brand performances — in particular, Jupiler ® in the offtrade — have ensured that InBev continues to grow share in a declining market.

Central & Eastern Europe experienced an outstanding performance, with volume growth of +18.5%, net turnover up +33.3%, and EBITDA and EBIT up +20.4% and +28.8%, respectively. Volume growth was +5.2% in Central Europe, and +26.2% in Eastern Europe. InBev’s growth was helped in Central Europe by new initiatives such as the introduction of QPack, the new PET packaging, which represented a total volume of 230,000 hectoliters in Central Europe at a premium price level which is 20 to 30% above returnable glass bottles. InBev experienced market share growth in 7 out of the 9 Central and Eastern European countries in which it operates. In the second quarter, several Central European operations experienced a slowdown in growth. This was particularly the case in Hungary, where the beer market suffered declines, due to the influx of imported cheap German cans. In Russia, domestic volume increased by +33%, versus a market growth of +15%. Consequently, market share reached a record level of 16.4% in the first half of 2004. InBev’s premium brand, Sibirskaya Korona ® , outperformed the segment, with volume growth of +86%. There were also strong performances from InBev’s international brand portfolio, with Stella Artois ® volumes up by +58% and Staropramen ® by +121%. Thanks to the growing contribution of the premium segment of the portfolio, and good price/mix management, gross profit per hectoliter increased by +18% in Russia. In Ukraine, market leadership was maintained, with domestic volume growth of +10.7%.

In Americas InBev’s volume was up by +7.1%, while net turnover increased by +11.6%. EBITDA and EBIT were up +9.9% and +15.9%, respectively. There was continued volume and profit growth in Canada, and a better performance of InBev’s import brands in the U.S. In Canada, domestic volumes increased by +0.8%, slightly lower than the market. InBev has a strong brand portfolio in the premium segment, which grew +12%, and the company experienced a volume growth of +25%.In the U.S. business, total depletions were up by +7.1%. InBev saw depletion growth of +13.5% in the Mexican brands, +40% for the European brands, and 1.7% for the Canadian portfolio. Despite a decline in depletions of 11.6%, there have been encouraging signs of improvement in the health of the Bass ® brand, whose distribution rights InBev acquired in July 2003. In the first half of 2004, depletions for Beck’s ® in the US increased by +8.4%, helped by the ‘Life Beckons’ campaign, launched in April of last year. In the super-premium import segment, Stella Artois ® depletions grew volumes by over +55% during the first half of 2004.

In Asia Pacific InBev’s bolume decreased by 2.8%, due to the 4.2% decline of volumes in South Korea. Net turnover was down 3.1%, while EBITDA and EBIT decreased by 3.2% and 11.6%, respectively. Results in the zone are still mainly driven by South Korea, where the combination of market decline and share
pressure resulted in lower profitability. For the total InBev business in China (including acquisitions), volume in the first half of 2004 grew by +16%, to 6.3 million hectoliters. The performance of the beer businesses acquired from the Lion group is encouraging, with volume growth of over +20%, as a consequence of the smooth integration of this business into InBev’s existing operations in China.

The +22.6% increase in earnings per share is principally due to the higher operating result. Currency translation had a minor impact on InBev’s halfyear
results.

InBev has announced the closure of three production sites, with a total capacity of 2.9 million hectoliters. These closures involve the breweries in Belfast and Manchester (United Kingdom), and in British Columbia (Canada). InBev expects total one-off costs related to these site closures of 100 million euro, as well as net-employment changes for approximately 200 people. Some 60% of the one-off charges are expected to represent exceptional non-cash costs. The total capital expenditure (CAPEX) needed for the relocation of production will be approximately 28 million euro. With these site closures, InBev expects to avoid recurring CAPEX of 8 million euro per year. The full benefit on EBITDA and EBIT levels for 2006 is expected to be 15 million euro and 20 million euro, respectively.

After the closure of the first half of 2004, the combination with AmBev was approved by shareholders on August 27, 2004. This led to the creation of InBev. Furthermore, InBev sold its 30% stake in FEMSA Cerveza on August 31, 2004, realizing a net after-tax capital gain of approximately 420 million euro.

InBev continues to expect organic volume and profit growth for 2004, in line with targets stated at the presentation of the 2003 results in March.

InBev is a publicly traded company (Euronext: INTB) based in Leuven, Belgium. The company's origins date back to 1366, and today it is the leading global brewer by volume. InBev’s strategy is to strengthen its local platforms by building significant positions in the world's major beer markets through organic growth, world-class efficiency, targeted acquisitions, and by putting consumers first. InBev has a portfolio of more than 200 brands, including Stella Artois ® , Brahma ® , Beck’s ® , Leffe ® , Hoegaarden ® , Staropramen ® and Bass ® Ale. InBev employs some 70,000 people, running operations in over 30 countries across the Americas, Europe and Asia Pacific. In 2003, InBev realized a net turnover of approximately €9.3 billion (2003 pro forma).


10 September, 2004