Sept 24 (The following statement was released by the rating agency)
Fitch Ratings has affirmed Anheuser Busch InBev NV/SA's (ABI) Long-term Issuer Default Rating (IDR) and senior unsecured rating at 'A' and Short-term IDR at 'F1'. The Outlook on the Long-term IDR is Stable. The senior unsecured ratings of the debt of ABI's subsidiaries, Anheuser Busch InBev Worldwide Inc, Anheuser-Busch InBev Finance Inc, Brandbrew S.A. and Anheuser-Busch Companies Inc have also been affirmed at 'A'.
The affirmation reflects the company's maintained robust cash flow generation and EBITDA growth, supported by its strong position in some of the most profitable beer markets of the world. It also factors in stagnation in beer consumption in those core markets and leverage that is temporarily higher than consistent with the assigned 'A' rating. Since completion of its targeted de-leveraging process in 2012, ABI has resumed its pace of acquisitions by buying out the other shareholders in Grupo Modelo SAB de CV (Modelo) in June 2013. Nevertheless, Fitch projects that the company will reach comfortable credit metrics by the end of 2014.
KEY RATING DRIVERS
Scope for Profit Growth
ABI's profit growth is underpinned by favourable socio-demographics for beer consumption and its product mix in Latin America and Asia, as well as renovation of the company's US brands and product portfolio. Despite a slowdown of beer consumption in Brazil in 2013, the risks of continuing weak volume performance in the US and Europe and some increases to marketing spend in the US, Fitch believes ABI should maintain revenue and profit margin growth.
Modelo Acquisition Rating Neutral
The June 2013 acquisition of 50% of Modelo with a net disbursement of approximately USD12bn will only slightly disrupt the process of steady deleveraging achieved through to end-2012. Fitch calculates that ABI's FFO net lease adjusted leverage and net debt to EBITDA should grow temporarily to approximately 2.8x and 2.5x, respectively, in 2013. ABI's rating is premised on the assumption that future financial policies should enable the company to maintain these ratios from end-2014 at or below 2.5x and 2.0x, respectively.
Leading Global Player
ABI's rating benefits from its size and leadership in the global beer industry, benefiting from a broad portfolio of local and global brands, sold across all pricing points, as well as strong routes to market and a highly effective approach to managing costs. ABI's operations are balanced across profitable, stable markets and high growth ones.
Operations in Profitable Markets
Although ABI's profits are heavily concentrated in just two markets - the US (33% of 2012 EBITDA proforma for Modelo) and Brazil (33%) - which account for the largest profit pool in the beer industry. ABI enjoys a position of leadership in each of them. The addition of the Modelo operations contributes to improving geographical diversification.
Robust Cash Flow Generation
Fitch projects ABI's FCF should temporarily drop in 2013 to approximately USD3bn to USD4bn (2012: USD6.4bn) also due to an increased dividend payout. However, FCF should return to between USD5bn and USD6bn annually as the full contribution from Modelo materialises in 2014-2015. This FCF is strong in absolute USD terms as well as a proportion of sales to most 'A' category rated corporates.
The holding company Anheuser Busch InBev NV/SA, Anheuser Busch InBev Worldwide Inc and Anheuser Busch Companies account for 90% of debt and cross guarantee each other. Debt documentation requires ABI to own at least 50% of AmBev, a major profit-generating subsidiary, although it does not guarantee this debt. Debt maturities are well distributed and are in general no higher in any year than annual FCF. ABI has a USD8bn RCF (USD4.5bn undrawn at end June 2013) also used as back-up for commercial paper (peak issuance in 2011-2013: USD2.5bn).
Negative: Future developments that may, individually or collectively, lead to a negative rating action include:
- Net lease adjusted FFO-based leverage (fully consolidating AmBev) permanently in the 2.5x to 2.8x range or above
- FCF falling below USD3.0bn per annum as a result of aggressive capex/dividends/share buybacks/poor trading
- EBITDA margin falling as a result of a weaker profile in Brazil or the US
- FFO fixed charge cover ratio below 6.0x
Positive: Future developments that may, individually or collectively, lead to a positive rating action include:
- FFO-based net lease adjusted leverage (fully consolidating AmBev) sustainable in the 1.5x to 2.0x band subject to:
- FCF remaining above USD4.0bn per annum
- EBITDA margin above 30%
- FFO Fixed Charge cover ratio above 8x