North and South America Performance Aid InBev Surge

31/08/07 InBev, the world’s leading brewer has said that profits surged 27 percent to €499 million (US$680 million) in the second quarter, as selling more beer in Latin America, Russia and Asia outweighed lackluster sales in Europe, the U.S. and Canada. Challenging conditions prevailed in Western Europe and North America, while volumes grew in the other Zones. The brewing giant said reported a strong increase in net profits with normalized profit attributable to equity holders of InBev increased by 21% on an absolute basis to 477 million euro.

Top line growth exceeded volume growth with revenue increasing organically by 7.6% during 2Q07, as a result of volume growth and a 2.5% increase in revenue per Hl, or +4.1% eliminating the impact of the change in geographic mix.

2Q07 cost of sales (CoS) were impacted by some commodity cost pressures, leading to an increase in CoS per Hl of 3.6%, year-on-year. Operating expenses declined by 1.8% on an organic basis, as a consequence of the company’s ongoing focus on identifying and reducing non-working expenses.

Normalized EBITDA grew organically by 16.5%, resulting in an EBITDA margin of 33.1% in 2Q07 versus 30.8% in 2Q06, an organic increase of 253 basis points and a sixth consecutive quarter of margin expansion. Importantly, all Zones achieved organic EBITDA growth during 2Q07, reflecting InBev’s ongoing objective to achieve balanced growth across its operations, the company reported.

Second quarter EBITDA margins continued the trend of expansion, as the result of a volume increase combined with better revenue per Hl, and cost control. North American margins improved in the second quarter, with costs being carefully managed; moreover, the company continued to work hard on improving the top line, among others through the integration of the Lakeport brands into its portfolio. Latin America North and Latin America South both delivered solid margin growth on the back of a sound top line performance and continued good management of expenses. In Western Europe, we were impacted by an anticipated increase in cost of sales; however, margins grew because of our ongoing focus on managing fixed costs. In Central & Eastern Europe, there was another solid top line performance.

Although reported EBITDA margin declined, this is almost entirely explained by changes in intercompany charges which are neutral at group level. Excluding this impact, EBITDA margins would have been virtually unchanged, year on year. Margins in Asia Pacific expanded primarily through higher volumes at a favorable geographic mix, and increased revenue per Hl.

“The second quarter has shown improvement in our overall business, with EBITDA margin expansion, volume growth and EBITDA growth. But we can do better. We have higher expectations for our China and UK operations. In those operations we have been outperformed by competitors and we must do better. The way to get back on track in these geographies is to continue to enhance our people capabilities, brand equity and in-market execution, thus building a sustainable and profitable platform for our businesses to grow”, said Carlos Brito, InBev’s CEO.