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AB InBev’s Free Cash Flow Tops Nearly $20 Billion

ABINBEV

AB InBev’s Stella Artois. Source: Flickr

AB InBev is one of the largest brewers in the world.

The company sells not only alcoholic drinks such as beers but also non-alcoholic drinks such as energy and soft drinks.

For your information, AB InBev is a publicly-traded company headquartered in Leuven, Belgium, with a ticker name ABI at the Euronext exchange.

Aside from the Euronext exchange, AB InBev also is listed in several exchanges such as the Mexico MEXBOL and South Africa JSE with the ticker symbols ANB and ANH, respectively.

AB InBev also carries the ticker name BUD in the New York Stock Exchange (NYSE) and the stock is traded as a form of ADR or American Depositary Receipt.

In this article, we are going to look at AB InBev’s cash flow, its cash on hand and free cash flow in particular.

Let’s move on!

AB InBev’s Cash On Hand

AB InBev total cash on hand

AB InBev total cash on hand

* Cash on hand consists of cash & cash equivalents such as short-term bank deposits, treasury bills and cash in bank accounts.
* Other than cash & cash equivalents, cash on hand also consists of investments in debt securities according to AB InBev’s financial reports.
* AB InBev’s cash balance is disclosed on a bi-quarterly basis every fiscal year.

Let’s first look at AB InBev’s total cash on hand which is shown in the chart above for the period from FY2016 to FY2020.

Keep in mind that AB InBev discloses its cash balance on a bi-quarterly basis.

All told, AB InBev’s cash on hand was the highest back in 2Q 2016 at more than $60 billion as shown in the chart above.

Why was AB InBev’s cash balance in such a massive position back then?

An investigation of AB InBev’s 2Q 2016 financial report revealed that the cash was actually for the proposed combination with SABMiller.

At that time, the massive cash was temporarily invested in US Treasury Bill pending the closing of the merger.

As seen from the chart, AB InBev’s cash on hand fell considerably in 4Q 2016 to only $14 billion when the combination with SABMiller was completed.

As of 2020 Q4, AB InBev’s cash on hand totaled $15.6 billion, which was about 38% lower compared to the prior quarter.

AB InBev’s cash position shot to the moon in 2Q 2020 at $25 billion during the height of the COVID-19 pandemic.

When COVID-19 hit in the 1st half of 2020, AB InBev shored up its liquidity in preparation for a worst-case scenario.

Breakdown of AB InBev’s Cash On Hand

AB InBev cash on hand breakdown

AB InBev cash on hand breakdown

* Cash on hand is broken down into cash & cash equivalents and debt securities investment.
* Cash & cash equivalent is net of bank overdrafts.

There are 2 types of cash in AB InBev’s balance sheets and they are cash & cash equivalents and debt securities as shown in the chart above.

Between FY2016 and FY2020, AB InBev’s cash on hand has been mainly in cash & cash equivalents except in 2Q 2016.

As mentioned, AB InBev held a massive cash position in debt securities in FY2016 for the purpose of the SABMiller combination.

After the merger was completed, AB InBev’s investment in debt securities was back to normal levels in subsequent quarters and even faded into obscurity as it moved closer to 2020.

On the other hand, AB InBev’s cash & cash equivalents have been on a rise and topped out at $25 billion during the height of the COVID-19 pandemic in 2Q 2020.

As of 4Q 2020, AB InBev’s cash & cash equivalents declined slightly to $15 billion.

AB InBev’s Net Cash From Operating Activities

AB InBev net cash from operating activities

AB InBev net cash from operating activities

* Net cash from operating activities is an IFRS accounting measure and is obtained from AB InBev’s bi-quarterly statements of cash flow.
* TTM net cash consists of the sum of the quarterly data on a trailing 12-month or bi-quarter basis.

While AB InBev’s bank account is loaded with more than $10 billion of cash, it would not mean anything if its internal business operations failed to produce any cash and needed to use its cash balance to stay afloat.

In this case, we will look at AB InBev’s net cash from operating activities to see if its core businesses produced any cash.

According to the chart above, AB InBev’s operating activities have been able to generate meaningful cash flow between FY2016 and FY2020.

That said, AB InBev produced at least $10 billion of net cash from its core activities on a trailing 12-month (TTM) basis in the past.

As of 2020 Q4, AB InBev’s net cash from operating activities totaled as much as $11 billion.

Keep in mind that this net cash was net of all cash inflow and outflow for only operating activities, including changes in working capital, interest paid and taxes paid.

This net cash has not taken into account the cash outflow as a result of capital expenditures, investments, dividends paid, debt repayment, etc.

We will come to this topic later.

Since AB InBev has been able to generate plenty of cash from its core operations, the company has been self-sufficient when it comes to internal operations and has not relied on external capital injections such as debt as well as equity issuance to support its business operations.

In fact, the extra cash generated from operating activities may even be added to AB InBev’s existing cash on hand, thereby raising the amount of cash balance.

AB InBev’s Free Cash Flow

AB InBev free cash flow

AB InBev free cash flow

* Free cash flow consists of net cash from operating activities minus net cash from investing activities.
* TTM free cash flow consists of the sum of the quarterly data on a trailing 12-month or bi-quarter basis.

While AB InBev has been having positive net cash from operating activities, it is still possible for the company to have negative free cash flow if it spent more cash than it produced on investments such as capital expenditures and acquisitions.

In this case, we will look at AB InBev’s free cash flow to find out how much cash is left after accounting for cash spent on investing activities.

Keep in mind that net cash from investing activities includes cash outflow for capital expenditures, acquisition, etc as well as cash inflow for sales of assets, subsidiary, etc.

All told, AB InBev’s free cash flow has been positive between FY2016 and FY2020 except for 4Q 2016 when it spent more than $50 billion to merge with SABMiller.

On average, AB InBev’s free cash flow totaled more than $10 billion on a TTM basis if we exclude the negative quarter in which AB InBev acquired SABMiller.

As of 2020 Q4, AB InBev’s free cash flow reached nearly $20 billion, driven mainly by its Australia subsidiary divestment which raked in nearly $11 billion in cash for the company.

All in all, AB InBev has had impressive free cash flow, even after accounting for the net cash used in investing activities.

AB InBev’s Net Cash From Financing Activities

AB InBev net cash from financing activities

AB InBev net cash from financing activities

* Net cash from financing activities is an IFRS accounting measure and is obtained from AB InBev’s bi-quarterly statements of cash flow.
* TTM net cash consists of the sum of the quarterly data on a trailing 12-month or bi-quarter basis.

Since AB InBev’s free cash flow generation has been quite strong, the company should not have raised external capital through debt or equity issuance.

To find out, we will look at AB InBev’s net cash from financing activities which is shown in the chart above for the period from FY2016 to FY2020.

As seen from the chart, AB InBev’s net cash from financing activities has been negative for almost the entire period, illustrating the company’s cash outflow through financing activities.

In this case, AB InBev has been paying down debt as reflected by the negative net cash from financing activities.

The 4Q 2016 quarter was an exception for AB InBev as the company was raising capital to buy SABMiller.

Similarly, AB InBev also borrowed a considerable amount of debt in 2Q 2020 to raise its cash position in preparation for the COVID-19 disruption.

Other than these 2 quarters, AB InBev was seen paying down debt and dishing out dividends.

For your information, AB InBev has been paying dividends and was still paying dividends as of FY2020.

However, its cash outflow for dividends has been decreasing and reached its lowest levels in FY2020 at only $1.8 billion.

AB InBev’s cash outflow for dividends peaked out in FY2017 at $9 billion.

Since then, AB InBev has been cutting its dividends payout.

The decline in dividend payout also partly contributed to the narrowing cash outflow for financing activities which reached its lowest levels at $8.5 billion as of 2020 Q4 on a TTM basis.

In short, AB InBev has been paying down debt and cutting its dividends all these years to save cash and wean itself off the huge debt load.

Summary

AB InBev’s cash on hand has been flat at about $10 billion prior to 2020 but rose considerably to $15 billion in FY2020 due mainly to the COVID-19 pandemic.

AB InBev’s cash position has been in cash and cash equivalents, at over 99% in most financial periods.

AB InBev generated positive net cash from operating activities, illustrating the immersed cash-generating capability of the company’s core businesses.

AB InBev’s free cash flow also has been tremendously impressive even after accounting for net cash from investing activities.

AB InBev is seen paying down debt and reducing its cash dividends all these years as shown in the negative net cash from financing activities.

References and Credits

1. All financial figures in this article were referenced and obtained from AB Inbev’s annual and half-year filings available in Ab InBev’s Financial Reports.

2. Featured images in this article are used under creative commons license and sourced from the following websites: song zhen and Dushan Hanuska.

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