AB InBev Profits Hit by SABMiller Takeover and 'Weak' Brazil

03/07/2017 - 12h08

Anheuser-Busch InBev said it would extract more savings from SABMiller, the rival brewer it bought last year, as it announced a sharp drop in full-year profits due to the costs of financing the £79 billion (US$ 96 billion) takeover and "very weak" trading in Brazil, its second-biggest market.

The Belgium-based brewer on Thursday reported net profits of US$ 1.2 billion, down from US$ 8.3bn in 2015. On an underlying basis - excluding non-recurring items and discontinued operations - net profits fell to US$ 4.9bn from US$ 8.5 billion last time, mainly due to the higher financing costs. 

In a complex set of results, which included one quarter's trading from SABMiller, AB InBev attributed 78 per cent of the drop in earnings per share to unusual items, such as funding the takeover. EPS fell 46 per cent to US$ 2.82.

AB InBev, which produces one in four beers around the world - including Budweiser, Corona and Stella Artois - and takes 45 per cent of the global industry's profits, also lost US$ 384 million on hedging its share-based payments, compared with a gain of US$ 844 million the previous year. 

Net debt at the end of December shot up, as expected, to US$ 108 billion from US$ 42.2 billion last year, and was 5.5 times earnings before interest, tax, depreciation and amortisation.

Trevor Stirling, analyst at Bernstein, said: "Across the board, profitability came in substantially lower than expected, both in the legacy AB InBev and SAB businesses."

The shares were 2 per cent lower, at €102 a share, in early London trading.

The group, led by chief executive Carlos Brito, has absorbed a series of acquisitions and raised its savings target from SABMiller, saying it would deliver US$ 1.75 billion of savings, up from the US$1.4 billion quoted before the takeover, which completed in October last year.

AB InBev said it had already benefited from US$ 282 million of synergy and cost savings since April 1, some from SABMiller's own savings programme.

Net finance costs rose to US$ 5.2 billion compared with US$ 1.2 billion in 2015, mainly due to issuing bonds to help pay for SABMiller.

The difficulties in AB InBev's two biggest markets - Brazil and the US together accounted for 59 per cent of group ebitda in 2016 - were one reason behind its decision to acquire SABMiller, giving it exposure to Africa, one of the world's fastest-growing beer markets.

Trading in Brazil - which accounts for under one-fifth of group revenues and a quarter of AB InBev's profits - continued to deteriorate in the fourth quarter with a 33 per cent drop in ebitda.

For the year as a whole, ebitda in Brazil fell 20 per cent.

Brazil's economic decline has hit consumers hard and they are buying less mainstream beer. AB InBev's share of the market is 66.3 per cent, down 1.2 percentage points on the previous year. 

AB InBev said: "A challenging environment in Brazil has put pressure on the consumer and impacted our results."

Fourth-quarter ebitda fell 3.6 per cent - well below consensus expectations of 1.3 per cent growth.

In the US, sales to retailers fell 2 per cent in 2016, while sales of Bud Light continued to slide, despite efforts to revive the brand last year. Profitability rose, however, with a 2.2 per cent increase in ebitda to US$ 5.6 billion while margins expanded to 40.1 per cent.

Mexico enjoyed another good year with a 6.5 per cent increase in ebitda. Volumes fell in China but revenues were boosted by the sale of more premium beers.