May 10, 2021

Breakingviews: AB InBev’s new CEO will inherit debt hangover

by Breakingviews.

The world’s biggest brewer is turning a corner. Anheuser-Busch InBev on Thursday tapped Michel Doukeris as its new chief executive, succeeding Carlos Brito. The 48-year-old will lead a shift to investing in brands, away from the cost control and dealmaking that defined his predecessor’s 15-year tenure. But any missteps will threaten the $120 billion Stella maker’s efforts to reduce its heavy debt load.

Brito, who started his brewing career in Brazil 32 years ago, created the company as it is today. His leadership was marked by relentless cost-cutting and aggressive M&A, culminating in the debt-fuelled $100 billion takeover of SAB Miller. Even before formally announcing his departure, the Budweiser maker had signalled a shift towards organic growth. On Thursday, AB InBev said revenue would grow faster than normalised EBITDA in 2021, which it expects to increase between 8% and 12%. Its willingness to accept a slimmer profit margin looks a departure from the cult of zero-based budgeting, espoused by Brito and the company’s Brazilian shareholders 3G Capital, in which all expenses must be justified and approved.

AB InBev Chairman Martin Barrington reckons Doukeris, one of 17 white men in AB InBev’s ranks of 18 top managers, is the right person to lead the shift to organic growth, given his “proven track record in innovation”. Earlier this year, as president of AB InBev’s North America division, the Brazilian committed to invest $1 billion in U.S. manufacturing facilities over the next two years amid a push into “hard seltzers” – flavoured alcoholic drinks which are proving popular as global thirst for the golden nectar slows.

A post-Covid-19 sales bounce will give him some breathing room. AB InBev’s revenue grew 17% in the first quarter, far outpacing analysts’ forecasts. But leading a long-term change at a company with 164,000 employees is still a huge challenge. Net debt was almost $83 billion at the end of 2020, equivalent to 4.8 times last year’s EBITDA. That ratio will fall to around 4 times this year, according to estimates compiled by Refinitiv. But to make progress towards the company’s target of lowering borrowings to 2 times EBITDA, Doukeris will have to strike a difficult balance between boosting the top line and keeping costs under control. He has inherited a mighty hangover.

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