Brazil: Ambev, the Brazilian brewer and soft drinks company that in March announced a merger with Interbrew of Belgium, is emerging as victor in a beer war that cost it market share against its rivals and contributed to an erosion of profits in the first quarter, Financial Times posted on May 12. The company said on May 11 its share of Brazil's beer market recovered to 65 % at the end of March, up from 62.6 % last November - the company's lowest market share since it was created in a merger of Brazilian breweries in 1999.

However, market share was still below its year- earlier level of 69.3 %. Total sales in Brazil increased by 7.4 % to R$1.91bn (US$611m) in the first quarter compared with the same quarter last year. Consolidated sales, including overseas operations, gained 19.4 % to R$2.37bn. "They've been spending a lot on marketing, and it's working out," said Márcio Kawasaki, an analyst at Fator Corretora, a Sa~o Paulo brokerage. He said sales were in line with expectations. Net profits fell to R$305m in the first quarter, down from R$509m a year earlier.

The company said spending on distribution, depreciation and marketing increased to R$459.5m in the first quarter, up from R$341.5m a year earlier. "The result [of spending on marketing] can already be seen in the recovery of market share," said Felipe Dutra, financial director.

Ambev lost share in the beer market from June last year following the launch of a new beer by Schincariol, a smaller rival. Ambev reacted aggressively, increasing its marketing spend and luring a popular singer away from Schincariol's advertisements to appear in its own.

The company said financial expenses also increased during the quarter, due to debt service and the cost of hedging liabilities in foreign currencies.

Many Brazilian companies with foreign currency debts suffered with the devaluation of the real during 2002. The Real recovered during the year to the end of March, from R$3.53 to the dollar to R$2.90. The recovery surprised many companies that had hedged against further falls in the currency.

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