Belgium: AB InBev cuts dividend in half

Dark clouds are appearing on the horizon of the world’s largest brewing conglomerate AB InBev. On Thursday, shares of AB InBev experienced with as much as 11 percent the sharpest decline in the last decade when the company had to announce weaker than expected third-quarter profits and to cut the dividends of the listed company in half. Reasons were a stagnating demand in key markets and a challenging currency environment in countries including Brazil, South Africa, and Argentina.

Revenue fell nearly 10% to $13.3 billion, due in part to the sale of several businesses AB InBev had acquired as part of its merger with SABMiller. On an organic basis, the business delivered revenue growth of 4.5% driven by beer volume growth of 0.5% and enhanced by revenue management and premiumization initiatives across the globe. A diverse group of markets contributed to this growth, including China, Mexico, Western Europe and many African markets.

Total volumes grew 0.2 percent in the quarter, as own beer volumes grew by 0.5 percent and non-beer volumes were down by 2.4 percent. Good growth in own beer volumes achieved in Europe, Mexico and many African markets was partially offset by Brazil and Argentina.

According to projections of the company, the achieved synergies following the SABMiller acquisition in 2016 and the executed cost cuts were not sufficient to secure the proposed repayment of the $108bn in debt stemming from the acquisition. In the last resort, only a dividend cut will help to relieve the situation. “We believe it would make more sense to take measures to accelerate the deleveraging,” said Felipe Dutra, chief financial officer of AB InBev. “It will benefit both the equity and the debt holders.”

AB InBev’s debt-to-ebitda ratio at the end of this year will stand at 4.6 times, more than double than that of its closest rivals like Heineken with 2.2 times and Carlsberg with 2 times. AB InBev’s shares, which have fallen 22 percent this year, have also dramatically underperformed in direct comparison to other breweries sector stocks.

 

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