InBev 2Q profit climbs 8.6 percent on tax savings

Friday, August 15, 2008

BRUSSELS, Belgium — Brewer InBev SA's second-quarter profit climbed 8.6 percent despite flat sales and higher costs as it paid less tax.

InBev made $808 million for the three months ending June 2008, up from from $680 million at earlier exchange rate for the same period in 2007.

The improved bottom line was largely thanks to major savings on income tax which weighed in at $94 million during the quarter instead of the $247 million it paid in the second quarter last year. Sales were down 0.3 percent to $5.53 billion from $5 billion at earlier exchange rate. InBev blamed a refocus on more lucrative premium brands that saw it lose market share on lower-priced beers.

It is also suffering from higher costs for transport fuel and beer ingredients such as hops — although the company was confident that a "healthy" pricing environment was allowing it to hike beer prices.

"Rising costs continue to put pressure on our margins," said chief executive Carlos Brito. InBev sees some easing ahead, saying costs should moderate by the end of the year.

The company said it was "far from satisfied" with its performance this year despite picking up from an 11-percent drop in profit in the first quarter.

The Leuven, Belgium-based company will become the world's largest brewer when it completes its $52 billion takeover of U.S. rival Anheuser-Busch by the end of the year. Chief financial officer Felipe Dutra said the company was on track to complete a $45 billion financing pact by next week, despite the deteriorating credit market, and was still looking at what it could sell to pay for the purchase.

Adding Budweiser

The company says it is determined to spend more on marketing its headline brands — Stella Artois, Beck's and Leffe — as well as a large range of local stars. It will soon add Budweiser and Bud Light to that lineup. Dutra said these had a "big potential to expand globally, so that should be the focus."

Beer volume sales in western Europe — where InBev makes about half of its profit — were down 5.5 percent as the economy slowed on high inflation that has forced people to cut back spending. U.S. volume sales hardly moved, with InBev blaming a stellar year for European imports last year.

InBev said it would tackle falling sales in Britain — the main market for its high-alcohol Stella lager — by pushing out a lower-alcohol Beck's beer by the end of the year. Tainted by Britain's binge-drinking debate and retailer discounts, Stella has not turned around sliding sales.

The company also sold less in Russia and central Europe — down 3 percent — on tougher competition from Carlsberg. Dutra blamed InBev's decision to focus on higher-quality brands "that was not sufficient to offset the losses in terms of low-price brands" that are half the market.

Some markets back on track

But Brazil, another key market where InBev supplies some two-thirds of all beer, seems to be back on track after a weak start to the year on worries over the economy, it said.

Dutra said the company was still in discussions with Mexico's Grupo Modelo — half owned by Anheuser-Busch — which claims it has the right to block the deal.

No decision has yet been made at what InBev will sell off to finance the takeover, Dutra said, although the company is also looking at "noncore assets" belonging to InBev as well as Anheuser-Busch.

He said there would be an announcement by next week that InBev had closed a financing pact with banks lending InBev most of the money it needs for the bid. Ten banks have already signed up in the front line for $4.5 billion each but will try to find others for "scaling part of the risk downward to other banks," Dutra said.

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