AB InBev's first half revenue rose 22.4% on an organic basis to $25.8bn, reflecting 4.7% growth in revenue per hectolitre and a 17.0% increase in volumes. Underlying cash profits rose 22.1% to $9.1bn.
The group continues to expect cash profit growth for the full year to be between 8% and 12%.
The shares fell 6.0% following the announcement.
The closure of pubs and restaurants around the world cut off a major source of sales for brewers like AB InBev. This would be a problem at any time but it's especially worrying given the group's sizeable debt pile, courtesy of the 2016 SABMiller acquisition.
Despite selling a minority stake in Budweiser APAC, part of the group's Asian operation, for $5.8bn, and the $10.8bn sale of the Australian business, debt was still a whopping 4.4 times underlying cash profits when we last heard. That's a lot higher than we're comfortable with. The ratio of debt to cash profits will come down as profits recover, but the absolute level still needs to be reduced.
For that reason, we were a little surprised to see the dividend return. Admittedly, it was half 2019's final dividend. But it still grates when AB InBev is allegedly doggedly committed to getting the balance sheet in order. Tough though it is to lose a dividend, we think it'd be better if management channelled those funds elsewhere.
If you can see past the debt shaped millstone hanging around the group's neck, there are bright spots. Sales did well coming out of earlier lockdowns, and the most recent results made encouraging reading too.
Footholds in less-developed markets from Latin America to Sub-Saharan Africa mean there's scope for huge volume growth in the years ahead. That's despite AB Inbev already brewing one in four pints globally, and a growing middle class in those economies opens the door to price rises too.
In developed markets a trend towards more premium products presents the opportunity to boost both margins and revenues. That's played into the group's hands as strong brands like Michelob Ultra, Stella and Corona have reaped the rewards of the shift.
And because AB InBev has such high fixed costs, an increase in sales should be met with an even bigger increase in profits. (A brewery is a lot more efficient when it's working at full capacity). Of course, the opposite's also true, which is why last year was so challenging.
AB InBev's enviable portfolio of brands and huge global footprint means some level of revenue is pretty much guaranteed. Its long-term growth opportunities shouldn't be dismissed either. But debt is a problem, and we have trouble being more positive while the balance sheet looks the way it does.
AB InBev key facts
- Price/Earnings ratio: 20.5
- 10 year average Price/Earnings ratio: 19.7
- Prospective dividend yield (next 12 months): 1.4%
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
First half results (underlying figures)
North American revenue rose 5.7% to $8.0bn, reflecting 2.4% volume growth. In the United States sales-to-wholesalers grew 2.5% but sales-to-retailers shrank 1.1%. Cash profits rose 0.5% to $3.0bn as higher supply chain costs mostly offset revenue growth.
In the Middle Americas revenue rose 41.0% to $5.9bn and volumes rose 31.1%. This reflects continued momentum in Mexico and Columbia, where volumes were up over 30% and ''double digits'' respectively. Cash profits rose 42.3% to $2.8bn, reflecting strong revenue growth and cost discipline.
In South America a 14.6% increase in volumes fed into a 34.5% rise in revenue to $4.1bn. Volumes rose 13.7% in Brazil, led by core-plus brands like Brahma Duplo Malte and premium and super-premium brands like Corona, Original and Beck's. Volumes were up double digits in Argentina. Cash profits rose 24.7% to $1.4bn as higher costs partially offset revenue growth.
In the Europe, Middle East and Africa revenue rose 20.6% to $3.8bn as volumes rose 21.2%. The group says it is driving premiumisation in Europe, where the premium and super-premium portfolios now make up over 50% of sales. In South Africa volumes grew double digit following sales bans last year. Cash profits in the region rose 38.8% to $1.1bn thanks to premiumisation and increased sales from higher margin channels.
Revenue from Asia Pacific rose 25.2% to $3.5bn, reflecting 18.0% volume growth. In China revenue grew ahead of the market according to management's estimates and volumes were up 21.6%. Cash profits rose 45.7% to $1.2bn.
AB InBev's Global Export and Holding Companies saw a 22.1% increase in revenue to $491m, and cash losses widened by 55.3% to $473m.
Free cash flow of $1.8bn compares with an outflow of $405m last year. Net debt stood at $83.4bn at the end of June, up from $82.7bn at the end of last year, and is 4.4 times cash profits. The group is still pursuing a net debt to cash profits ratio of two times.
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