Brazil brews trouble for AB-InBev
AB-InBev has had a poor fourth quarter 2016. The world’s number one brewer missed analysts’ forecasts for sales, underlying profits and organic volume. In the fourth quarter, volumes dropped 3.3 percent, revenue was flat, while EBITDA declined 3.6 percent compared with the fourth quarter 2015. This was reported on 2 March 2017.
For the full year AB-InBev reported a volume drop of 2.0 percent to 500 million hl, a slight revenue increase of 2.4 percent to USD 45.5 billion, yet a decrease in EBITDA of 0.1 percent to USD 16.7 billion.
Analysts were not amused. This was the first time in many years that AB-InBev had failed to achieve a hike in EBITDA, its chosen measure of success.
The market which had spoiled AB-InBev’s game was Brazil. The brewer said that beer sales in this market declined by approximately 5.3 percent in 2016 and that its own market share was dragged down to 66 percent. In the US, AB-InBev lost volume too as it did in China, where the beer market shrank by 4 percent in 2016. AB-InBev’s own volumes contracted by only 1.2 percent.
And, to continue with the bad news, beer volumes in Colombia, one of SABMiller’s most profitable markets, contracted by 3.2 percent in the fourth quarter, as they did in South Africa, where AB-InBev saw beer sales shrink by 5 percent (year-on-year).
As to its performance in Europe, AB-InBev would only say that in Western Europe total volumes grew by low single digits in 2016, whereas in Eastern Europe total volumes declined in the high single digits.
Consequently, most of the executive board, including CEO Carlos Brito, will not get a bonus as the 2016 performance was so disappointing.
To mollify the analysts, AB-InBev raised its target for savings from the SABMiller acquisition by USD 350 million to USD 2.8 billion within three to four years. That includes the USD 1.05 billion SABMiller had already earmarked before the merger.
But AB-InBev also said it expects to incur costs of USD 900 million over three years (how much will the 5,500 jobs to be axed cost them in redundancy payments?) to achieve the savings goals.
Commentators said that investors should be wary of the company's promises that this is the end of its poor performance. Unless volumes improve, AB-InBev will be forced to cut even deeper. How it can do this without inflicting self-hurt remains a puzzle, given that Brazil, where most of the problems lie, is already a lean operation.
