Anheuser-Busch InBev SA/NV — 2018 Form 20-F Summary
Business context and reporting period
This is the audited annual report for the fiscal year ended December 31, 2018, prepared under IFRS in U.S. dollars. It is not a standalone fourth-quarter filing; the supplied filing text does not provide a clear set of Q4-only financial results. AB InBev is a global brewer with more than 500 brands, operations in nearly 50 countries and reported annual volume of 567 million hectoliters.
Key financial metrics
| Metric | 2018 | 2017 | Change |
|---|---|---|---|
| Revenue | $54.6 billion | $56.4 billion | -3.2% |
| Profit from operations | $17.1 billion | $17.2 billion | -0.3% |
| EBITDA, as defined | $21.4 billion | $21.4 billion | -0.3% |
| Profit for the year | $5.7 billion | $9.2 billion | -38.0% |
| Profit attributable to AB InBev equity holders | $4.4 billion | $8.0 billion | -45.4% |
| Basic EPS | $2.21 | $4.06 | Lower |
| Cash flow from operating activities | $14.7 billion | $15.4 billion | -4.9% |
| Net capital expenditure | $4.6 billion | $4.1 billion | Higher |
| Net debt at year-end | $102.5 billion | $104.4 billion | Down $1.9 billion |
| Cash, cash equivalents and short-term investments, net of overdrafts | $7.0 billion | $11.7 billion | Lower |
Gross margin was approximately 62.7% and operating margin approximately 31.3%, based on reported revenue and gross profit or operating profit. EBITDA, as defined, is a non-IFRS measure. Underlying EPS, another non-IFRS measure, increased to $4.38 from $4.19; management excludes specified exceptional items, share-based-payment hedge mark-to-market effects and hyperinflation impacts in calculating it.
Material changes versus the prior comparable period
- Reported volume fell 7.4% to 567.1 million hectoliters. The 2017–2018 acquisitions and disposals reduced 2018 volume by 47.2 million hectoliters versus 2017; excluding those changes, volume increased 0.3%.
- Revenue declined 3.2% as unfavorable currency translation, structural changes and Argentina hyperinflation accounting outweighed underlying growth. Excluding those effects, management reported revenue growth of 4.8% and revenue per hectoliter growth of 4.5%.
- Unfavorable currency translation, including hyperinflation accounting, reduced revenue by about $2.3 billion and operating profit by about $1.1 billion. Argentina was treated as hyperinflationary under IAS 29 from January 1, 2018.
- Operating profit was nearly flat, while equity-holder profit fell sharply. Net finance cost rose to $8.7 billion from $6.5 billion, driven substantially by adverse mark-to-market results on hedges of share-based payments and shares issued in prior combinations. The reported 2018 loss on hedges of share-based payment programs was $1.8 billion.
- Operating cash flow decreased by $0.8 billion, mainly because of higher taxes paid, including taxes relating to prior periods. Net debt declined despite dividends, interest and taxes, with currency translation reducing net debt by approximately $2.1 billion.
Outlook, risks, contingencies and unusual items
- For 2019, management expected strong revenue and EBITDA growth, supported by brand performance and commercial plans. It expected revenue per hectoliter growth ahead of inflation and total costs (cost of sales plus SG&A) below inflation; cost of sales per hectoliter was expected to rise by mid-single digits.
- Management maintained a $3.2 billion annual synergy and cost-savings target related to SAB, with about $250 million still expected by the end of 2019. It targeted net debt to adjusted EBITDA below 4x by the end of 2020 and around 2x over the longer term. Expected 2019 net capex was $4.0–$4.5 billion; expected average gross debt coupon was 3.75%–4.00%. Dividend growth was expected to be modest in the near term as deleveraging remained a priority.
- Year-end liquidity was reported at $16.0 billion, comprising $7.0 billion of cash and short-term investments, net of overdrafts, and an undrawn $9.0 billion revolving facility maturing in 2022. Moody’s rated long-term debt Baa1 with a stable outlook; S&P rated it A- with a negative outlook. Management said it had sufficient working capital for the following 12 months, while noting risks associated with high debt and refinancing.
- 2018 exceptional operating charges totaled $715 million: $385 million restructuring, $74 million acquisition costs, $26 million business and asset disposal costs, and a $230 million provision for the European Commission investigation into alleged competition-law violations in Belgium. The investigation’s outcome remained unresolved.
- Ambev disclosed substantial Brazilian tax disputes classified as possible losses, generally without provisions; the filing’s aggregate estimate for material possible tax losses was approximately $17.4 billion at year-end. Separately, the Belgian excess-profit-ruling matter had no provision; AB InBev deposited €68 million in a blocked account in January 2019, and the EU General Court ruled in February 2019 that the system did not constitute illegal state aid, subject to possible appeal.
- Other key risks include foreign-exchange and commodity-price volatility, inflation and political risk in developing markets, changing consumer preferences and regulation of alcohol, litigation, and delivery or supplier concentration. The company reported no material off-balance-sheet arrangements. It also announced a change of auditor to PwC, subject to shareholder approval in April 2019.
Most important facts for investors to verify
- How much of the reported revenue and volume decline reflects currency and portfolio changes versus underlying demand, particularly in North America, Brazil and South Africa.
- Whether the 2019 revenue, cost, synergy and deleveraging targets were achieved, and how net debt and interest costs developed afterward.
- The eventual costs and outcomes of the European Commission investigation and major Brazilian tax disputes, including any appeals or changes to provisions.
- Whether cash generation remains sufficient to fund debt service, capital spending and dividends, given lower year-end cash and substantial debt maturities.
- How IFRS 16 adoption and the new regional reporting structure affect comparability of subsequent results; management anticipated recognizing $1.7 billion of right-of-use assets and $1.8 billion of lease liabilities on transition.