AB InBev results show ‘need for SABMiller deal’

InBev’s poor performance this year was highlighted by positive third-quarter results – revenue, sales and earnings all grew – Warwick Business School Professor John Colley claimed.

InBev’s revenue, profit and earnings were all down for the nine months to October 30 2015 compared with the same period last year.

The good third-quarter results masked year-to-date figures which emphasised the need for the £68bn SAB Miller acquisition, Colley said.

“AB InBev has achieved expectations in quarter three with some volume growth in Mexico and north Latin America, and continued earnings growth,” he said.

Declining volumes

“Volumes overall are declining, as mature markets such as Europe, North America and North Latin America, contract more rapidly than growth in markets such as Mexico and southern Latin America.”

Craft beer brands and the shift towards wine and spirits consumption were at the root of the problem, Colley added.

“Costs are rising but in concentrated markets with few players the ability to raise prices and sell higher margin premium beers ensures that earnings before interest, taxes, depreciation, and amortisation (EBITDA) continues to progress,” he said.

Needs the acquisition

With declining volumes limiting to progressing earnings through price rises and cost savings, AB InBev needs an acquisition to continue earnings growth, Colley claimed.

“This is likely to be through cost savings rather than access to growth markets, although AB InBev is promoting the bid as acquiring access to the African growth market,” he said.

“However AB InBev is starting to look more like the conglomerates of the 1970s and ’80s who successfully achieved earnings growth through acquisition and aggressive cost savings but were unable to organically grow businesses. A time came when they were worth more as separate businesses with dedicated management than a conglomerate.”

On October 13 2015, AB InBev and SABMiller agreed a possible takeover, which valued the business at £44 a share.

If the deal is approved, the business would account for about 30% of the global beer market.