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AB InBev Spearheads Performance Amongst the Top Global Brewers

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There is little surprise in the Q1 2014 performance of Anheuser-Busch InBev and Carlsberg A/S as we witness the former company report positive performance in their key financial indicators, and the latter falter.

AB InBev reported in their just released 2014 Q1 results exceedingly positive gains in beer value and volume sales, as well as their margins. According to the company results, it achieved year-on-year growth in value sales for beer of 9% and 5% in volume terms, which were supported by the parallel use of a cost-cutting strategy and a product-premiumisation agenda. Through this initiative the company had supported an 11% gain in their EBITDA, augmented from its performance in Brazil and high-margin market in Mexico.

In the case of Carlsberg they reported, year-on-year, a 2% gain in beer value sales for the first quarter of 2014 and a 3% decline in volume sales. However, what hit them the hardest is the 28% decline in operating profits driven by the negative currency impact from the Russian Rouble, and partially due to the company’s increased ownership in their Asia Pacific holdings and controlling share acquisition in Czech Republic.

A surprising aspect in the AB InBev results was the positive growth in the US volume sales at 2% for the 2014 Q1, year-on-year. General consensus in the industry expected a decline or stagnant performance at best and MolsonCoors fulfilled this with a reported 2014 Q1 3% decline in both volume sales to retailers and wholesalers. By contrast AB InBev reported an increase in the growth of sales-to-wholesalers (STWs), although is likely that this market’s volume sales growth in Q1 will be offset by declining sales-to-retailers (STRs) in the following financial quarters. Euromonitor supports this point forecasting a total market volume decline of 1% in the US for 2014, as consumer demand continues to shift toward spirits and wines, both forecasted to show a 3% growth in 2014.

The key market in question for Carlsberg is Russia, since it made up over 30% of its volume sales in 2013. Jørgen Rasmussen, the CEO of Carlsberg, had been insistent on a resurgence of performance in the Russian beer market. However following the tax legislation change over beer in 2010 and 2012, and the current geopolitical situation, the company is not reporting an improved situation. It is recommended that the company reduce its focus in Russia and looks into expanding their Asia Pacific operations or even entering other high-growth developing markets, such as in Latin America or Africa.

For AB InBev, Russia is of a lesser consequence, especially as it indicates clear signs of it pulling back in this market. The company attained only 3% of their global sales from Russia in 2013, it has less exposure to a potential Russian economic crisis than Carlsberg, especially given in early 2014 it announced the closure of its third brewery in the past two years. This is an astute decision from the former as Euromonitor forecasts a negative CAGR of 1% between 2013 and 2018 in the total beer volume market in Russia, although with the unsettled geopolitical situation this could deteriorate.

Observing the performance of Heineken NV and SABMiller in their recent quarterly results, both companies had shown positive results, but less strong than the performance of AB InBev. Heineken had reported a turnaround performance with improved value sales at 3% and a return to positive growth in beer volume sales at 1% for 2014 Q1. SABMiller showed similar results with the publication of their 2014 Q4 results and FY2014 at 3% gain in value sales and 1% in lager volume sales. Generally the top brewers are reflecting a trend of value sales growth outstripping volume sales growth. Euromonitor forecasts that in 2014 global market value will grow at a constant rate of 3%, and volume at a rate of 2%, and this will be further emphasised as value is inflation adjusted.

All in all AB InBev’s performance continued to reflect prowess as they did in the FY2013 results whereas Carlsberg falters at the expense of sticking to their guns when it comes to Russia.  Carlsberg will have to learn from its competitors Heineken and SABMiller by shifting investment priority to Asia Pacific and hunting for potential entry in the high-growth BICS and MINT markets.

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