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AB InBev - Double digit sales increase, but margins slip

Full year revenues of $57.8bn reflected organic growth of 11.2%, despite a slowdown in volumes during the final quarter...

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Full year revenues of $57.8bn reflected organic growth of 11.2%, despite a slowdown in volumes during the final quarter. The annual increase was largely driven by price growth, although volumes were also up by 2.3%.

Underlying operating profit was up 5.4% to $14.8bn. That's despite a margin decline of 1.4% to 25.6%, as costs grew faster than revenues.

Free cash flow was about $8.5bn, and net debt fell from $76.2bn to $69.7bn.

For 2023, AB InBev expects underlying cash profit (EBITDA) to grow in-line with its medium-term outlook of between 4-8%. Revenue is anticipated to accelerate faster, through increases in price and volume.

The Board has proposed a final dividend of €0.75 per share, an increase of 50%.

The shares opened down 4.4% following the announcement but recovered these losses later in the day.

View the latest AB InBev share price and how to deal

Our view

The world's largest brewer successfully navigated a challenging 2022. The story remains largely unchanged, prices are being pushed higher to try and offset rising input costs. Crucially though, the beverage industry has been holding firm in the face of consumers with less cash to spare. AB InBev delivered record volumes over 2022 but there are signs that demand is weakening. This is something we'll be watching closely.

Speaking of costs, margins continue to feel the effects of higher commodity prices. That's keeping a lid on how much of the revenue increase feeds through to the profit line. If inflation calms over the next year, that trend should start to look more favourable - of course the opposite is also true.

Looking past some of the noise, 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.

Footholds in less-developed markets from Latin America to Sub-Saharan Africa mean there's scope for huge volume growth in the years ahead. We're already starting to see this in action, and it looks like premiumisation is a trend that's making its way into these regions too. Growth in Mexico, Brazil and Columbia was driven by more expensive brands.

Our biggest bugbear is the balance sheet, which is carrying too much debt. Net debt's at 3.5 times cash profit, a long way from the company's target of 2 times. Assuming cash flows and profits hold steady that's still over three years away. The Group's exposure to emerging markets means that if currencies move the wrong way, this target could be pushed out further.

There's no immediate concern, some 65% of scheduled debt obligations don't need repaying for five years or more and interest payments are very manageable. Nonetheless, we're keen ABI keeps its foot on the pedal where debt reduction's concerned.

AB InBev's enviable portfolio of brands and huge global footprint means revenues should be robust in most conditions. Its long-term growth opportunities shouldn't be dismissed either. But it's hard to get too excited when reducing debt, rather than reinvesting or returning to shareholders, is likely to be a priority for years to come.

AB InBev key facts

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.

Overseas dividends can be subject to withholding tax which not be reclaimable.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Derren Nathan
Derren Nathan
Head of Equity Research

Derren leads our Equity Research team with more than 15 years of experience in his field. Thriving in a passionate environment, Derren finds motivation in intellectual challenges and exploring diverse ideas within his writing.

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Article history
Published: 2nd March 2023