AB InBev executives have a reason to toast

Financial 2016 was grim for Anheuser-Busch InBev (AB InBev) executives as a disappointing operating performance meant limited bonuses and CEO Carlos Brito received no bonus. But things picked up significantly in 2017, providing Brito with a bonus of $5.77m, in addition to his basic pay of almost $3m.

Even better news for Brito and his executives is that the long-term share options they were awarded as part of the group’s incentive scheme were dished out on January 22 2018 at an exercise price of €94.36, or about R1,400.

That wasn’t quite the share’s historic low on the JSE; in midFebruary it touched R1,204.52. The AB InBev share price had been on a firmly downward trajectory from the end of October 2017 until mid-February, when it reached the record low. In mid-February, ahead of the release of better-than-expected fourth-quarter results to endDecember, the share moved on to an upward trajectory. The results appear to have secured upward momentum with the share price rising almost 4% since results were released.

Synergies that improved faster than expected synergies from the acquisition of SABMiller appear to be driving the uptick in sentiment. They are likely to underpin solid performance for about the next two years. By then, AB InBev will need to have made some progress with the generally slack volume performance, particularly in the US and Brazil.

Brazil volumes may recover as and when that economy recovers, but the US market seems to have gone into terminal decline. AB InBev can get earnings out of continuous costcutting, but if it cannot persuade more people to drink more of its beer, it will eventually run out of earnings road.

At that stage it will have to consider another mega merger to maintain investor support. With no more significant beer groups to swallow, it’s inevitable that Coca-Cola will be back on the rumour mill.

Although Woolworths has positioned itself as a fashion-first company, its food division has been its saving grace.

The acquisition of David Jones, which was meant to be a game changer for Woolworths, has turned out to be a blight on its record. And not only have its international clothing divisions come under pressure, its local women’s wear ranges have disappointed critics and consumers. Perhaps the time has come to start investing more in the profitable food division. Typically, companies that have a higher food offering do much better than clothing, footwear and textiles.

The Woolworths Food division grew sales 9.4% while operating profit in the group’s food division was up 15.9%.

Analysts agree that continued investments in its private label and the roll-out of the David Jones food division could prove beneficial to the retailer.

As food producers and retailers scramble to deal with the listeriosis outbreak, demand for healthy, clean and quality produce is surging, presenting an opportunity for prime food retailers to step up their offerings. While the retailer has also recalled some of its cold-meat products, because of the health department’s listeriosis alert, it is likely to come out of the crisis unscathed due to its unmatched focus on quality and innovative food throughout the years.

Even if Woolworths is slightly pricier than most retailers, consumers don’t seem to mind coughing up an extra buck.