AB InBev cans bonuses for execs

• Executives forfeit payouts after disappointing 2016 financial results and 5% drop in volumes

Highlighting its tough management reputation, Anheuser-Busch InBev has canned bonuses for most of its executive board because of the disappointing 2016 results. It will be the first time since 2008 that CEO Carlos Brito will miss out on a bonus.

Highlighting its tough management reputation, AnheuserBusch InBev (AB InBev) has canned bonuses for most of its executive board because of the disappointing 2016 financial results. It will be the first time since 2008 that CEO Carlos Brito will miss out on a bonus.

The move is expected to affect swathes of executives in the group which, after last year’s $103bn acquisition of SABMiller, now controls just more than 25% of the global beer market. South African executives will not be affected as the old SABMiller scheme will apply to them for the year.

A final dividend of €2 a share brings the full payout to €3.60.

The notable aspect of the results was the hefty 5% drop in beer volumes in the three months (to end-December), which included the former South African Breweries’ figures. Industry sources say it is the steepest decline in SA in more than 15 years. It is in line with the full-year drop in cider volumes reported by Distell.

The decline was attributed to “macroeconomic weakness and a sizeable price increase” as well as currency and commodity headwinds.

AB InBev’s disappointing performance saw the share price drop 3% on Thursday to close at more than €100 in Belgium. The share price was also down almost 3% on the JSE, where it ended the day at R1,391.61, its worst since listing in January 2016 at just less than R2,000. The decline in the JSE price reflects the strength of the rand and disappointment with the continued poor performance. The December quarter is the seventh successive quarter that AB InBev has missed analysts’ forecasts.

The results disappointed analysts on so many fronts that one at Exane BNP Paribas suggested there might well be an element of “kitchen-sinking”.

Adjusted fourth-quarter earnings before interest, tax, depreciation and amortisation fell to $5.25bn. Analysts were looking for $5.64bn.

The biggest source of concern was AB InBev’s key market, Brazil, where volumes were under pressure and the company lost market share. Heineken’s recent big acquisitions in Brazil are likely to ensure AB InBev remains under pressure in that market.

In the US, full-year revenue was flat, but the business delivered “a solid financial performance” on the back of tight management and favourable brand mix.

Despite the disappointing performance, Brito sounded upbeat during a presentation on Thursday. He told analysts that Brazil appeared to be through the worst and management expected to secure more synergies from the SABMiller tie-up than initially targeted.

Brito said the acquisition was producing “reverse synergies” as AB InBev integrated lessons from SABMiller.

But the deal has left AB InBev with a big debt that is expected to restrain dividend payments. Net finance costs shot up to $5.2bn for the full year, from $1.2bn in financial 2015.

Only in the strange world of executive pay and performance bonuses would we have to be told that after a grim set of results, executives would not be receiving bonuses. And only in the same strange world would the media think it was such a big deal. But that’s what it’s come to.

Most of us assume that when performances are not in line with expectations, the bonus parameters are reset to favour the executives. This is not the case at Anheuser-Busch InBev (AB InBev), no performance means no bonus. It can’t be any other way, given that top management spends most of its time cutting away at costs, which includes lots of employees. Any sign that it wasn’t even-handed would do a lot of damage to the sort of commitment needed to survive this company’s culture.

But before we get too carried away, we should remember that many of the executives who will miss out on this year’s bonus were probably part of the crew that shared a $1.3bn bonus in 2012 after the bedding down of the Anheuser-Busch deal.

Financial 2016 was tough for the AB InBev team. Not only was it trying to finalise the thirdbiggest corporate deal in history, the $107bn acquisition of SABMiller, it was also faced with tough conditions in many of its big markets. In Brazil, its single most important market, not even the Olympics could stir up much of an appetite for beer. But management is optimistic things will turn in this financial year.

As for the old SABMiller, the operations outside SA did significantly better than in SA where it was inevitable that higher price would hit volumes, given the weak economic conditions.

Years ago, Pamodzi Gold, with great fanfare, held a ceremony at its newly acquired President Steyn mine in the Free State. One of the big moments was the hoisting and unfurling of the Pamodzi Gold flag at the mine’s head office. The flag stuck and was not unfurled, prompting one guest, a veteran miner, to quip: “That’s a really bad omen”. A few years later, Pamodzi was in liquidation.

On Thursday, the Department of Mineral Resources announced its new directorgeneral, the unknown Thabo Mokoena, who on the face of it had no mining experience. A dozen industry seniors had never heard the name of the secretary of the Free State legislature, but all pointed to this being the third Free State person moved into senior positions in the department.

Then, on such an auspicious day for Mokoena, the department’s website showed an error on the “office of the directorgeneral” link. It may be a bit cynical to declare that “this is a really bad omen”, but comments about his performance from colleagues in the legislature raised questions about his managerial abilities and grasp of detail.

In Mokoena’s role, stakeholder engagement is critical, not just with the industry, but with labour and communities at a time when investment has slowed and no one trusts anyone. Mokoena will come in ice cold on two critically important bits of regulation that have deepened regulatory uncertainty.

Amendments to the Mineral and Petroleum Resources Development Act have been in the works since 2012, while the third iteration of the Mining Charter has caused deep disquiet. Surely, the Cabinet should have approved someone with a grasp of the challenges or strong managerial credentials.