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For Carlos Brito, managing director of Anheuser-Busch InBev, eager for deals, the IPO of its Asian business offered an attractive prospect.
The nearly $ 10 billion that the world's largest brewer hoped to raise would help pay part of the bill for a ten-year long acquisition. At the same time, having shares listed in Hong Kong would give it a currency to close more deals in major Asian markets.
AB InBev's decision last Friday to abandon what would have been the biggest IPO of the year after investors hesitated over the price, leaves Brito at the starting block: juggling 106 billions of dollars and persuading people to drink more beer as the drink on global consumers begins to loosen.
Mr. Brito's fifteen-year tenure has been marked by regular acquisitions – the acquisition in 2016 of SABMiller PLC, Grupo Modelo in 2012 and Anheuser-Busch in 2008. Each was followed by a fierce cost-cutting period that has helped increase margins and improve returns. shareholders.
But with the abandonment of the IPO reducing the chances of another deal feeding Ab InBev's slot machine, Brito is taking on the more common, but vital, challenge of increasing revenue.
"They are incredible operators and a good depository of brands," said one person who has advised the company in the past. "Some people suspect that the model only works if you provide more. AB InBev is trying to refute that now. "
ABI's revenue growth is now expected to come from higher volumes – not just higher prices and people moving to high-end brands – from its 50-brand portfolio including Stella Artois, Budweiser, Michelob Ultra, Becks and Leffe. The reduction in its debt burden will be based on cash flow from operating activities, which represents approximately $ 10 billion per year after capital expenditures.
Analysts estimate that it will take up to 2023 to AB InBev to bring its net debt to EBITDA ratio back to less than 2 times, which is more typical for everyday consumer goods companies, and up to # 2. 39, at the end of next year to reduce it to 4 times.
The IPO also comes at a critical juncture for a company whose acquisitions, including the purchase of £ 79 billion worth of SABMiller, have left its fortunes closely tied to the performance of emerging markets and their currencies. The agreement gives AB InBev a greater presence in Africa and Asia, but makes it dependent on increased volatility in emerging markets for about two-thirds of its earnings before interest, taxes, depreciation and amortization.
Last year, the decline in many emerging market currencies slowed AB InBev's cash generation and its ability to repay debt primarily denominated in US dollars. Subsequent pressure from rating agencies prompted the company to halve its dividend last October and refinance $ 16.5 billion of its debt to extend and spread the maturities. The company's shares fell by 40% last year.
While economists expected the US Federal Reserve to lower interest rates at the July 30 policy meeting, ABI could still benefit if the dollar, whose strength has drawn the wrath of the president American Donald Trump, was beginning to weaken.
"They took a calculated risk away from the IPO," said Trevor Stirling of Bernstein Research. "This may well be the right thing to do, as we are entering a period of losing monetary policy, which should ease debt and emerging market currencies. But if it flips, the stocks could be under pressure again. "
According to Jefferies, a 10% strengthening of emerging market currencies would represent about 7% of the ebitda group, or $ 1.6 billion. Every millionth of a volume of extra beer sold worldwide would add 2 to 3% to the latter. Since 2016, Jefferies estimates that the unfavorable currency effects cost AB InBev $ 2.3 billion, or two-thirds of the cost savings achieved through the SABMiller transaction.
"Macro could come to the rescue," said Mundy.
Regardless of the currency market, Brito's team will also have to redouble its efforts to tackle a decade of US market share losses at traditional brands such as Bud Light and Budweiser. while convincing emerging market consumers to switch to AB InBev brands. cheaper local breweries.
With consumers preferring imported and craft beers, AB InBev's market share in the United States has decreased by 8% over the last 10 years, while Heineken and Constellation Brands, which market Corona and Modelo, have share. Multiple rebranding exercises and advertising flyers reduced market share losses but did not stop them.
"They are trying to reorganize the US division, but that has proven difficult until now," said Barclays badyst Laurence Whyatt. "We do not see any material improvement in trends for Bud Light and Budweiser from recent Nielsen data."
At the same time, data show that young Americans and British drink less than previous generations. Even in emerging markets, beer is no longer the beverage of choice by default. While badtail cultures are flourishing on Instagram, spirits are growing faster than beer in the world. In addition, legal cannabis is looming on the horizon, opening up new ways to relax after work without alcohol.
According to the IWSR Beverage Market Analysis, between 2000 and 2018 beer's share of global alcohol sales by volume decreased by 0.8 percentage points. Over the same period, spirits increased by 1.5 percentage points.
ABI shares have been broadly stable since the abolition of the IPO in Asia, suggesting that investors are far from panic. But there is little doubt that the decision to abort the deal is an additional challenge for Mr. Brito.
"Consumption options have changed a lot and competition with Heineken is intensifying," Whyatt said. "AB InBev must stay true to his knitting for a while."
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