The Best Beer Company in a Better World - Anheuser-Busch InBev

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50 | Annual Report 2008 Financial Report Impact of foreign currencies Foreign currency exchange rates have a significant impact on our financial statements. In 2008, 30.7 % (2007 – 29.8 %) of our revenue was realized in Brazilian reals, 15.6 % (2007 – 16.7 %) in euro, 9.8 % (2007 – 8.4 %) in US dollars, 8.4 % (2007 – 8.8 %) in Canadian dollars, 6.5 % (2007 – 7.2 %) in Russian ruble, 6.2 % (2007 – 7.5 %) in pound sterling, 4.9 % (2007 – 4.1 %) in Argentinean peso, 3.5 % (2007 – 3.4 %) in Chinese yuan and 3.0 % (2007 – 3.4 %) in South Korean won. The fluctuation of the foreign currency rates had a negative translation impact on our 2008 revenue of 235 million euro (versus a negative impact in 2007 of 90 million euro), EBITDA of 49 million euro (versus a negative impact in 2007 of 18 million euro) and profit from operations of 53 million euro (versus a positive impact in 2007 of 4 million euro). Our profit (after tax) has been negatively affected by the fluctuation of foreign currencies for 38 million euro (versus a positive impact in 2007 of 9 million euro), while the effect on our EPS base (profit attributable to equity holders of AB InBev) was (42) million euro or (0.04) per share (versus neutral in 2007). The impact of the fluctuation of the foreign currencies on our net debt is (2 489) million euro (decrease of net debt) and on our equity (1 419) million euro (decrease of equity). In 2007 there was an impact of (107) million euro (decrease of net debt) and (60) million euro (decrease of equity), respectively. Non-recurring items Non-recurring items are either income or expenses which do not occur regularly as part of the normal activities of the company. They are presented separately because they are important for the understanding of the underlying sustainable performance of the company due to their size or nature. Details on the nature of the non-recurring items are disclosed in note 8 Non-recurring items. Liquidity position and capital resources Cash flows - Key figures Our cash flow from operating activities increased from 4 064 million euro in 2007 to 4 189 million euro in 2008, or 3.08 %. AB InBev devotes substantial efforts to the more efficient use of its working capital, especially those elements of working capital that are perceived as ‘core’ (including trade receivables, inventories and trade payables). The changes in working capital resulted in 544 million euro cash flow impact in 2008. This improvement was impacted by an outstanding consideration payable to former Anheuser-Busch shareholders whom did not claim the proceeds by year end 2008. Excluding this payable, the change in working capital would have resulted in a 204 million euro cash impact. This improvement was partially offset by higher taxes and interest paid compared to 2007. The evolution of the cash used in investment activities from (2 358) million euro in 2007 to (42 164) million euro in 2008 is mainly explained by the acquisition of Anheuser-Busch (39 902 million euro). Further details on the acquisition are disclosed in note 6 Acquisitions and disposals of subsidiaries. The cash outflow from our financing activities went from (970) million euro in 2007 to a cash inflow of 38 421 million euro in 2008, explained by an increase in the net proceeds from the issue of share capital (6 337 million euro) and the increase in proceeds from borrowings, related to the senior facility. Both proceeds were required for the acquisition of Anheuser-Busch. Net capital expenditures We spent 1 640 million euro in 2008 and 1 440 million euro in 2007 on acquiring capital assets. In 2008, out of the total capital expenditures, approximately 66 % was used to improve our production facilities while 24 % was used for logistics and commercial investments. Approximately 10 % was used for improving administrative capabilities and purchase of hardware and software.
Capital resources and equity Financial Report Annual Report 2008 | 51 AB InBev’s net financial debt increased to 40 713 million euro as of December 2008, from 5 093 million euro as of December 2007. Apart from operating results net of capital expenditures, the net financial debt is impacted by the acquisition of Anheuser-Busch and other business combinations (39 966 million euro); the net proceeds from the issue of share capital (6 337 million euro); the AB InBev (706 million euro) and AmBev (236 million euro) share buy-back programs; the purchase of minority interests of Quinsa and Zheijang Shiliang (respectively 291 million euro and 54 million euro); dividend payments and the impact of changes in foreign exchange rates (2 489 million euro). To finance the acquisition of Anheuser-Busch, AB InBev entered into a 45 billion US dollar senior facilities agreement and a 9.8 billion US dollar bridge facility agreement, enabling us to consummate the acquisition, including the payment of 52.5 billion US dollar to shareholders of Anheuser-Busch, refinancing certain Anheuser-Busch indebtedness, payment of all transaction charges, fees and expenses and accrued but unpaid interest to be paid on Anheuser-Busch’s outstanding indebtedness. On 18 December 2008, AB InBev repaid the debt it incurred under the bridge facility with the net proceeds of the rights issue and cash proceeds received by AB InBev from pre-hedging the foreign exchange rate between the euro and the US dollar in connection with the rights issue. AB InBev intends to refinance a portion of the debt incurred under the senior credit facility with the proceeds of one or more debt capital markets offerings. In addition, AB InBev may, in the future, dispose of certain of the assets or businesses and expects to utilize proceeds from any such disposals to repay indebtedness incurred to finance the acquisition. Consolidated equity attributable to equity holders of AB InBev as at 31 December 2008 was 16 126 million euro, compared to 13 625 million euro at the end of 2007. The movement of the foreign exchange translation adjustment of (1 335) million euro is the effect of the weakening of mainly the closing rates of the Mexican peso, the Brazilian real, the Pound sterling, the Russian ruble, the South Korean won, the Ukrainian hryvnia and the Canadian dollar, offset by a positive currency translation effect as a result of the weakening of the US dollar since 18 November 2008, as the major part of our net debt is US dollar denominated. Further details on equity movements can be found in note 23 Changes in equity to the consolidated financial statements. As a result of share buy-back programs of 2008 AB InBev acquired 12.7 million AB InBev shares for an amount of 706 million euro and AmBev acquired 5 million AmBev shares for an amount of 236 million euro. Research & development Given its focus on innovation, AB InBev places a high value on research and development. In 2008 AB InBev expensed 52 million euro in research, mainly in its Belgian research and development centre, compared to 20 million euro in 2007. Part of this was spent in the area of market research, but the majority is related to innovation in the areas of process optimization and product development. Research and development in process optimization is primarily aimed at capacity increase (plant debottlenecking and addressing volume issues, while minimizing capital expenditure), quality improvement and cost management. Newly developed processes, materials and/or equipment are documented in best practices and shared across business zones. Current projects range from malting to bottling of finished products. Research and development in product innovation covers liquid, packaging and draft innovation. Product innovation consists of breakthrough innovation, incremental innovation and renovation (that is, implementation of existing technology). The main goal for the innovation process is to provide consumers with better products and experiences. This implies launching new liquid, new packaging and new draught products that deliver better performance both for the consumer and in terms of financial results, by increasing AB InBev’s competitiveness in the relevant markets. With consumers comparing products and experiences offered across very different drink categories and the offering of beverages increasing, AB InBev’s research and development efforts also require an understanding of the strengths and weaknesses of other drink categories, spotting opportunities for beer and developing consumer solutions (products) that better address consumer need and deliver better experience. This requires understanding consumer emotions and expectations. Sensory experience, premiumization, convenience, sustainability and design are all central to AB InBev’s research and development efforts. Knowledge management and learning is also an integral part of research and development. AB InBev seeks to continuously increase its knowledge through collaborations with universities and other industries. AB InBev’s research and development team is briefed annually on the company’s and the business zones’ priorities and approves concepts which are subsequently prioritized for development. Launch time, depending on complexity and prioritization, usually falls within the next calendar year. The Global Innovation and Technology Center (‘GITeC’), located in Leuven, accommodates the Packaging, Product, Process Development teams and facilities such as Labs, Experimental Brewery and the European Central Lab, which also includes Sensory Analysis. In addition to GITeC, AB InBev also has Product, Packaging and Process development teams located in each of the six AB InBev geographic regions focusing on the short-term needs of such regions.
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Our dream is to become The Best Bee
Page 3 and 4: Anheuser-Busch InBev is a publicly
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Page 7 and 8: Global brands Multi-country brands
Page 9 and 10: The Net Debt to EBITDA ratio not on
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Page 13 and 14: World-class efficiency World-class
Page 15: Business Service Center Excellence
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Page 34 and 35: 30 | Annual Report 2008 The People
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Contacts Registered office Anheuser
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