AB InBev: new growth tainted by looming fine

Stella Artois bottles as a stock image for financial results AB InBev

AB InBev has found growth again: after several years of stagnation, turnover increased slightly in the first quarter. However, a shadow over these positive results is EU commissioner Margrethe Vestager's threats of a fine for abuse of its dominant position in Belgium.

 

Currency effects leave their marks on strong growth

AB InBev managed to achieve comparable growth in 2019's first quarter, thanks to carnival festivities that led to a considerable turnover increase, especially in Brazil. The recovering Brazilian market contributed to a total turnover growth of 5.9 % in South America, a continent that remains very important to the brewery group. 

 

A strong volume growth is however more than cancelled out by adverse currency effects: the quarterly turnover ultimately ended at 12.59 billion dollars, lower than the 13.09 billion in Q1 of 2018 - which was in itself a weak quarter. The cause of this disappointment are the slipping exchange rates of the Brazilian real and the South African rand: those currency effects have cost the brewery giant 1.1 billion dollars of turnover.

 

Profit even increased by 8.2 % on an organic basis, but the negative currency effects took more than half a billion dollars away from that. Ultimately, gross company profit ended at 4.99 billion dollars, compared to 5.12 billion the year before. The rising prices of resources, including aluminium and barley, also impacted the profit in a negative way. Net profits did see a sharp increase: from 1.44 billion dollars to 2.52 billion.

 

Asian flotation

Simultaneously, AB InBev has announced that it will be bringing its Asian division to the stock market. Rumours had been circulating for a while, but now CEO Carlos Brito confirms that a minority interest of the beer giant will be floated on the Hong Kong stock market.

 

The initial public offering will be paving the way towards further consolidation on the Asian market, which in turn means more acquisitions, CFO Felipe Dutra said to Bloomberg. The manufacturer of Stella Artois and Budweiser primarily intends to reduce its towering debt load, which has been the source of some criticism for a while.

 

Fined in the near future

AB InBev has received further criticism from Margrethe Vestager, the European Commissioner for Competition. Vestager became a well-known figure when she tackled Google, and now she is threatening the beer producer with a fine in the not-too-distant future. Since late 2017, the European Commission has been investigating allegations of abuse of dominance on the Belgian market. The brewery is said to have stopped the import of its own beer products from the Netherlands and France to the Belgian market, where AB InBev beers are offered at a higher price than in neighbouring countries.

 

Attempts to reach a settlement seem to have failed so far. Vestager has stated that AB InBev may be facing a fine – not right away, but possibly in the near future.