Belgium: InBev applies zero based budgeting to make hard cost cuts
InBev, the biggest brewer by volume, is looking to new tough cost cuts from its Brazilian AmBev partner in order to revive profit growth as it battles with sluggish western European markets, Reuters announced on September 8.
InBev's new Brazilian Finance Director Felipe Dutra moved from AmBev at the start of the year and is implementing zero based budgeting, that drove profits up in Brazil, boosted earnings in Canada and is now being applied to Europe. Zero-based budgeting means setting the year's budget with no reference to the previous year, or assuming it was zero. The technique has been used by AmBev for 10 years and came to InBev after the Belgian brewer bought AmBev in August 2004.
The cost cutting is behind InBev's desire to be not only the world's biggest brewer but also the most profitable. It aims to meet its EBITDA margin target of 30 percent by 2007 as it looks to match the most profitable brewer, Anheuser-Busch.
According to Dutra the technique had cut 40 million euros of costs from its Canadian operation by job losses and other savings, and came separately from the company's move to close two of its Labatt Canadian breweries in 2004 and 2005. "We are applying zero based budgeting to western Europe this year, and next year we expect to see cost saving," Dutra said.
The Canadian cost-cutting sent InBev's first-half North American EBITDA up 47.6 percent with beer volumes off 2.3 percent, and is now being applied to western Europe where first half EBITDA fell 7.1 percent with beer volumes off 3.7 percent.
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