23 March 2018

SAB was efficient but AB-InBev hopes to do better

South Africa was one of the star performers in AB-InBev’s global empire in 2017, where the local unit lifted margins by an impressive 600 basis points, enabling the company to report a 21.1 percent hike in EBITDA on a beer revenue increase of just six percent, even as the brewer had to deal with the effects of a crippling drought at its Newlands brewery in Cape Town.

The substantial margin improvement in South Africa was achieved off a sales volume increase of merely 0.9 percent during the twelve months of 2017. In the last quarter to end-December volumes dropped 1.8 percent.

Observers say Ricardo Tadeu, AB-InBev’s Zone President Africa, appeared quite phlegmatic about the margin improvement, stating that it was to be expected in the first year of integration.

He said the 600 basis-point improvement was below average for the group, noting that there had been a significantly greater improvement at Grupo Modelo after AB-InBev’s 2012 acquisition of the Mexican beer group.

“SAB was efficient but this is about the exchange of best practices between the two groups [AB-InBev and SABMiller] and the standardisation of contracts,” Mr Tadeu told local media. Management would continue to look for improvements and expected to see higher margins in 2018, helped by initiatives implemented during 2017.

Volumes in the rest of Africa recorded a mid-teens increase and Mr Tadeu said the continent was set to be AB-InBev’s most important driver of volume increases with population growth and urbanisation pushing increased consumption.

The local newspaper Business Day reported that Mr Tadeu seemed unfazed by the prickly issue of the liquor act. The South African government is considering an amendment to the liquor act which may ban advertising for alcohol on TV and radio between 6 am and 10 pm. The legal age for alcohol could be raised to 21 years from currently 18 years.

AB-InBev holds 63 percent of the South African market. It has engaged with the government and believes any restrictions that arise can be compensated by developing new parts of its portfolio.

The company said it will start distributing its flagship Budweiser brand in South Africa this year and introduce an alcohol-free version of SABMiller’s Castle brand. Castle Lite, South Africa’s biggest selling lager, remains popular, Mr Tadeu said.

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