AB InBev ups merger savings target, to cut capex

BRUSSELS Thu Mar 5, 2009 7:24am EST

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BRUSSELS (Reuters) - Anheuser-Busch InBev, the world's largest brewer, set a more ambitious merger savings target and slashed capital expenditure after better than expected fourth-quarter results on Thursday.

The company, formed from InBev's $52 billion takeover of Anheuser-Busch last year, forecast synergies of $2.25 billion, compared with a previous goal of "at least" $1.5 billion evenly spread over three years.

It added it had already captured $250 million in 2008, would find $1 billion this year and the remainder in 2010 and 2011.

The brewer of Stella Artois, Beck's and now Budweiser, said the much-watched EBITDA (earnings before interest, tax, depreciation and amortization) rose 5.3 percent on a like-for-like basis to 1.72 billion euros ($2.16 billion).

A Reuters poll of 16 analysts produced an average forecast of 1.57 billion euros. Comparable net profit fell 40 percent, mainly due to higher merger-linked financing costs.

Volume growth dropped by 1.8 percent, although rose in North America and the southern part of Latin America, notably Argentina. Total revenue increased by 4.2 percent to 5.25 billion euros, against expectations of 4.95 billion.

AB InBev shares, which have doubled since a November low at the time of a rights issue, were up 2.9 percent at 20.01 euros at 6:05 a.m. EST. The DJ Stoxx European food and beverage index was down 0.2 percent.

Trevor Stirling, analyst at Sanford Bernstein, described AB InBev's fourth-quarter figures as reasonable, with better numbers in Anheuser-Busch and less favorable in old InBev.

"The synergies and capital expenditure targets are better than expected. For the synergies, it is the timing that is also important," he said.

NO SHIFT FROM BEER TO WATER

Increased savings would largely come from implementation of its "zero-based budgeting" cost drive in the United States, combining UK businesses and logistics improvements in China.

AB InBev said it planned capital expenditure in 2009 of 1.4 billion euros, some 800 million euros lower than in 2008 and that it would seek to release at least $500 million from working capital efficiencies in the United States.

Rivals Heineken and Carlsberg, who jointly bought Scottish & Newcastle last year for 7.8 billion pounds ($11.01 billion), pledged in February to slash debt, costs and spending in anticipation of a recession-hit 2009.

AB InBev's Chief Financial Officer Felipe Dutra said fundamentals remained strong and that margins should expand this year with pricing actions and volumes currently stable. The beer market was resilient but not immune to downturns.

"What happens is people trade down from spirits and wine to beer and shift from on-premise to off-premise, but not necessarily from beer to water," he told a conference call.

AB InBev said cost of sales per hectoliter rose 9.1 percent in 2008, above a 5-6 percent target. So Chief Executive Carlos Brito and most of the executive board would not receive a bonus.

"We largely failed to meet our targets. We have no excuses," Dutra said.

The company had already begun building down, or at least refinancing, a $45 billion loan it arranged for the merger.

It has issued around 7.7 billion euros of bonds and retail notes this year and has sold its Labatt USA business and a 19.9 percent stake in China's Tsingtao for $667 million.

AB InBev is still committed to divesting $7 billion of non-core assets. CEO Brito said this could be reached with two to three sales from a list of five to six candidate businesses.

However, cash generation alone might fully cover the remaining $3 billion of $7 billion due to be paid by November.

"We have a lot of flexibility. It's not a fire sale," Dutra said.

The company's net debt/EBITDA was about five times in December, with covenant targets of 5.2 in June and 3 by the end of the five-year debt term.

"We feel confident about the ability to meet the covenants with sufficient headroom," Dutra said.

He also commented that AB InBev's current cost of debt was around 5.2 percent and he expected the average coupon for 2009 would be 6 to 6.5 percent, noting this was below what a number of analysts were forecasting.

(Editing by Jon Loades-Carter and Editing by David Cowell)

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