DBRS Morningstar Assigns Issuer Rating of A (low) With a Stable Trend to Anheuser-Busch InBev SA/NV

DBRS Ratings GmbH (DBRS Morningstar) assigned an Issuer Rating of A (low) with a Stable trend to Anheuser-Busch InBev SA/NV (AB InBev or the Company). The A (low) Issuer Rating reflects AB InBev’s very strong brand strength, leading market position in the majority of its core markets, as well as its large size and scale, which allow the Company to have strong profitability and generate healthy cash flows. The Stable trend reflects DBRS Morningstar’s expectation of further deleveraging to a level more appropriate for the Company’s current A (low) credit rating.

KEY CREDIT RATING CONSIDERATIONS
AB InBev holds a world-leading market position in the beer sector, which includes top market shares in the three biggest global markets by profit: China, the U.S., and Brazil. In addition, AB InBev benefits from an unparalleled size in the beer industry, producing approximately twice the beer volume of the second-biggest beer manufacturer, Heineken N.V. This leads to economies of scale and the Company’s very high profitability in the consumer products universe. On the other hand, the credit rating takes into account the revenue concentration on a single product category, beer, which is exposed to changing consumer trends. Market competition is intense, including from alternative alcoholic beverage categories such as wine and spirits, driving a long-term trend of sector consolidation to improve efficiencies.

AB InBev’s current leverage remains high for the Company’s A (low) credit rating. As of 30 June 2023, the Company reported debt-to-EBITDA of 4.06 times (x) for the last 12 months. This is mainly the result of legacy debt-funded acquisitions, such as SABMiller, which drove leverage to peak at 7.64x in F2016. Nevertheless, thanks to consistent annual debt repayments from internal cash flow generation, over the last five years AB InBev was able to repay approximately USD 36 billion of debt, reducing total debt to USD 81 billion as of 30 June 2023.

Looking ahead, DBRS Morningstar anticipates the Company will maintain a strong focus on deleveraging and expects gross financial indebtedness to reduce below USD 70 billion by 2024. This should lead debt-to-EBITDA leverage to improve to below 3.5x by F2024, a level more appropriate for the Company’s A (low) credit rating.

In terms of operations, DBRS Morningstar forecasts revenue to grow at an average of 4.5% annually, leading to net revenue above USD 65 billion by 2025, driven mainly by faster growing regions such as the Middle Americas, South America, and Asia-Pacific. DBRS Morningstar also anticipates that EBITDA margins will decline to 32.8% in F2023 from 34.3% in F2022, rebounding above 34.0% only by F2025. This is a result of the current challenging macroeconomic conditions, increasing input costs, and exceptionally weak performance in the U.S. due to the Bud Light brand boycott by some consumers, with North America’s EBITDA margin anticipated to markedly drop in 2023. DBRS Morningstar forecasts that the EBITDA margin in this region will rebound in F2024 despite remaining well below the F2022 level of 36.6%.

CREDIT RATING DRIVERS
As the current credit rating incorporates an expectation of continued deleveraging, including the gross debt-to-EBITDA ratio declining below 3.5x over the next two to three years, DBRS Morningstar may take a negative credit rating action if demonstrable progress in this respect is not achieved by F2024.

Conversely, although unlikely over the near to medium term, DBRS Morningstar could take a positive credit rating action should the Company’s business risk assessment strengthen, combined with a commensurate improvement in the Company’s credit metrics on a normalized and sustainable basis.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/416784 (4 July 2023).

Notes:
All figures are in U.S. dollars unless otherwise noted.

DBRS Morningstar applied the following principal methodology:
-- Global Methodology for Rating Companies in the Consumer Products Industry (21 July 2023), https://www.dbrsmorningstar.com/research/417460

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

A description of how DBRS Morningstar analyses corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223.

The primary sources of information used for this credit rating include publicly available information from AB InBev’s website, including audited financial statements, quarterly sales updates, investor presentations, and bond prospectuses.

DBRS Morningstar considers the information available to it for the purposes of providing this credit rating to be of satisfactory quality.

With respect to FCA and ESMA regulations in the United Kingdom and European Union, respectively, this is an unsolicited credit rating. This credit rating was not initiated at the request of the issuer.

With Rated Entity or Related Third-Party Participation: NO
With Access to Internal Documents: NO
With Access to Management: NO

DBRS Morningstar does not audit the information it receives in connection with the credit rating process, and it does not and cannot independently verify that information in every instance.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar trends and credit ratings are under regular surveillance.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

The sensitivity analysis of the relevant key credit rating assumptions can be found at https://www.dbrsmorningstar.com/research/421213.

This credit rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Edoardo Danieli, Assistant Vice President
Rating Committee Chair: Timothy O'Brien, Managing Director
Initial Rating Date: 28 September 2023
Last Rating Date: Not applicable as there is no last rating date.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com or contact us at [email protected].

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