Anheuser-Busch InBev SA/NV — 2019 Form 20-F
Reporting period: Fiscal year ended December 31, 2019. This is an annual report, not a standalone fourth-quarter filing; the supplied text does not provide a clear set of Q4-only financial results. Financial statements are prepared under IFRS and reported in U.S. dollars.
Business context and reporting changes
AB InBev is a global brewer with more than 500 brands and operations across nearly 50 countries. From 2019, it reported five geographic regions plus Global Export and Holding Companies. The 2018 and 2017 comparisons were restated for the regional changes, retrospective adoption of IFRS 16 leases, and classification of Australian operations as discontinued operations. Unless noted, results below exclude Australia.
Key financial metrics
| Metric | 2019 | 2018, restated | Change |
|---|---|---|---|
| Revenue | $52.329bn | $53.041bn | -1.3% |
| Volumes | 561.4m hl | 559.8m hl | +0.3% |
| Gross profit | $31.967bn | $33.108bn | -3.4% |
| Profit from operations | $16.098bn | $16.414bn | -1.9% |
| EBITDA, as defined | $20.755bn | $21.038bn | -1.3% |
| Profit from continuing operations | $9.990bn | $5.157bn | +93.7% |
| Profit attributable to AB InBev equity holders | $9.171bn | $4.370bn | +109.9% |
| Basic EPS | $4.62 | $2.21 | Higher |
| Underlying EPS, non-IFRS | $3.63 | $4.10 | Lower |
| Cash flow from operating activities | $13.396bn | $14.181bn | -5.5% |
| Net capital expenditure | $4.854bn | $4.568bn | Higher |
| Net debt at year-end | $95.542bn | $104.242bn | -$8.7bn |
Gross margin was approximately 61.1% versus 62.4% in 2018; operating margin was approximately 30.8% versus 30.9%. EBITDA, as defined, is a non-IFRS measure. Operating cash flow less net capital expenditure was approximately $8.5bn, compared with $9.6bn in 2018; this is a simple calculation, not a company-reported free-cash-flow measure.
Net income and EPS rose sharply, but underlying EPS fell. Management attributed much of the reported earnings improvement to favorable mark-to-market movements on share-related hedges compared with losses in 2018. Net finance cost fell to $3.473bn from $8.826bn, largely reflecting those movements; net interest expense remained substantial at $3.739bn.
At December 31, 2019, total interest-bearing loans and borrowings, including lease liabilities, were $102.974bn. Cash and cash equivalents were $7.238bn; net debt was $95.542bn. Reported total liquidity was $16.3bn, including $7.3bn of cash, equivalents and short-term investments net of overdrafts and an undrawn $9.0bn committed revolving facility. In March 2020, the company drew the full facility in response to COVID-19-related market uncertainty. At year-end, 9.4% of interest-bearing liabilities bore variable rates and 90.6% fixed rates. Credit ratings were A- (S&P) and Baa1 (Moody’s), both with stable outlooks as of the report date.
Material changes versus the prior period
- Reported revenue declined despite 0.3% volume growth. Unfavorable currency translation reduced 2019 revenue by approximately $2.664bn; excluding currency, structural changes and changes in commercial-investment presentation, revenue grew 4.3% and revenue per hectoliter 3.1%.
- Cost of sales rose 2.2% reported, and increased 7.4% excluding currency and structural effects, reflecting commodity and transactional-currency headwinds. Selling, general and administrative expenses declined 2.3% reported and 3.6% excluding specified effects.
- Regional volumes increased in Middle Americas (+3.7%) and South America (+3.0%), while declining in North America (-2.3%), EMEA (-1.4%) and Asia Pacific (-3.1%). Segment results were affected by local market conditions, currency, and portfolio mix.
- The September 2019 Budweiser APAC IPO raised net proceeds of approximately $5.6bn; AB InBev retained 87.22% ownership. The proceeds were used to repay debt.
- Net debt declined by $8.7bn, with the IPO proceeds contributing to the reduction. Dividends paid during 2019 were $5.015bn.
Outlook, commentary, risks and unusual items
- Outlook: The company withdrew its entire 2020 outlook on March 23, 2020, citing the scale, uncertainty and rapid development of COVID-19 and related restrictions. It had issued guidance on February 27, but that guidance was no longer current.
- Australia divestiture: AB InBev agreed to sell Carlton & United Breweries to Asahi for AUD 16.0bn, approximately $11.2bn at the cited exchange rate. Closing was expected in the first half of 2020, subject to approvals. The Australian business was classified as held for sale and discontinued operations; 2019 discontinued-operation profit was $424m.
- Leverage and dividends: Deleveraging remained a priority. Management described around 2x net debt to adjusted EBITDA as its optimal structure and expected the ratio to be below 4x by the end of 2020. These targets were stated before the COVID-19 outlook withdrawal. The board proposed a further €1.00 per share for 2019, following the €0.80 interim dividend; the resulting €1.80 total was subject to shareholder approval.
- Exceptional and volatile items: Operating exceptional charges were $323m in 2019, including restructuring, Australia-disposal costs, a Brazilian state-tax regularization payment and Budweiser APAC IPO costs. The $230m provision for the European Commission Belgium antitrust investigation, recorded in 2018, was settled in 2019; the Commission’s $226m fine was paid in August 2019. Share-hedging mark-to-market gains and losses materially affected finance results and reported earnings.
- Contingencies: Ambev disclosed approximately $17.3bn of possible tax losses in Brazil at year-end, principally income and social-contribution, value-added and excise tax matters; these were generally unprovided because management assessed losses as possible rather than probable. A separate Brazilian securities-warrant dispute could involve potential share issuance and claimed dividends; management assessed loss as remote. AB InBev also reported Belgian excess-profit-ruling proceedings with no provision and a $76m deposit in a blocked account. SAB Australia had a $0.1bn provision relating to a tax assessment and had paid $47m pending resolution.
- Key business risks: High debt and refinancing needs; currency translation and transaction exposure; commodity, energy and water costs; reliance on distributors and suppliers; economic weakness in developing markets; evolving alcohol, tax and competition regulation; litigation; and climate, cybersecurity and operational risks. The filing also discusses COVID-19 as a risk emerging after year-end.
- Controls and audit: Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2019. PwC issued an unqualified opinion on the 2019 IFRS financial statements and internal control. Critical audit matters included goodwill and indefinite-lived intangible impairment testing and uncertain tax positions.
Most important facts for investors to verify
- Current liquidity, debt maturities, refinancing access and leverage after the March 2020 full draw of the $9bn revolving facility.
- The actual effects of COVID-19 on volumes, channels, profitability, cash flow and the withdrawn 2020 outlook.
- Completion, proceeds and use of proceeds of the CUB divestiture, and the final accounting for discontinued operations.
- Underlying earnings and cash generation apart from large share-hedging fair-value movements, currency effects and exceptional items.
- Progress on Brazilian tax cases and other contingencies, including whether assessments change from possible to probable and require provisions.
- Execution of the stated deleveraging and dividend plans; the €1.00 proposed final 2019 dividend remained subject to shareholder approval.