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AB InBev - full year profit growth at top end of guidance

Full year revenue rose 15.6% on an organic basis, to $54.3bn. That was driven by a 9.6%...

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Full year revenue rose 15.6% on an organic basis, to $54.3bn. That was driven by a 9.6% increase in volumes and strong premium brand performance boosting prices, with revenue per hectolitre up 5.5%. Underlying cash profits (EBITDA) came in at $19.2bn reflecting organic growth toward the top end of estimates, at 11.8%.

The group expects to grow cash profits between 4-8% in 2022.

The shares fell 3.4% following the announcement.

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Our View

Despite increasing commodity and supply chain costs, AB InBev is continuing to push on with recovery. We're not there yet, and it'll likely take another couple of years for profits to fully recover. But sales have improved with easing restrictions and the group's managing to drive volumes higher whilst pushing prices up with more premium options.

And because AB InBev has such high fixed costs, as sales increase profits should come along for the ride. (A brewery is a lot more efficient when it's working at full capacity). Of course, the opposite's also true, which is why it's been a tough couple of years.

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, with record volumes in Brazil and continued strength in Mexico and Argentina. A growing middle class in those economies opens the door to price rises too.

Whilst it may seem counterintuitive, we're a little disappointed to see management proposing a dividend for the full year, as opposed to focusing on debt reduction. Despite selling a minority stake in Budweiser APAC for $5.8bn, and the $10.8bn sale of the Australian business, debt was still a whopping 4.0 times underlying cash profits at the full-year mark. Granted that has come down a touch, partly because profits are up. But it's, some way ahead of its peers and higher than we'd like. If profits continue to rise that number will naturally fall, but work needs to be done on the other side of the equations too, given net debt stands at $76.2bn.

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 debt is a problem, and we have trouble being more positive while the balance sheet looks the way it does.

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Full Year Results (organic figures)

North America revenue grew 3.3% to $16.3bn, with flat volumes. In the United States, there was little movement in sales-to-wholesalers, but sales-to-retailers dropped 2.3%. Cash profits fell 0.9% to $6.1bn.

In the Middle Americas revenue rose 24.8% to $12.5bn. There was double-digit growth across Mexico, Columbia, Peru and Ecuador. Total volumes for the region rose 17.1% and cash profits were 22.4% higher at $6.1bn.

South America revenue grew 26.3% to $9.5bn as volumes grew 8.7%. Premium brands in Argentina helped volumes grow in the low teens and Brazil saw record high beer volumes. Cash profits grew 11.7% to $3.1bn.

In Europe, Middle East and Africa total volumes increased 14.2% leading to revenue of $8.0bn, up 18.0%. Europe and South Africa both saw double digit volume growth. Premium brands now make up over 50% of European revenue, led by Corona and Leffe. Cash profits grew 30.6% to $2.6bn.

Revenue from Asia Pacific rose 14.8% to $6.8bn, with volumes 8.2% higher. All segments of the portfolio grew in China, led by premium brands. Restrictions impacted trading in South Korea, resulting in low single-digit decline in volumes. Cash profits grew 25% to $2.3bn.

Free cash flow of $9.3bn was up from the $7.2bn the previous year. Net debt was $76.2bn at the end of the period, down from $82.7bn the previous year, and is 4.0 times cash profits.

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.

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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Article history
Published: 24th February 2022