Are AmBev's High Profits Sustainable?

Brazil-based AmBev, the Latin American subsidiary of Anheuser-Busch InBev (ABI), has posted very strong full-year results for 2010 and announced a significant programme of investment for 2011. In 2010 AmBev registered a 13.2% increase in revenues on an organic basis and a 6.7% increase in total volumes. Earnings also improved, with normalised EBITDA increasing by 13.7%, to BRL11.7bn, and the company's net profit margin also advancing strongly (see first chart). On the back of these results AmBev has announced plans to invest up to BRL2.5bn in new plants and distribution centres in 2011 in order to increase capacity. AmBev's strong growth, coupled with very high margins, makes it the jewel in the crown of ABI's portfolio. However, BMI believes that its unparalleled margins will eventually attract competition into the market, which may put downwards pressure on the company's profitability.

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