2Q11 results were broadly in line with our and consensus forecasts. 2Q volumes grew 0.3% organically to 101.25m hl (KBCS 101.2m, css 101.38m), which was slightly better than the 1Q trend (-0.4% y/y). Revenue grew by 3.7% organically to $ 9,952m, slightly below our and consensus forecasts (KBCS $ 10,098m, css $ 10,002m) on a 4.4% organic revenue growth/hl (on a constant geo-mix basis). Normalized EBITDA was up 11.7% in total and 6.0% organically to $ 3,747m, close to our and css forecasts (KBCS $ 3,706m, css $ 3,759m). As a result of much lower than expected taxes (on the back of incremental income tax benefits in Brazil and a favourable outcome of tax claims), normalized net profit increased more than expected (+11.3% to $ 1,603m vs KBCS $ 1,514m and css $ 1,569m).
Looking at the regional breakdown we note a slightly better than expected North American performance (beer shipment volumes -1.4% vs -2.5% expected), although this was mainly due to a stocking effect in the US (shipments -1.7% and sales-to-retailers -3.4%). Following aggressive pricing actions in 3Q10 ABI reckons its market share was about 50bps lower Y/Y in the past quarter. Normalized EBITDA was up 3.5% organically to $ 1,804m in North America in 2Q11 which was better than our $ 1,703m forecast although in line with consensus. Brazil beer volumes declined by 2.6% in 2Q11 given tough comps and some market share loss following aggressive pricing initiatives. EBITDA for the zone (+10.3% organ.) was slightly below our forecast but in line with css. EBITDA performance of the other zones was better than expected for Asia Pacific (+50.8%) while below for CEE (-19.8%).
There was a slight increase in net debt in 1H11 (+$ 0.4bn to $ 40.1bn or 2.75x net debt/EBITDA) which relates to seasonality of the cash flowsand to FX fluctuations. Important is that ABI reiterated the target of reaching 2.0x net debt/EBITDA in the course of 2012 (incorporated in our model) while the company also commented for the first time it expects net debt to EBITDA to drop below 2.5x by year-end 2011 (we expect 2.3x).
The FY11 outlook comments were broadly unchanged : ABI still expects volume momentum to improve in 2H11 (especially in 4Q11); a revenue growth per hl ahead of inflation (Revenue/hl grew +4.4% in 2Q11 and Cos/hl grew +2.4%)with Cos/hl up low single digits in 2011. ABI repeated guidance for Sales and Marketing expenses increasing mid to high single digits in 2011 (+4.3% in 1H11), and distribution expenses increasing mid single digits (+14.6% in 1Q11 and decelerating to +9.7% in 2Q11). The company repeated guidance of capturing at least $ 270m AB synergies ($ 70m in 2Q11 and $ 145m in 1H11) and an average coupon rate on debt of 6.0-6.5%. One outlook comment that has changed is the tax rate guidance which is now below 25% for FY11 while still being 25-27% for the long run.
Conclusion:
2Q11 results were broadly in line with our and consensus forecasts while the reiteration of the key outlook comments was also expected. Although low organic volume growth and the declining rate of cost synergies make it hard to find a short term trigger, the defensive earnings character, beer category leadership with strong market positions in some of the world’s largest beer profit pools (US & Brazil) with also significant pricing power prompt us to reiterate our Accumulate rating and € 47 target price.