New York, September 29, 2022 -- Moody's Investors Service ("Moody's") affirmed the Baa1 senior unsecured and Prime-2 commercial paper ratings of Anheuser-Busch InBev SA/NV (ABI) and its affiliates and guaranteed debt. The rating outlook was changed to positive from stable.
The affirmation of the ratings reflects ABI's progress in reducing debt and restoring EBITDA after the extraordinary effects of the coronavirus pandemic, which saw shutdowns of sales and in some cases production in many of its markets. The positive outlook reflects Moody's expectations that continued recovery from pandemic-related shutdowns in certain global markets and growing cash flow will allow the company to further reduce leverage. Moody's projects debt to EBITDA leverage will fall from 4.1x on a Moody's adjusted basis as of June 30 to below the 4.0x level necessary to consider a rating upgrade over the next 12-18 months. Leverage is now lower than Moody's expected at the beginning of 2022 although inflation and more difficult comparisons may slow the pace of improvement in the quarters ahead. Still, due to solid top line growth and a more cautious dividend policy in recent periods, retained cash flow (RCF) to net debt has improved from a single digit percent to the mid-teens range. Assuming that financial policy remains conservative, RCF to net debt ratio is expected to continue to improve to the high-teens to low 20% range in the next 12-18 months.
ABI has excellent liquidity to support operating volatility, which cannot be ruled out given its emerging markets footprint and a slowing growth outlook in most global markets. The company had over $7 billion of cash as of June and an undrawn $10.1 billion revolver expiring in 2027. Free cash flow is expected to exceed $6 billion for the year, above expectations earlier in 2022. The company is benefiting, like other packaged beverage firms, from the ongoing restoration of consumer mobility, including resumption of dining out, travel, and the return of live events where beverages are typically consumed. This will help to support top line and operating profit growth despite global economic challenges. While inflationary pressures and supply chain challenges will pressure margins, ABI has leadership positions in most of its markets that should allow it to offset some inflation through pricing. The company's scale provides a number of operating benefits, including proximity of its numerous brewing facilities to key populations, distribution and retail clout in key markets, and operating efficiencies afforded by volume. These advantages together with ABI's leading market positions will continue to support its competitive position and strong profit margins.
Affirmations:
..Issuer: Anheuser-Busch InBev SA/NV
.... Issuer Rating, Affirmed Baa1
....Other Short Term, Affirmed (P)P-2
....Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa1
....Senior Unsecured Regular Bond/Debenture, Affirmed Baa1
..Issuer: Anheuser-Busch Companies, LLC
.... Issuer Rating, Affirmed Baa1
....Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa1
....Senior Unsecured Regular Bond/Debenture, Affirmed Baa1
..Issuer: Anheuser-Busch InBev Finance, Inc
....Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa1
....Senior Unsecured Regular Bond/Debenture , Affirmed Baa1
..Issuer: Anheuser-Busch InBev Worldwide Inc
....Senior Unsecured Commercial Paper, Affirmed P-2
....Senior Unsecured Regular Bond/Debenture, Affirmed Baa1
..Issuer: CALIFORNIA ENTERPRISE DEVELOPMENT AUTHORITY
....Backed Senior Unsecured Revenue Bonds, Affirmed Baa1
..Issuer: California Statewide Communities Dev. Auth.
....Backed Senior Unsecured Revenue Bonds, Affirmed Baa1
..Issuer: Cartersville (City of) GA, Development Auth.
....Backed Senior Unsecured Revenue Bonds, Affirmed Baa1
..Issuer: Fort Collins (City of) CO
....Backed Senior Unsecured Revenue Bonds, Affirmed Baa1
..Issuer: Gulf Coast Waste Disposal Authority, TX
....Backed Senior Unsecured Revenue Bonds, Affirmed Baa1
..Issuer: JACKSONVILLE (CITY OF) FL
....Backed Senior Unsecured Revenue Bonds, Affirmed Baa1
..Issuer: Jacksonville Economic Development Comm., FL
....Backed Senior Unsecured Revenue Bonds, Affirmed Baa1
..Issuer: James City County Economic Dev. Auth., VA
....Backed Senior Unsecured Revenue Bonds, Affirmed Baa1
..Issuer: New Hampshire St. Business Finance Authority
....Backed Senior Unsecured Revenue Bonds, Affirmed Baa1
..Issuer: NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY
....Backed Senior Unsecured Revenue Bonds, Affirmed Baa1
..Issuer: OHIO (STATE OF)
....Backed Senior Unsecured Revenue Bonds, Affirmed Baa1
..Issuer: Ohio Water Development Authority
....Backed Senior Unsecured Revenue Bonds, Affirmed Baa1
..Issuer: Onondaga County Industrial Dev. Agy., NY
....Backed Senior Unsecured Revenue Bonds, Affirmed Baa1
..Issuer: St. Louis Industrial Development Auth., MO
....Backed Senior Unsecured Revenue Bonds, Affirmed Baa1
Withdrawals:
..Issuer: FBG Finance Pty Ltd
....Senior Unsecured Medium-Term Note Program, Withdrawn , previously rated (P)Baa1
Outlook Actions:
..Issuer: Anheuser-Busch Companies, LLC
....Outlook, Changed To Positive From Stable
..Issuer: Anheuser-Busch InBev Finance, Inc
....Outlook, Changed To Positive From Stable
..Issuer: Anheuser-Busch InBev SA/NV
....Outlook, Changed To Positive From Stable
..Issuer: Anheuser-Busch InBev Worldwide Inc
....Outlook, Changed To Positive From Stable
..Issuer: FBG Finance Pty Ltd
....Outlook, Changed To Rating Withdrawn From Stable
RATINGS RATIONALE
ABI's Baa1 rating reflects its position as the world's largest brewer, its wide portfolio of brands at various price points, and leading positions in some of the world's largest and most profitable beer markets. The company has strong margins, excellent liquidity and large, typically stable operating cash flows. To accelerate deleveraging after its debt financed acquisition of SABMiller PLC in late 2016, and subsequent slowdown in certain key markets, the company in 2018 reset its dividend, lowering it by 50%. ABI then further reduced dividend payouts when the negative effects of on-premise shutdowns during the coronavirus reduced EBITDA in 2020. Better retained cash flow together with multiple asset sales have allowed for significant debt paydown in the last few years. Total Moody's adjusted debt fell from over $123 billion in 2017 to about $85 billion as of June 2022. Operating margin, while under some pressure in the current inflationary environment, remains substantially better than most of its global beverage peers with an EBITA margin at close to 30% and an EBITDA margin over 36% in the last 12 months ended June although this is still below pre-pandemic levels when the EBITDA margin peaked at around 40%. The rating reflects ABI's exposure to somewhat volatile economies, and declining beer consumption in developed markets such as North America and Europe offset by the better growth opportunity in emerging markets and through its premiumization strategy globally. The company targets 2x net debt to EBITDA leverage (by its definition) over the longer term and the higher current leverage on this basis (3.86x at June 20, 2022) indicates ABI continues to be focused on reducing leverage. This will be achieved through a combination of higher earnings and cash flow and further debt reduction. Moody's expects the company to remain committed to its deleveraging plans and to make adjustments to its operations and financial strategy as necessary to sustain debt reduction.
In ABI's current guarantee structure, only the most significant subsidiaries within the group provide guarantees for senior debt. These key subsidiaries include Anheuser-Busch InBev Worldwide Inc, Anheuser-Busch Companies, LLC, Brandbrew S.A., and Cobrew NV. These arrangements are extended to the debt issued by the company and its affilliates such that bondholders rank pari passu with all other senior lenders of the company. The rated debt and facilities of Anheuser-Busch InBev SA/NV, Anheuser-Busch InBev Finance, Inc, Anheuser-Busch InBev Worldwide Inc, and Anheuser-Busch Companies, LLC reflect this cross guarantee structure. The company guarantees various industrial revenue bonds issued by entites listed above on a senior unsecured basis, and the ratings reflect the benefit of such guarantees.
Environmental, Social and Governance Risk
ABI's ESG Credit Impact Score is moderately negative (CIS-3). This reflects our assessment that ESG attributes are overall considered to have a limited impact on the current rating, with greater potential for future negative impact over time. The high social risk exposure related to production and distribution of alcoholic products is partially compensated by moderate governance risk, with concentrated ownership and some organizational complexity offset by deleveraging goals representing more modest financial strategy and risk management. Environmental risk is moderately negative though some subfactors are low to moderate. Innovation, premiumization and good pricing power in both mature and emerging markets help to mitigate some of the environmental and social risks.
Environmental risks are moderately negative (E-3) for ABI in line with most other rated alcoholic drinks manufacturers. This mainly reflects the industry's exposure to water management, waste and pollution and the company's reliance on natural capital in relation to the production of key ingredients for alcoholic products. While raw materials typically represent a modest component of the company's cost structure, alcoholic beverage producers such as ABI rely on the availability of water and specific ingredients, some of which are difficult to obtain or to substitute. These risks are mitigated by the company's product and geographic diversification and its efforts with regard to water stewardship and sustainability. ABI has been very active in sustainability efforts and remains focused on reducing its carbon footprint. Among the company's sustainability goals are the improvement of sustainable water supply in high stress areas, migration of product packaging to returnable or recycled material, and the goal to source 100% of energy needs from renewable sources by 2025 (currently sourcing 50% renewable energy). Environmental considerations are not a material factor in the rating because the company can largely pass along to consumers the costs necessary to mitigate environmental risks. In early 2021, ABI established a sustainability linked revolving credit facility. Moody's views physical climate risk and carbon transition risks as neutral to low for ABI.
Like many other alcoholic beverage companies, ABI's social Issuer Profile Score is highly negative (S-4), primarily reflecting the significant brand reputation risks and exposure to responsible marketing and distribution related to the sale of alcoholic beverages, mainly beer. The company monitors its social risks closely, including product quality and safety, transparent and clean labeling (a focus on simple and wholesome ingredients) and messages about alcohol content and responsible consumption. While the alcoholic beverage industry is subject to some risk due to health concerns around alcoholism and the impact of drunk driving. The industry as a whole, and ABI in particular, have made meaningful efforts to disclose the risks and promote moderate consumption of alcoholic beverage products. In addition, ABI has a large and growing presence in low-and no alcohol beverages, aiming to increase these lower risk products to 20% of its portfolio by 2025. Social risks also include exposures to demographics and societal trends, including potential volume pressure in some mature markets, partially mitigated by ongoing premiumization, product innovation and good growth opportunities in developing markets. Riskier social factors are balanced by neutral to low risks to health and safety, human capital and responsible production. The coronavirus pandemic is still weighing on overall demand recovery, but gradual consumer pattern normalization from the initial heavy shift toward at-home consumption should result in further recovery in profitability.
ABI's governance risks are moderately negative (G-3) reflecting concentrated ownership and a somewhat complex organizational structure, with a number of subsidiaries that are consolidated but not fully owned as well as minority interests in other ventures. The Stitchting foundation that represents the founding Belgian families of Interbrew, the Brazilian founders of AmBev as well as related entities in a shareholder agreement own 43.35% of the publicly traded company. The Altria Group, Inc. also owns around 9% of the company. ABI's governance is characterized by historically conservative financial targets, offset by a willingness to increase leverage to speculative grade levels for the SABMiller transaction. Moody's views the company's willingness to reduce its dividend on multiple occasions to accelerate deleveraging as an important signal of its intent to restore greater financial flexibility. ABI has a net debt to EBITDA target of 2.0x that indicates a continued focus on reduce leverage to a low level. The company remains committed to its publicly stated capital allocation priorities which are, in order: investing in organic growth, deleveraging, selective M&A and returning cash to shareholders.
The positive outlook reflects Moody's expectations that ABI will maintain a conservative financial policy that continues to prioritize leverage reduction over the next 12-18 months. Moody's also assumes in the positive outlook that ABI will maintain stable operating performance despite global pressures on costs and growth, and that it will maintain excellent liquidity.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
To achieve an upgrade, ABI would need to continue to grow earnings and operating cash flow and sustain strong profit margins. The company would also need to reduce debt to EBITDA leverage to under 4x and maintain retained cash flow as a percent of net debt of over 10% (including Moody's adjustments).
The ratings could be downgraded if ABI encounters operational difficulties, profitability falls materially or liquidity weakens. Ratings could also be downgraded if debt to EBITDA leverage is not maintained below 4.5x. Large shareholder distributions or debt funded acquisitions could also lead to a downgrade.
The principal methodology used in these ratings was Alcoholic Beverages published in December 2021 and available at https://ratings.moodys.com/api/rmc-documents/360647. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
Anheuser-Busch InBev SA/NV, incorporated in Leuven, Belgium, is the world's largest brewing company. ABI has operations in 50 countries worldwide with market leading positions in North America, Brazil, Mexico, South Africa, and a leadership position in premium beer in China. In Brazil, it operates through its subsidiary Ambev S.A. ("AmBev") (rated Baa3, stable). The Stitchting foundation that represents the founding Belgian families of Interbrew, the Brazilian founders of AmBev as well as related entities in a shareholder agreement own 43.35% of the publicly traded company. The Altria Group, Inc. also owns around 9% of the company. Annual revenues for the publicly-traded company are over $56 billion.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.
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Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.
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