Corona a runaway success for Ab InBev, but virus costs brewer billions
When China sneezes, the world’s largest brewer catches the flu.
AB InBev lost out on $285m (more than R4.4bn) in sales and $170m (R2.6bn) in earnings in the first two months of this year alone due to the coronavirus outbreak in China, CEO Carlos Brito told investors last week.
Last week’s stock market panic wiped more than a fifth off its market capitalisation, driving AB InBev, which snapped up SABMiller in 2016, to its lowest on record since it began trading as the merged entity in SA.
Ironically, Corona — the Mexican beer, not the virus — was a standout success for the company in its latest set of annual results, released last week.
The beverage’s volumes outside Mexico increased by more than 20% for the year to endDecember. Compare that to overall beer volume growth of 0.8% and it is no wonder that AB InBev, three years after taking over SABMiller in a $106bn (R1.63-trillion) deal, is putting serious resources behind Corona.
Last year, for the first time, it started brewing it outside Mexico.
Corona’s sales jump was led by China (before the virus hit) and SA, Brito said.
But the company is facing significant cost increases globally, driven by the highest annual spike in commodity and transactional currency costs in the past decade.
Cost of sales ballooned by 7.4%.
FNB Wealth and Investments analyst Wayne McCurrie says this means AB InBev will have to do more cost-cutting across all operations.
After stitching SABMiller into AB InBev, the company last year completed the $3.2bn (R49.4bn) in “synergies and cost savings” it promised from 2016’s mega-merger.
But those cost savings are now a thing of the past, McCurrie said.
“They took on serious debt when they bought SABMiller and they are still struggling to digest that,” he said.
The company has net debt of $95.5bn (R1.475-trillion) and recently sold brewing assets in Australia to pay down some of those loans. Two poor quarters have hampered its progress in addressing its debt challenge.
The impact of the outbreak of the novel coronavirus, which causes the disease Covid-19, could further hobble the company’s strategy to get consumers worldwide to consume more of its three big premium brands — Corona, Budweiser and Stella Artois.
So far, the company has flagged only the impact on China and only until the end of March.
But several other markets have since seen a spike in infections, which could limit the number of occasions consumers dare to venture out for a cold one.
In SA so far, the virus has not had an impact.
Instead it’s the spread of Corona (the beer) that has gone viral.
Though the brewer does not break out specific numbers, it said consumption of the Mexican beer grew by “triple digits” in SA.