Morningstar DBRS Confirms AB InBev's Rating at A (low), Stable Trend

DBRS Ratings GmbH (Morningstar DBRS) confirmed Anheuser-Busch InBev SA/NV's (AB InBev or the Company) Issuer Rating at A (low) with a Stable trend.

KEY CREDIT RATING CONSIDERATIONS

The A (low) Issuer Rating reflects AB InBev's extensive size and geographical diversification, leading market position with multiple strong brands in the global beer industry, as well as its high profitability and healthy cash flow generation.

Although AB InBev's leverage is still relatively high, the Stable trend reflects Morningstar DBRS' expectation of further deleveraging over the next 12 to 18 months to a level more appropriate for the current A (low) credit rating.

CREDIT RATING DRIVERS
Positive Credit Rating Drivers
Although unlikely over the near to medium term, Morningstar DBRS 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 normalised and sustainable basis.

Negative Credit Rating Drivers
Morningstar DBRS may take a negative credit rating action if demonstrable progress in deleveraging is not achieved due to operating performance deterioration. We have incorporated in our expectations gross debt-to-EBITDA ratio declining below 3.5 times (x) over the next two to three years.

EARNINGS OUTLOOK
AB InBev's EBITDA margin improved to 34.4% the last 12 months (LTM) H1 2024 from 33.0% LTM H1 2023. Morningstar DBRS anticipates the EBITDA margin to continue to grow to approximately 35% by December 2024 and close to 36% by 2026. This is anticipated to stem mainly from a higher gross margin, thanks to lower inflation of input costs compared with the last two years.

Furthermore, Morningstar DBRS anticipates net revenue to reach USD 61.5 billion by 2025 from USD 59.4 in 2023, on the back of positive price growth, especially thanks to the premiumisation trend and positive volume growth, particularly in Middle America and South America.

FINANCIAL OUTLOOK
Morningstar DBRS forecasts gross leverage will reduce to 3.6x by December 2024, and below 3.5x by December 2025, from 3.9x as of June 2024. The deleveraging path is expected to stem from (1) EBITDA increasing to over USD 21 billion by FY2025 from USD 20.2 in F2023 and (2) as free cash flow is used for debt reduction to below USD 70 billion by FY2025. AB InBev benefits from a strong liquidity position, with limited debt maturities of close to USD 3 billion, excluding leases until 2026. Morningstar DBRS therefore incorporates in its assumptions the completion of tender offers to recall outstanding notes to further reduce the total debt quantum.

CREDIT Rating rationale
Since Morningstar DBRS' last review in September 2023, AB InBev's operating performance has improved, mainly thanks to (1) the easing inflationary pressure on input costs, supporting gross margin expansion by over 100 basis points in H1 2024 since H1 2023; (2) gradual profitability growth in the U.S. as Bud Light volumes normalise, and (3) positive sales and profitability momentum, especially in Middle America and South America (56% of the Group EBITDA as of June 2024) thanks to premiumisation and volume growth.

Morningstar DBRS anticipates this positive operating trend to continue over the next two years, which, paired with the gradual repayment of financial debt thanks to AB InBev's strong cash flow generation, will lead to EBITDA leverage at or below 3.5x.

AB InBev's Financial Risk Assessment alone stands within the low Investment Grade range, as both leverage and coverage metrics are relatively weak for the overall A (low) Issuer Rating. EBITDA gross leverage stood at 3.87x as of LTM 30 June 2024, an improvement from 4.06x as of 30 June 2023, while cash flow-to-debt remained slightly below 20%. This was due to over USD 3 billion of debt reduction and increasing EBITDA.

While the Group has a medium-term target of net leverage below 2x (currently 3.42x), the recently completed USD 1 billion share buyback program announced in October 2023 highlights some flexibility in the capital allocation.

Nevertheless, the leverage reduction achieved in the LTM June 2024 confirms Morningstar DBRS' expectations that AB InBev will be able to return to gross leverage close to 3.5x (currently 3.87x) over the next 12 to 18 months. This would be a level consistent with the overall A (low) rating that underpins our Stable trend

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

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (13 August 2024) Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings | Morningstar DBRS

BUSINESS RISK ASSESSMENT (BRA) AND FINANCIAL RISK ASSESSMENT (FRA)

(A) Weighting of BRA Factors 
In the analysis of AB InBev, the relative weighting of the BRA factors was approximately equal. 

(B) Weighting of FRA Factors 
In the analysis of AB InBev, the relative weighting of the FRA factors was approximately equal. 

(C) Weighting of the BRA and the FRA 
In the analysis of AB InBev, the BRA carries greater weight than the FRA. 

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

Morningstar DBRS applied the following principal methodologies:
-- Global Methodology for Rating Companies in the Consumer Products Industry (14 August 2024), https://dbrs.morningstar.com/research/437890
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (13 August 2024), https://dbrs.morningstar.com/research/437781

Morningstar DBRS credit ratings may use of one or more sections of the Morningstar DBRS Global Corporate Criteria (19 July 2024; https://dbrs.morningstar.com/research/431186), which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

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

A description of how Morningstar DBRS analyses corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.

The primary sources of information used for this credit rating include publicity available information from AB InBev's website, including audited financial statements, quarterly trading updates, investor presentations and bond prospectus. Morningstar DBRS 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

Morningstar DBRS 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. Morningstar DBRS trends and credit ratings are under regular surveillance.

For further information on Morningstar DBRS 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 Morningstar DBRS 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://dbrs.morningstar.com/research/439897.

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

Lead Analyst: Edoardo Danieli, Vice President
Rating Committee Chair: Anke Rindermann, Managing Director
Initial Rating Date: 28 September 2023
Last Rating Date: 28 September 2023

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

DBRS Ratings GmbH, Sucursal en España
Paseo de la Castellana 81
Plantas 26 & 27 28046
Madrid, Spain
Tel. +34 (91) 903 6500

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Deutschland
Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259