Anheuser Busch InBev : reports Third Quarter and Nine Months 2019 Results

Press release

Brussels / 25 October 2019 / 7.00am CET

The enclosed information constitutes regulated information as defined in the Belgian Royal Decree of 14 November 2007 regarding the duties of issuers of financial instruments which have been admitted for trading on a regulated market.

Except where otherwise stated, the comments below are based on organic growth figures and refer to 3Q19 versus the same period of last year. For important disclaimers and more information on 2018 Restated and the Reference Base, please refer to pages 17 and 18.

Anheuser-Busch InBev reports Third Quarter and Nine Months 2019 Results

KEY FIGURES

• Revenue: Revenue grew by 2.7% in the quarter, with revenue per hl growth of 3.0% as healthy growth from ongoing premiumization and revenue management initiatives was partially offset by advances in our smart affordability strategy. In 9M19, revenue grew by 4.8%, with revenue per hl growth of 3.7%.
• Volume: Total volumes decreased by 0.5% in 3Q19, with own beer volumes down 0.9% and non-beer volumes up 4.0%. Solid growth from markets such as Mexico, South Africa and Colombia was more than offset by declines in China and the US, both primarily driven by shipment phasing impacts. In 9M19, total volumes grew by 1.0%, with own beer volumes up 0.7% and non-beer volumes up 3.6%.
• Global Brands: In 3Q19, the combined revenues of our three global brands, Budweiser, Stella Artois and Corona, grew by 4.1% globally and 5.2% outside their respective home markets. In 9M19, the combined revenues of our global brands grew by 6.4% globally and 9.5% outside their home markets.
• Cost of Sales (CoS): CoS increased by 6.9% in 3Q19 and by 6.7% on a per hl basis driven by significant commodity and transactional currency headwinds as a result of the timing of our hedges. In 9M19, CoS increased by 6.9% and by 5.4% on a per hl basis.
• EBITDA: EBITDA was flat in the quarter, with EBITDA margin contraction of 107 bps to 40.2%, as a result of CoS headwinds and the phasing of sales and marketing investments. In 9M19, EBITDA grew by 5.6% and EBITDA margin expanded by 29 bps to 40.4%.
• Net finance results: Net finance costs (excluding non-recurring net finance results) were 677 million USD in 3Q19 compared to 1 797 million USD in 3Q18. The improvement was primarily due to a mark-to-market gain of 549 million USD in 3Q19 linked to the hedging of our share-based payment programs, compared to a loss of 616 million USD in 3Q18, resulting in a swing of 1 165 million USD. Net finance costs were 2 047 million USD in 9M19 as compared to 4 682 million USD in 9M18.
• Income taxes: Normalized effective tax rate (ETR) decreased from 24.9% in 3Q18 to 22.6% in 3Q19. Excluding the impact of gains relating to the hedging of our share-based payment programs, our normalized ETR increased from 19.8% in 3Q18 to 26.8% in 3Q19. Normalized ETR decreased from 25.5% in 9M18 to 22.8% in 9M19 and, excluding the impact of gains relating to the hedging of our share-based payment programs, our normalized ETR increased from 22.9% in 9M18 to 27.2% in 9M19.
• Profit: Normalized profit attributable to equity holders of AB InBev was 2 412 million USD in 3Q19 versus 1 517 million USD in 3Q18 and was 7 125 million USD in 9M19 versus 4 843 million USD in 9M18. Underlying profit (normalized profit attributable to equity holders of AB InBev excluding mark-to- market gains linked to the hedging of our share-based payment programs and the impact of hyperinflation) was 1 870 million USD in 3Q19 as compared to 2 190 million USD in 3Q18 and was 5 462 million USD in 9M19 as compared to 5 771 million USD in 9M18.
• Earnings per share (EPS): Normalized EPS in 3Q19 was 1.22 USD, an increase from 0.77 USD in 3Q18, positively impacted by mark-to-market gains linked to the hedging of our share-based payment programs. Normalized EPS in 9M19 was 3.59 USD, an increase from 2.45 USD in 9M18. Underlying EPS (normalized EPS excluding mark-to-market gains linked to the hedging of our share-based payment programs and the impact of hyperinflation) was 0.94 USD in 3Q19, a decrease from 1.11 USD in 3Q18 and was 2.76 USD in 9M19, a decrease from 2.92 USD in 9M18.
• Interim Dividend: The AB InBev board has approved an interim dividend of 0.80 EUR per share for the fiscal year 2019. Information regarding the ex-coupon, record and payment dates is shown on page 17.
• Hyperinflation: The restatement of HY19 under hyperinflation using the September purchasing power

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and 9M19 closing rate had a negative impact of 57 million USD on revenue and 37 million on Normalized EBITDA on the 9M19 reported organic growth. The impact of HY19 restatement under hyperinflation is excluded from the 3Q19 organic calculation and identified separately in Annex 1.

• Deleveraging: After the successful completion of the listing of Budweiser APAC and accounting for the proceeds expected to be received from the divestment of the Australian operations (while excluding the last 12 months EBITDA from the Australian operations), our net debt to EBITDA ratio would be below 4x by the end of 2019, one year earlier than our prior guidance.
• Combination with SAB: We have completed delivery of the 3.2 billion USD synergies and cost savings on a constant currency basis as of August 2016 resulting from the combination with SAB.

Figure 1. Consolidated performance (million USD)
	3Q18	3Q18	3Q19	Organic
	Restated	Reference		growth
		Base
Total Volumes (thousand hls)	144 583	144 583	143 417	-0.5%
AB InBev own beer	128 130	128 130	127 254	-0.9%
Non-beer volumes	15 118	15 118	15 227	4.0%
Third party products	1 335	1 335	936	-2.7%
Revenue	12 916	13 180	13 172	2.7%
Gross profit	8 055	8 217	8 032	0.1%
Gross margin	62.4%	62.3%	61.0%	-157 bps
Normalized EBITDA	5 314	5 433	5 291	0.0%
Normalized EBITDA margin	41.1%	41.2%	40.2%	-107 bps
Normalized EBIT	4 175	4 281	4 114	-2.6%
Normalized EBIT margin	32.3%	32.5%	31.2%	-172 bps
Profit from continuing operations attributable to equity holders of AB InBev	837		2 930
Profit attributable to equity holders of AB InBev	959		3 003
Normalized profit attributable to equity holders of AB InBev	1 517		2 412
Underlying profit attributable to equity holders of AB InBev	2 190		1 870
Earnings per share (USD)	0.49		1.51
Normalized earnings per share (USD)	0.77		1.22
Underlying earnings per share (USD)	1.11		0.94
	9M18	9M18	9M19	Organic
	Restated	Reference		growth
		Base
Total Volumes (thousand hls)	419 659	419 659	419 448	1.0%
AB InBev own beer	370 878	370 878	371 398	0.7%
Non-beer volumes	44 988	44 988	45 126	3.6%
Third party products	3 793	3 793	2 924	-10.5%
Revenue	39 249	39 249	38 994	4.8%
Gross profit	24 380	24 380	23 902	3.6%
Gross margin	62.1%	62.1%	61.3%	-73 bps
Normalized EBITDA	15 713	15 713	15 735	5.6%
Normalized EBITDA margin	40.0%	40.0%	40.4%	29 bps
Normalized EBIT	12 269	12 269	12 293	5.5%
Normalized EBIT margin	31.3%	31.3%	31.5%	21 bps
Profit from continuing operations attributable to equity holders of AB InBev	3 540		8 748
Profit attributable to equity holders of AB InBev	3 913		9 058
Normalized profit attributable to equity holders of AB InBev	4 843		7 125
Underlying profit attributable to equity holders of AB InBev	5 771		5 462
Earnings per share (USD)	1.98		4.57
Normalized earnings per share (USD)	2.45		3.59
Underlying earnings per share (USD)	2.92		2.76
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Figure 2. Volumes (thousand hls)
	3Q18	Scope	Organic	3Q19	Organic growth
	Reference		growth		Total Volume	Own beer
	Base					volume
North America	29 985	16	- 991	29 009	-3.3%	-3.4%
Middle Americas	31 813	- 28	1 487	33 272	4.7%	5.0%
EMEA	21 793	- 461	476	21 807	2.2%	2.9%
South America	31 297	-	302	31 599	1.0%	-0.7%
Asia Pacific	29 432	- 33	-1 901	27 498	-6.5%	-6.7%
Global Export and Holding Companies	265	-	- 33	231	-12.5%	-13.0%
AB InBev Worldwide	144 583	- 507	- 659	143 417	-0.5%	-0.9%
	9M18	Scope	Organic	9M19	Organic growth
	Reference		growth		Total Volume	Own beer
	Base					volume
North America	84 612	30	-1 998	82 644	-2.4%	-2.4%
Middle Americas	94 763	- 137	3 368	97 994	3.6%	3.8%
EMEA	63 667	-3 690	2 044	62 022	3.4%	3.9%
South America	95 768	188	2 499	98 455	2.6%	1.9%
Asia Pacific	79 691	- 66	-1 939	77 687	-2.4%	-2.1%
Global Export and Holding Companies	1 160	- 478	- 34	647	-4.9%	-5.2%
AB InBev Worldwide	419 659	-4 152	3 942	419 448	1.0%	0.7%

MANAGEMENT COMMENTS

The third quarter of 2019 was challenging, primarily driven by three anticipated factors: shipment phasing into 2Q19 in China ahead of summer activations, higher cost of sales per hl from significant commodity and transactional currency headwinds, and the year-over-year phasing of our sales and marketing investments driven by the 2018 FIFA World Cup RussiaTM. In addition, price increases implemented in South Korea and Brazil drove volume declines, which were exacerbated by softer consumer demand in light of difficult macroeconomic conditions.

Revenue grew by 2.7% with revenue per hl growth of 3.0%, as healthy growth from ongoing premiumization and revenue management initiatives was partially offset by advances in our smart affordability strategy in some of our major markets. Our total volumes declined by 0.5%, with beer volumes declines of 0.9%, partially offset by strong non-beer volume growth of 4.0%. We saw especially strong volume growth from Mexico, South Africa and Colombia, which delivered its best quarterly volume performance since the combination with SAB closed in October 2016.

EBITDA growth was flat in 3Q19 versus the prior year with margin contraction of just over 100 bps to 40.2%. Our bottom-line performance was impacted by the deceleration in top-line growth, a higher cost of sales resulting from significant commodity and transactional currency headwinds, and the year-over-year phasing of our sales and marketing investments, as expected. As a reminder, in FY18 our sales and marketing investments were weighted toward the first half of the year due to the 2018 FIFA World Cup RussiaTM activation. In FY19, we expect that our sales and marketing investments will be much more balanced throughout the year, resulting in a more difficult comparable in the second half of 2019.

Our growth algorithm has been evolving to achieve a more balanced top-line growth between volume and revenue per hl. As we employ the category expansion framework across our markets, we are reaching more consumers in more occasions by offering a diverse portfolio of brands that vary by style, need state and price point.

Across the world, the beer category is premiumizing, and we continue to invest behind the growth of our unparalleled portfolio of premium brands to address this trend. Our premium strategy is led by our High End Company and global brand portfolio, both of which continue to grow ahead of our total company. In the third quarter, our High End Company grew by 13.5% while the global brands grew by 5.2% outside their

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home markets. The strong equity of our global brands was recently recognized by Interbrand, which once again ranked both Budweiser and Corona in their list of the top 100 global brands. The brands were the two highest ranked beer brands, and both improved their rankings versus last year and increased their brand value on a dollar basis.

In addition to premiumization, the category expansion framework clearly highlights the opportunity of offering consumers a portfolio of brands across the price spectrum. This is especially true in emerging markets, where consumer disposable income is typically lower and therefore affordability is a limiting factor for consumers to enter the beer category. We believe a smart affordability strategy is a vital component to reaching new consumers and introducing beer to new occasions. Therefore, we have been expanding our portfolio to offer more accessible price points to more consumers through initiatives such as new packaging formats and new beers brewed with local crops. Our initiatives are driving meaningful results in major markets, such as Brazil, Argentina, Colombia, Ecuador and South Africa. These offerings drive incremental profit but generally have a dilutive effect on revenue per hl.

As part of our Better World agenda, we recently launched the second round of our 100+ Accelerator. With this program, we collaborate with entrepreneurs to create solutions for some of the world's most pressing environmental challenges, accelerating our progress toward our ambitious 2025 Sustainability Goals. Also, during the 74th session of the United Nations General Assembly, we reinforced our commitment to Sustainable Development and the UN Sustainable Development Goals. We demonstrated how we leverage the power and reach of our global brands to inspire action: Budweiser's commitment to source 100% of purchased electricity from renewable sources, Stella Artois' commitment to provide access to clean water in the developing world in partnership with Water.org, and Corona's campaign inviting consumers to clean beaches of plastic pollution.

On 30 September 2019, we successfully completed the listing of a minority stake of our Asia Pacific business (Budweiser APAC) on the Hong Kong Stock Exchange for 5.75 billion USD. By doing so, we created a superior regional champion in the consumer goods space positioned to expand across the fastest growing markets in the APAC region with best-in-class talent and an unmatched portfolio of local, international and global brands. We also believe a local listing of Budweiser APAC provides an attractive platform for potential M&A in the region. The net proceeds from this transaction are being used to repay debt and we have issued notices of redemption for the full amount of these net proceeds. After the successful completion of the listing of Budweiser APAC and accounting for the proceeds expected to be received from the divestment of the Australian operations (while excluding the last 12 months EBITDA from the Australian operations), our net debt to EBITDA ratio would be below 4x by the end of 2019, one year earlier than our prior guidance.

We recently celebrated another major milestone - the three-year anniversary of our combination with SAB. We have completed the delivery of our cost synergies target of 3.2 billion USD, one year ahead of our initial schedule and with 750 million USD more savings than originally planned. This combination has been truly transformational and is about so much more than simply cost synergies. We brought together two great companies to create the first truly global brewer and one of the world's leading consumer goods companies. We now have a leadership position in seven of the top ten largest beer profit pools and a superior portfolio of brands that includes eight of the top ten most valuable beer brands in the world, according to BrandZ. The combination of largely complementary operating regions significantly diversified our geographic footprint and provides us with a much stronger presence in emerging markets with the most compelling growth prospects, particularly Africa and Latin America.

Bringing together the best-in-class brands, geographic footprints and talent of these two great companies has made us a smarter, more strategic and more growth-oriented company than ever before, positioning us to lead the growth of the global beer category for the long term.

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2019 OUTLOOK

1. Overall Performance: In FY19, we continue to expect to deliver strong revenue growth, driven by the solid performance of our brand portfolio and strong commercial plans. In markets with softer macroeconomic conditions, we are accelerating our smart affordability efforts with initiatives that have lower revenue per hl but offer incremental profit. As a result, FY19 revenue per hl growth should now be slightly below inflation. We continue to expect a more balanced top-line growth between volumes and revenue per hl and for our total costs (sum of CoS per hl and SG&A) to grow below inflation. Overall, we remain confident in our strategy and the fundamental strength of our business, though we now expect moderate EBITDA growth in FY19 given the additional headwinds faced in 3Q19 which we anticipate will continue into 4Q19.
2. Cost of Sales: We continue to expect CoS per hl to increase by mid-single digits, with currency and commodity headwinds to be offset by cost management initiatives.
3. Synergies: We have completed our 3.2 billion USD synergy and cost savings program on a constant currency basis as of August 2016. From this total, 547 million USD was reported by former SAB as of 31 March 2016, and 2 653 million USD was captured between 1 April 2016 and 30 September 2019.
4. Net Finance Costs: We expect the average gross debt coupon in FY19 to be between 3.75- 4.00%. We are amending our guidance on net pension interest expenses and accretion expenses, including IFRS 16 adjustments (lease reporting), and now expect them to be approximately 180 million USD per quarter on average. The change will result from an increase in the fourth quarter. Net finance costs will continue to be impacted by any gains and losses related to the hedging of our share-based payment programs.
5. Effective Tax Rate (ETR): We expect the normalized ETR in FY19 to be in the range of 25% to 27%, excluding any gains and losses relating to the hedging of our share-based payment programs.
6. Net Capital Expenditure: We expect net capital expenditure of between 4.0 and 4.5 billion USD in FY19.
7. Debt: Approximately 40% of our gross debt is denominated in currencies other than the US dollar, principally the Euro. Our optimal capital structure remains a net debt to EBITDA ratio of around 2x. After the successful completion of the listing of Budweiser APAC and accounting for the proceeds expected to be received from the divestment of the Australian operations (while excluding the last 12 months EBITDA from the Australian operations), our net debt to EBITDA ratio would be below 4x by the end of 2019, one year earlier than our prior guidance.
8. Dividends: We expect dividends to be a growing flow over time, although growth in the short term is expected to be modest given our deleveraging commitments.

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