(The following statement was released by the rating agency)
Nov 22 -
Summary analysis -- Anheuser-Busch InBev N.V./S.A. ---------------- 22-Nov-2012
CREDIT RATING: A/Stable/A-1 Country: Belgium
Primary SIC: Distilled and
Mult. CUSIP6: 03524A
Credit Rating History:
Local currency Foreign currency
01-May-2012 A/A-1 A/A-1
19-Apr-2011 A-/A-2 A-/A-2
14-Jul-2008 BBB+/A-2 BBB+/A-2
The ratings on Belgium-based international brewer Anheuser-Busch InBev
N.V./S.A. (ABI) reflect Standard & Poor's Ratings Services' view of its
"excellent" business risk profile and "intermediate" financial risk profile.
We view ABI's leading market positions, high margins, and broad geographic
diversity as supportive of its "excellent" business risk profile. ABI's
adjusted EBITDA margin at the end of June 2012 was 42%; the group's closest
competitors report adjusted EBITDA margins in the low-20s to mid-30s. In the
nine months ended Sept. 30, 2012, 46% of reported EBITDA came from North
America, 42% from Latin America, 10% from Europe, and 3% from Asia. Minus 1%
was attributable to the global export and holding companies division.
We view as a business strength the high quality of earnings in the businesses
owned by ABI at the parent level, as well as ABI's close association with the
large and cash-generative subgroup headed by its subsidiary, Brazil-based
AmBev - Companhia de Bebidas das Americas (AmBev; A/Stable/--, Brazil national
scale brAAA/Stable/--). AmBev, ABI's most significant non-fully-owned
subsidiary, covers Latin America (excluding Mexico), the Caribbean, and Canada.
At the end of June 2012, ABI reported adjusted debt of about $40 billion,
which equates to an adjusted debt-to-EBITDA ratio of 2.4x. The ratings
incorporate the impact of ABI's planned acquisition of the stake in Mexican
brewer Grupo Modelo that it doesn't already own.
S&P base-case operating scenario
In our base-case scenario we project that over the next few years ABI will be
able to grow its revenues at a mid-single-digit rate annually. In our view,
this will be driven by strong demand and a growing taste for premium-brand
products in developing regions such as Latin America and Asia, especially as
the middle-income population in these regions increases. Demand in these
regions should continue to offset weaker demand in developed markets,
particularly in Europe where consumer confidence remains low.
We think that ABI will be able to expand its margins modestly over the next
few years as a result of its pricing power, which is made possible by strong
positioning in its key regions. In Brazil, for example, ABI leads the market
with a 69% beer market share (via AmBev) and in the U.S. it leads with 48%. In
addition, cost controls and economies of scale should support the group's
S&P base-case cash flow and capital-structure scenario
Given our base-case operating assumptions, we project that ABI will generate
funds from operations (FFO) of between $12 billion and $15 billion annually
over the next few years. Assuming capital expenditure (capex) equal to 15%-20%
of EBITDA and a dividend payment of about $3 billion in 2013, we project that
in 2013 ABI will generate discretionary cash flows of about $6 billion. We
have no indication of any share buybacks, therefore we have not incorporated
such activity into our projections.
In our projections we have incorporated the acquisition of the portion of
Grupo Modelo that ABI doesn't already own. We estimate that this transaction
will add about 0.5x to the adjusted-debt-to-EBITDA ratio. Taking account of
this acquisition, we project ABI is sufficiently cash generative to enable it
to reduce adjusted leverage to close to 2x by the end of 2013 and below 2x
during 2014. Our projection for 2013 is further supported by our understanding
that the group remains committed to reaching a net-debt-to-EBITDA ratio of 2x.
At the end of June 2012, adjusted debt to EBITDA was 2.4x and adjusted FFO to
debt was 30%.
The 'A-1' short-term rating reflects our opinion that, over the short term,
ABI should have ample internal liquidity, good cash flow characteristics, and
significant access to the capital markets. We view ABI's liquidity as
"adequate" under our criteria. This descriptor indicates a sources-to-uses
ratio of at least 1.2x.
We forecast that liquidity sources for the next 12 months will include:
-- About $3.7 billion of cash and cash equivalents as of the end of June
-- FFO of about $12 billion; and
-- About $7.1 billion available under the group's $8 billion committed
credit facilities with maturity in June 2016.
In our view, liquidity uses for the next 12 months include:
-- Short-term debt of about $7.6 billion at the end of June 2012;
-- Capex of about $3.4 billion; and
-- Dividends of about $3 billion.
We have not included the payment for Grupo Modelo as a use of cash as ABI has
committed financing to fund this acquisition. Specifically, the group has
added $14 billion of additional bank facilities: an $8 billion three-year
facility and a $6 billion one-year facility with a one-year extension option.
Of further support to the group's "adequate" liquidity is:
-- Well-spread-out debt maturities. As of end-June 2012, about 39% of the
group's total debt matures in more than five years. In addition, ABI benefits
from a degree of currency diversification, with about one-third of the group's
debt denominated in currencies other than the U.S. dollar.
-- Lack of financial covenants in the group's core debt facilities,
including the facilities put in place to fund the Modelo acquisition.
-- Good access to euro and U.S. dollar capital markets. In July 2012, the
group issued $7.5 billion of bonds comprising three-year, five-year, 10-year,
and 30-year maturities and in September it issued EUR2,250 million of bonds
comprised of five-year, seven-year, and 12-year maturities. These issuances
have further enhanced the group's overall liquidity position, including its
debt maturity profile.
The stable outlook reflects our opinion that ABI's strong discretionary cash
flow generation will enable it to reduce its adjusted-debt-to-EBITDA ratio to
close to 2x by the end of 2013. We anticipate that adjusted FFO to debt will
remain above 30% over the medium term. We consider an FFO-to-debt ratio of
close to 30%, and an adjusted debt-to-EBITDA ratio of close to 2.0x--equating
to a gross debt-to-EBITDA ratio of between 2.0x-2.5x--to be commensurate with
the current rating.
We could consider lowering the ratings if increased discretionary spending
sees the group not returning to adjusted debt-to-EBITDA of close to 2x by the
end of 2013, after the impact of the Modelo acquisition in 2013. Given the
unconsolidated nature of the brewing industry, we view further M&A activity
within the industry as likely. However, in view of ABI's stated commitment to
the 2.0x net debt to EBITDA leverage target, we currently do not believe that
ABI will change its financial policy in any way that would lead us to consider
We estimate that ABI is sufficiently cash generative to enable it to reduce
adjusted debt to EBITDA to below 2x in 2014. An upgrade would likely be
contingent on the group deleveraging to below 2.0x and also expressing
commitment to maintaining this. As such, we view the possibility of an upgrade
as unlikely at this stage.
Related Criteria And Research
All articles listed below are available on RatingsDirect on the Global Credit
Portal, unless otherwise stated.
-- Key Credit Factors: Criteria For Rating The Global Branded Nondurable
Consumer Products Industry, April 28, 2011
-- Principles Of Credit Ratings, Feb. 16, 2011
-- Methodology: Business Risk/Financial Risk Matrix Expanded, Sept. 18,