Jan 21 (The following statement was released by the rating agency)
Fitch Ratings has affirmed Anheuser Busch InBev NV/SAa€™s (ABI) Long-term Issuer Default Rating (IDR) and senior unsecured rating at a€˜Aa€™ and Short-term IDR at 'F1' following the companya€™s announcement that it will shortly re-acquire Oriental Brewery for USD5.8bn cash. The Outlook on the Long-term IDR is Stable. The senior unsecured ratings of the debt of ABIa€™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€˜Aa€™.
The affirmation reflects the limited adverse impact of this latest transaction on ABIa€™s de-leveraging process. Despite the large disbursement, the multiple of under 11x 2013 EBITDA is lower than what attractive assets commanded in the beer industry in 2012-2013. We expect ABI to maintain robust cash flow generation and EBITDA growth, despite stagnation of the US and Brazilian beer markets and to be able to regain credit metrics consistent with its a€˜Aa€™ IDR by 2015. The affirmation is based on the expectation that financial policies remain conservative and ABI will not increase its shareholder distributions.
KEY RATING DRIVERS
Major Acquisitions Rating Neutral
The announced acquisition of Oriental Brewery, which follows the acquisition of 50% of Modelo in June 2013 for a combined net disbursement of approximately USD17.5bn are pushing leverage up. However, Fitch still expects this increase to be temporary and estimates it only represents a minimal deviation from the parameters required to maintain a a€˜Aa€™ IDR. Fitch calculates that ABIa€™s FFO net lease adjusted leverage and net debt to EBITDA (both consolidating AmBev) will have peaked at approximately 2.8x and 2.5x, respectively, in 2013 and will not reduce during 2014. They should return to 2.5x and 2.0x or below, respectively, in 2015.
Scope for Profit Growth
ABIa€™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 companya€™s US brands and product portfolio. Despite a slowdown of beer consumption in Brazil in 2013, the adverse effects on local cost of sales from the devaluation of the Brazilian real, the risks of continuing weak volume performance in the US and Europe and increased marketing spend in the US, Fitch believes ABI should maintain revenue and profit margin growth.
Leading Global Player
ABIa€™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 highly effective cost management. ABIa€™s operations are balanced across profitable, stable markets and high growth ones.
Operations in Profitable Markets
ABIa€™s profits are heavily concentrated in just two markets a€“ the US (33% of 2012 EBITDA proforma for Modelo) and Brazil (33%) a€“ which account for the largest profit pool in the beer industry. ABI has a leading position in both of them. The addition of the Oriental Brewery and Modelo operations contributes to improving geographical diversification.
Robust Cash Flow Generation
Fitch projects ABIa€™s consolidated FCF should have temporarily dropped in 2013 to approximately USD3bn to USD4bn (2012: USD6.4bn) partly due to an increased dividend payout at the ABI level. Fitch expects consolidated FCF should return to between USD5bn and USD6bn annually and also assumes some strengthening in FCF at ABI (excluding AmBev) as the full contribution from Modelo materialises in 2014-2015 despite higher interest charges for the Oriental Brewery transaction. Including the share of dividends received by ABI from Ambev, actual cash flow available at ABI for debt repayment is strong in both absolute USD terms as well as a proportion of sales compared with most a€˜Aa€™ category rated corporates. However, it is weak relative to the combined debt of ABI and its debt issuing vehicles (excluding AmBev), reflecting no additional headroom for acquisitions.
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 generally no higher in any year than annual FCF. ABI has a USD8bn RCF (USD4.5bn undrawn at end June 2013 but likely to be higher at end-December 2013 thanks to cash generated since then), which is also used as back-up for commercial paper (peak issuance in 2011-2013: USD2.5bn) and, excluding the holdings of the AmBev sub-group, a cash balance of USD5.4bn.
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
- Net lease adjusted FFO-based leverage (fully consolidating AmBev) permanently in the 2.5x-2.8x range or above.
- FCF falling below USD3.0bn 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 positive rating action include:
- FFO-based net lease adjusted leverage (fully consolidating AmBev) sustainable in the 1.5x-2.0x band; subject to FCF remaining above USD4.0bn per year, an EBITDA margin above 30%, and an FFO fixed charge cover ratio above 8x.