EX-99.1 2 dex991.htm ANNNUAL REPORT Annnual Report

Exhibit 99.1

LOGO

Annual Report 2009

 

1


Financial Report

Management report

Anheuser-Busch InBev is a publicly traded company (Euronext: ABI) based in Leuven, Belgium, with an American Depositary Receipt secondary listing on the New York Stock Exchange (NYSE: BUD). It is the leading global brewer and one of the world’s top five consumer products companies. A true consumer-centric, sales driven organization, AB InBev manages a portfolio of well over 200 brands that includes global flagship brands Budweiser®, Stella Artois® and Beck’s®, fast growing multi-country brands like Leffe® and Hoegaarden®, and strong “local champions” such as Bud Light®, Skol®, Brahma®, Quilmes®, Michelob®, Harbin®, Sedrin®, Klinskoye®, Sibirskaya Korona®, Chernigivske®, and Jupiler®, among others. In addition, the company owns a 50 percent equity interest in the operating subsidiary of Grupo Modelo, Mexico’s leading brewer and owner of the global Corona® brand. AB InBev’s dedication to heritage and quality is rooted in brewing traditions that originate from the Den Hoorn brewery in Leuven, Belgium, dating back to 1366 and the pioneering spirit of the Anheuser & Co brewery, which traces its origins back to 1852 in St. Louis, USA. Geographically diversified with a balanced exposure to developed and developing markets, AB InBev leverages the collective strengths of its approximately 116 000 employees based in operations in over 23 countries across the world. The Company strives to be the Best Beer Company in a Better World. In 2009, AB InBev realized 36.8 billion US dollar net revenue. For more information, please visit: www.ab-inbev.com.

The following management report should be read in conjunction with Anheuser-Busch InBev’s audited consolidated financial statements.

A number of acquisitions, divestitures and joint ventures influenced Anheuser-Busch InBev’s profit and financial profile over the past two years.

On 18 November 2008, InBev announced the completion of its combination with Anheuser-Busch, following approval from shareholders of both companies. Anheuser-Busch’s results are included in Anheuser-Busch InBev’s result as from this date. The combination creates the global leader in beer and one of the world’s top five consumer products companies. InBev changed its name to Anheuser-Busch InBev to reflect the heritage and traditions of Anheuser-Busch. Starting 20 November 2008, the company trades under the new ticker symbol ABI on the Euronext Brussels stock exchange. Anheuser-Busch became a wholly owned subsidiary of Anheuser-Busch InBev and retained its headquarters in St. Louis, MO. St. Louis also became the North American headquarters for the combined company.

Following the Anheuser-Busch acquisition and the resulting increased leverage, the group performed a series of assets disposals. Pursuant to the disposal program AB InBev divested during 2009 its 27 % stake in Tsingtao (China), Oriental Brewery (Korea), four metal beverage can lid manufacturing plants from the US metal packaging subsidiary, Busch Entertainment Corporation, the Central European Operations, the Tennent’s Lager brand and associated trading assets in Scotland, Northern Ireland and the Republic of Ireland and the Labatt USA distribution rights.

Further details on the acquisition of Anheuser-Busch and on the acquisitions and disposals of other subsidiaries and on the purchase of non-controlling interests are disclosed respectively in Note 6 Acquisitions and disposals of subsidiaries and in Note 14 Goodwill. Further detail on the disposal of assets and investments in associates are disclosed respectively in Note 22 Assets and liabilities held for sale and in Note 16 Investment in associates.

In the rest of this document we refer to Anheuser-Busch InBev as “AB InBev” or “the company”.

 

2


Selected financial figures

The tables below set out the components of AB InBev’s operating income and operating expenses, as well as the key cash flow figures.

 

Million US dollar

   2009     %     2008
Reported
    %     2008
Combined
    %  

Revenue1

   36 758      100   23 507      100   39 158      100

Cost of sales

   (17 198   47   (10 336   44   (19 443   50

Gross profit

   19 560      53   13 171      56   19 715      50

Distribution expenses

   (2 671   7   (2 725   12   (3 454   9

Sales and marketing expenses

   (4 992   14   (3 510   15   (5 364   14

Administrative expenses

   (2 310   6   (1 478   6   (2 270   6

Other operating income/(expenses)

   661      2   440      2   496      1

Normalized profit from operations (Normalized EBIT)

   10 248      28   5 898      25   9 122      23

Non-recurring items

   1 321      3   (558   2    

Profit from operations (EBIT)

   11 569      31   5 340      23    

Depreciation, amortization and impairment

   2 818      8   1 912      8   2 944      8

Normalized EBITDA

   13 037      35   7 811      33   12 067      31

EBITDA

   14 387      39   7 252      31    

Normalized profit attributable to equity holders of AB InBev

   3 927      11   2 511      11    

Profit attributable to equity holders of AB InBev

   4 613      13   1 927      8    

Whenever used in this report, the term “normalized” refers to performance measures (EBITDA, EBIT, Profit, EPS) before 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. Normalized measures are additional measures used by management, and should not replace the measures determined in accordance with IFRS as an indicator of the company’s performance, but rather should be used in conjunction with the most directly comparable IFRS measures.

 

Million US dollar

   2009     2008
Reported
 

Operating activities

    

Profit

   5 877      3 126   

Interest, taxes and non-cash items included in profit

   7 353      4 809   
            

Cash flow from operating activities before changes in working capital and use of provisions

   13 230      7 935   

Change in working capital

   787      177   

Pension contributions and use of provisions

   (548   (490

Interest and taxes (paid)/received

   (4 345   (2 089
            

Cash flow from operating activities

   9 124      5 533   

Investing activities

    

Net capex

   (1 386   (2 424

Acquisition and sale of subsidiaries and associates, net of cash acquired/disposed of, and purchase of non-controlling interest

   4 586      (52 432

Proceeds from the sale of associates and assets held for sale

   1 813      89   

Other

   256      (111
            

Cash flow from investing activities

   5 269      (54 878

Financing activities

    

Dividends paid

   (1 313   (2 922

Net purchase of treasury shares

   —        (797

Net (payments) on/proceeds from borrowings

   (11 793   44 472   

Net proceeds from the issue of share capital

   76      9 764   

Other

   (66   (638
            

Cash flow from financing activities

   (13 096   49 879   

Net increase/(decrease) in cash and cash equivalents

   1 297      534   

 

 

1

Turnover less excise taxes. In many jurisdictions, excise taxes make up a large proportion of the cost of beer charged to our customers.

 

3


Financial performance

To facilitate the understanding of AB InBev’s underlying performance, the comments in this management report, unless otherwise indicated, are based on organic and normalized numbers. “Organic” means the financials are analyzed eliminating the impact of changes in currencies on translation of foreign operations, and scopes. Scopes represent the impact of acquisitions and divestitures, the start up or termination of activities, curtailment gains and losses, or the transfer of activities between segments. Whenever used in this report, the term “normalized” refers to performance measures (EBITDA, EBIT, Profit, EPS) before non-recurring items.

Given the transformational nature of the transaction with Anheuser-Busch, AB InBev is presenting in this management report the 2008 consolidated volumes and results up to Normalized EBIT on a combined basis (including financials of Anheuser-Busch for the 12 months of 2008 in the comparative base) and as such these financials are included in the organic growth calculations. The profit, cash flow and balance sheet are presented as reported in 2008.

Both from an accounting and managerial perspective, AB InBev is organized along seven business zones. Upon the acquisition of Anheuser-Busch, the Anheuser-Busch businesses are reported according to their geographical presence in the following segments: the US beer business and Modelo are reported in zone North America, the UK business is reported in zone Western Europe, the Harbin, Budweiser China business and Tsingtao are reporting in zone Asia Pacific and the Export, Entertainment and Packaging businesses are reported in the Global Export and Holding Companies segment.

 

AB INBEV WORLDWIDE

   2008
Combined
    Scope1     Currency
translation
    Organic
growth
    2009     Organic
growth %
 

Volumes (thousand hectoliters)

   416 113      (4 739   —        (2 771   408 603      (0.7 )% 

Revenue

   39 158      (675   (2 680   956      36 758      2.5

Cost of sales

   (19 443   501      1 106      638      (17 198   3.4

Gross profit

   19 715      (174   (1 575   1 594      19 560      8.2

Distribution expenses

   (3 454   (10   279      513      (2 671   14.9

Sales & marketing expenses

   (5 364   85      398      (111   (4 992   (2.1 )% 

Administrative expenses

   (2 270   (31   180      (190   (2 310   (8.2 )% 

Other operating income/(expenses)

   496      158      (40   47      661      9.7

Normalized EBIT

   9 122      29      (758   1 854      10 248      20.8

Normalized EBITDA

   12 067      (13   (977   1 960      13 037      16.6

Normalized EBITDA margin

   30.8         35.5   415  bp 

In 2009 AB InBev delivered EBITDA growth of 16.6%, while its EBITDA margin increased 415 bp, closing the year at 35.5%.

Consolidated volumes decreased 0.7% and soft drinks volume grew 2.7%. AB InBev’s focus brands grew 1.9%. Focus brands are those with the highest growth potential within each relevant consumer segment and where AB InBev makes the greatest marketing investment.

AB InBev’s revenue grew by 2.5% compared to the previous year.

AB InBev’s total Cost of Sales (CoS) for 2009 decreased 3.4% overall and 1.1% on a per hectoliter basis (excluding US entertainment and packaging activities) as the company benefited from procurement efficiencies, synergy programs and lower costs of non-hedgeable inputs.

 

 

1

See Glossary.

 

4


VOLUMES

The table below summarizes the volume evolution per zone and the related comments are based on organic numbers. Volumes include not only brands that AB InBev owns or licenses, but also third party brands that the company brews as a subcontractor and third party products that it sells through AB InBev’s distribution network, particularly in Western Europe. Volumes sold by the global export business are shown separately. The pro-rata stake of volumes in Modelo and Tsingtao are not included in the reported volumes.

 

Thousand hectoliters

   2008
Combined
   Scope     Organic
growth
    2009    Organic
growth %
 

North America

   140 558    (3 116   (2 798   134 644    (2.0 )% 

Latin America North

   101 519    (608   8 883      109 794    8.8

Latin America South

   33 698    920      (1 299   33 319    (3.8 )% 

Western Europe

   34 969    54      (1 716   33 306    (4.9 )% 

Central and Eastern Europe

   46 142    (1 119   (4 845   40 178    (10.8 )% 

Asia Pacific

   56 438    (2 911   (1 041   52 486    (2.0 )% 

Global Export and Holding Companies

   2 788    2 041      46      4 875    1.0
                            

AB InBev Worldwide

   416 113    (4 739   (2 771   408 603    (0.7 )% 

North America 2009 volumes decreased 2.0%. In the United States, shipment volumes declined 2.0%. Domestic US beer selling-day adjusted sales-to-retailers (STRs) decreased 1.9%, in line with a softer industry. STR market share of 48.9% was on par with last year, as we faced tough comparables reflecting the successful introductions of Bud Light Lime mid 2008. In Canada, beer volumes fell 1.1% in 2009 due to a weak industry environment and market share loss. Despite industry slowdown and significant competitive activity across Canada, AB InBev continued to invest behind its Focus Brands and innovation.

Latin America North delivered strong volume growth of 8.8% in 2009, with beer volume growth of 9.2% and soft drinks increasing 7.8%. In Brazil, beer volume grew 9.9% in 2009 as a result of improved economic conditions and market share gains. The market share gains resulted from a strong market reception to AB InBev’s packaging innovations such as the 1 liter bottle and the 269 ml can, as well as product innovation, notably Antarctica Sub Zero. In 2009, AB InBev recorded market share gains of 120 bps, reaching 68.7%.

Latin America South 2009 volumes declined 3.8% amidst an industry slowdown across most markets. Volumes of non-alcoholic beverages fell 7.4%. In Argentina, beer volumes decreased 0.3% in 2009 resulting from a weak industry performance. However, AB InBev’s premium brands continued to perform well. Stella Artois grew 19.8% in 2009, fueled by new campaigns extending the brand’s growth momentum. AB InBev’s 2009 market share came in slightly ahead of last year.

Western Europe own beer volumes in 2009 declined 2.4%, while total volumes including subcontracted volumes declined 4.9% largely due to a contracting industry. Own beer volumes in Belgium fell 1.1% in 2009. In Germany, own beer volumes fell 4.9% in 2009, driven largely by a deteriorating industry and aggressive competitor pricing leading to market share loss. In the United Kingdom, own beer volumes decreased 2.7% in 2009. Full year volume growth of AB InBev’s Focus Brands was more than offset by continuing decline in the on-trade industry, coupled with a decline in the off-trade, after several years of expansion.

Central and Eastern Europe volumes decreased 10.8% in 2009 reflecting industry declines in all countries. In Russia, volumes declined 13.1% in 2009. Market share losses in 2009 resulted primarily from AB InBev’s strategic de-emphasis of the value segment. In Ukraine, beer volumes fell 4.8% in 2009.

Asia Pacific volumes declined 2.0% in 2009, with China volumes down 2.4%, and volumes in Korea contributing with 3.4% volume growth prior to the business divestiture. AB InBev’s Chinese Focus Brands Budweiser and Harbin delivered volume growth of 12.1% and 9.3%, respectively.

OPERATING ACTIVITIES BY ZONE

The tables below provide a summary of the performance of each geographical zone, in million US dollar, except volumes in thousand hectoliters.

 

AB INBEV WORLDWIDE

   2008
Combined
    Scope     Currency
translation
    Organic
growth
    2009     Organic
growth %
 

Volumes

   416 113      (4 739   —        (2 771   408 603      (0.7 )% 

Revenue

   39 158      (675   (2 680   956      36 758      2.5

Cost of sales

   (19 443   501      1 106      638      (17 198   3.4

Gross profit

   19 715      (174   (1 575   1 594      19 560      8.2

Distribution expenses

   (3 454   (10   279      513      (2 671   14.9

Sales & marketing expenses

   (5 364   85      398      (111   (4 992   (2.1 )% 

Administrative expenses

   (2 270   (31   180      (190   (2 310   (8.2 )% 

Other operating income/(expenses)

   496      158      (40   47      661      9.7

Normalized EBIT

   9 122      29      (758   1 854      10 248      20.8

Normalized EBITDA

   12 067      (13   (977   1 960      13 037      16.6

Normalized EBITDA margin

   30.8         35.5   415  bp 

 

5


NORTH AMERICA

   2008
Combined
    Scope     Currency
translation
    Organic
growth
    2009     Organic
growth %
 

Volumes

   140 558      (3 116   —        (2 798   134 644      (2.0 )% 

Revenue

   15 571      —        (180   95      15 486      0.6

Cost of sales

   (7 948   57      49      317      (7 525   4.0

Gross profit

   7 623      57      (130   412      7 961      5.4

Distribution expenses

   (1 128   —        33      304      (792   26.9

Sales & marketing expenses

   (1 794   —        20      80      (1 694   4.5

Administrative expenses

   (869   (43   11      265      (636   28.5

Other operating income/(expenses)

   (62   158      —        (42   54      (61.8 )% 

Normalized EBIT

   3 769      172      (67   1 019      4 894      27.5

Normalized EBITDA

   4 697      172      (77   1 076      5 868      23.2

Normalized EBITDA margin

   30.2         37.9   669  bp 

LATIN AMERICA NORTH

   2008
Combined
    Scope     Currency
translation
    Organic
growth
    2009     Organic
growth %
 

Volumes

   101 519      (608   —        8 883      109 794      8.8

Revenue

   7 664      (6   (982   972      7 649      12.7

Cost of sales

   (2 634   (1   309      (162   (2 487   (6.2 )% 

Gross profit

   5 031      (6   (673   810      5 161      16.1

Distribution expenses

   (916   3      96      35      (781   3.9

Sales & marketing expenses

   (838   —        126      (305   (1 016   (36.7 )% 

Administrative expenses

   (418   —        69      (202   (551   (48.6 )% 

Other operating income/(expenses)

   208      1      (32   66      243      32.0

Normalized EBIT

   3 067      (2   (414   404      3 056      13.1

Normalized EBITDA

   3 540      5      (468   415      3 492      11.7

Normalized EBITDA margin

   46.2         45.7   (39 ) bp 

LATIN AMERICA SOUTH

   2008
Combined
    Scope     Currency
translation
    Organic
growth
    2009     Organic
growth %
 

Volumes

   33 698      920      —        (1 299   33 319      (3.8 )% 

Revenue

   1 855      35      (277   286      1 899      15.3

Cost of sales

   (782   (21   112      (44   (735   (5.6 )% 

Gross profit

   1 073      14      (166   242      1 163      22.5

Distribution expenses

   (145   (5   27      (43   (166   (28.7 )% 

Sales & marketing expenses

   (191   (2   28      (17   (182   (8.8 )% 

Administrative expenses

   (72   (1   9      (9   (73   (12.4 )% 

Other operating income/(expenses)

   11      —        1      (24   (12   (212.7 )% 

Normalized EBIT

   676      6      (101   150      731      22.3

Normalized EBITDA

   808      6      (123   184      875      22.8

Normalized EBITDA margin

   43.5         46.1   280  bp 

WESTERN EUROPE

   2008
Combined
    Scope     Currency
translation
    Organic
growth
    2009     Organic
growth %
 

Volumes

   34 969      54      —        (1 716   33 306      (4.9 )% 

Revenue

   4 967      (94   (479   (82   4 312      (1.7 )% 

Cost of sales

   (2 354   47      256      89      (1 962   3.9

Gross profit

   2 613      (46   (223   7      2 351      0.3

Distribution expenses

   (615   13      48      97      (457   16.1

Sales & marketing expenses

   (1 001   5      82      116      (798   11.6

Administrative expenses

   (348   (2   37      (76   (389   (21.6 )% 

Other operating income/(expenses)

   (143   24      (6   19      (107   15.0

Normalized EBIT

   505      (7   (61   162      599      32.7

Normalized EBITDA

   976      (9   (98   114      983      11.8

Normalized EBITDA margin

   19.6         22.8   266  bp 

CENTRAL AND EASTERN EUROPE

   2008
Combined
    Scope     Currency
translation
    Organic
growth
    2009     Organic
growth %
 

Volumes

   46 142      (1 119   —        (4 845   40 178      (10.8 )% 

Revenue

   3 267      (93   (707   24      2 492      0.8

Cost of sales

   (1 693   45      361      93      (1 194   5.7

Gross profit

   1 573      (47   (346   117      1 298      7.7

Distribution expenses

   (410   10      67      92      (241   23.0

Sales & marketing expenses

   (660   26      131      18      (485   2.9

Administrative expenses

   (176   4      36      (34   (171   (20.1 )% 

Other operating income/(expenses)

   (132   —        (3   14      (121   10.6

Normalized EBIT

   196      (8   (114   207      281      110.4

Normalized EBITDA

   571      (20   (207   255      599      46.3

Normalized EBITDA margin

   17.5         24.1   763  bp 

 

6


ASIA PACIFIC

   2008
Combined
    Scope     Currency
translation
    Organic
growth
    2009     Organic
growth %
 

Volumes

   56 438      (2 911   —        (1 041   52 486      (2.0 )% 

Revenue

   2 285      (308   (35   43      1 985      2.2

Cost of sales

   (1 258   186      8      12      (1 052   1.2

Gross profit

   1 027      (122   (27   56      933      6.2

Distribution expenses

   (105   (41   4      —        (142   —     

Sales & marketing expenses

   (589   37      3      8      (542   1.6

Administrative expenses

   (116   1      1      (28   (142   (24.9 )% 

Other operating income/(expenses)

   26      (5   1      14      36      78.3

Normalized EBIT

   243      (131   (17   49      144      40.4

Normalized EBITDA

   452      (148   (16   61      349      19.7

Normalized EBITDA margin

   19.8         17.6   225  bp 

GLOBAL EXPORT AND HOLDING COMPANIES

   2008
Combined
    Scope     Currency
translation
    Organic
growth
    2009     Organic
growth %
 

Volumes

   2 788      2 041      —        46      4 875      1.0

Revenue

   3 548      (211   (20   (382   2 936      (11.5 )% 

Cost of sales

   (2 774   187      11      332      (2 243   12.9

Gross profit

   774      (23   (9   (49   692      (6.6 )% 

Distribution expenses

   (135   12      3      28      (93   22.5

Sales & marketing expenses

   (289   19      7      (12   (275   (4.6 )% 

Administrative expenses

   (271   11      17      (105   (349   (40.1 )% 

Other operating income/(expenses)

   589      (19   (1   —        568      —     

Normalized EBIT

   667      (1   16      (138   543      (20.7 )% 

Normalized EBITDA

   1 024      (20   12      (145   870      (14.5 )% 

REVENUE

Full year 2009 consolidated revenue grew 2.5% to 36 758m US dollar. The increase in revenue per hectoliter of 4.5% largely reflects selective price increases to offset higher costs incurred in 2008.

COST OF SALES

Consolidated cost of sales (“CoS”) for 2009 decreased 3.4% overall and 1.1% per hectoliter, driven by procurement best practices, synergies in the US and gains in Asia Pacific, while Latin America South and Central and Eastern Europe continued to face higher CoS/hl compared to last year. In addition, CoS benefited from favorable transactional currency impact and, to lesser extent, from falling spot prices for non-hedgeable input costs.

OPERATING EXPENSES

Operating expenses decreased 2.5% in 2009.

Distribution expenses decreased 14.9% in 2009, driven by lower fuel and transportation costs, synergy generation and reduction of out-of-pattern distribution expenses in the US, and lower tariffs in Central and Eastern Europe.

Sales and marketing expenses increased 2.1% in 2009, with higher second half investments partly offset by a reduction of non-working money through the synergy program as well as media deflation in key markets.

Administrative expenses increased 8.2% in 2009 as ZBB (zero based budgeting) savings were offset by higher accruals for variable compensation compared to 2008, when the people in Global Export and Holding Companies and most zones did not receive any variable compensation as a result of the business performance at that time.

Other operating income/expenses increased 9.7% to 661m US dollar in 2009.

NORMALIZED PROFIT FROM OPERATIONS BEFORE DEPRECIATION AND AMORTIZATION (NORMALIZED EBITDA)

2009 EBITDA grew 16.6% to 13 037m US dollar, with EBITDA margin of 35.5% compared to 30.8% in 2008 on a combined basis, up 415 bp organically.

 

   

North America organic EBITDA increase of 23.2% to 5 868m US dollar in 2009. EBITDA margin improved from 30.2% in 2008 on a combined basis to 37.9% in 2009, attributable to synergy savings and operational discipline;

 

   

Latin America North EBITDA rose 11.7% to 3 492m US dollar with a slight EBITDA margin contraction of 39 bp to 45.7%, as strong revenue growth and cost management was offset by higher marketing expenses;

 

   

Latin America South EBITDA rose 22.8% to 875m US dollar in 2009, primarily from revenue growth, offset by higher sales and marketing expenses on the back of commercial campaigns, and increased distribution expenses;

 

   

Western Europe EBITDA increased 11.8% to 983m US dollar, and the EBITDA margin improved 266 bp to 22.8% due to reduced distribution expenses and sales and marketing savings including media cost deflation;

 

   

Central and Eastern Europe EBITDA grew 46.3% to 599m US dollar with margin improvement from 17.5% to 24.1%, driven by higher prices, lower CoS and distribution expenses due to lower transport tariffs, and successful logistic optimization projects;

 

7


   

Asia Pacific achieved EBITDA growth of 19.7% to 349m US dollar driven by gross margin expansion and operational efficiencies. Zone EBITDA margin was 17.6%, up 225 bp from last year with Oriental Brewery reflected in normalized full year figures until disposal;

 

   

Global Export and Holding Companies, reported an EBITDA of 870m US dollar in 2009, a decrease of 145m US dollar year over year.

RECONCILIATION BETWEEN NORMALIZED EBITDA AND PROFIT ATTRIBUTABLE TO EQUITY HOLDERS

Normalized EBITDA and EBIT are measures utilized by AB InBev to demonstrate the company’s underlying performance.

Normalized EBITDA is calculated excluding the following effects from profit attributable to equity holders of AB InBev: (i) Non-controlling interest, (ii) Income tax expense, (iii) Share of results of associates, (iv) Net finance cost, (v) Non-recurring net finance cost, (vi) Non-recurring items and (vii) Depreciation, amortization and impairment.

Normalized EBITDA and EBIT are not accounting measures under IFRS accounting and should not be considered as an alternative to Profit attributable to equity holders as a measure of operational performance or an alternative to cash flow as a measure of liquidity. Normalized EBITDA and EBIT do not have a standard calculation method and AB InBev’s definition of Normalized EBITDA and EBIT may not be comparable to that of other companies.

 

Million US dollar

   Notes    2009     2008
Reported
 

Profit attributable to equity holders of AB InBev

      4 613      1 927   

Non-controlling interest

      1 264      1 199   

Profit

      5 877      3 126   

Income tax expense

   12    1 786      674   

Share of result of associates

      (513   (60

Non-recurring net finance cost

   8    629      187   

Net finance cost

      3 790      1 413   

Non-recurring items

   8    (1 321   558   

Normalized EBIT

      10 248      5 898   

Depreciation, amortization and impairment

      2 789      1 913   

Normalized EBITDA

      13 037      7 811   

PROFIT

Normalized profit attributable to equity holders of Anheuser-Busch InBev was 3 927m US dollar (normalized EPS 2.48 US dollar) in 2009, compared to 2 511m US dollar in 2008. On a reported basis, profit attributable to equity holders of AB InBev for 2009 was 4 613m US dollar, which included the following impacts:

 

   

Net finance cost: 3 790m US dollar (versus 1 413m US dollar in 2008). The increase is mainly explained by the interest charges on the existing Anheuser-Busch debt, the interest charges on the senior facilities to fund the acquisition of Anheuser-Busch and the amortization of the arrangement fees paid on the senior facilities;

 

   

Non-recurring net finance cost: 629m US dollar was recognized as a non-recurring financial expense. As a result of the early repayment of the senior facilities AB InBev incurred hedging losses of 474m US dollar due to interest rate swaps that are no longer considered effective and 145m US dollar of accelerated accretion expenses. Additionally, AB InBev incurred hedging losses of 10m US dollar on hedges that are no longer effective due to the sale of its Central European business;

 

   

Share of result of associates: 513m US dollar (versus 60m US dollar in 2008) is mainly due to the full year recognition of the result of AB InBev’s investment in Modelo, following the acquisition of Anheuser-Busch in 2008;

 

   

Income tax expense: 1 786m US dollar with an effective tax rate of 25.0 % (versus 18.0% in 2008). The primary impact on income tax expense was due to the acquisition of Anheuser-Busch, which has a nominal tax rate of 40%. This increase was slightly offset by non-taxable and low taxable gains on disposals during the year;

 

   

Profit attributable to non-controlling interest: 1 264m US dollar compared to 1 199m US dollar in 2008.

IMPACT OF FOREIGN CURRENCIES

Foreign currency exchange rates have a significant impact on AB InBev’s financial statements. The following table sets forth the percentage of its revenue realized by currency for the years ended 31 December 2009 and 2008 combined:

 

     2009     2008
Combined
 

US dollars

   44.3   43.1

Brazilian real

   19.8   18.7

Euro

   8.5   8.9

Canadian dollars

   5.3   5.1

Chinese yuan

   4.7   4.1

Pound sterling

   3.8   4.3

Russian ruble

   3.1   4.0

Argentinean peso

   3.1   3.0

The fluctuation of the foreign currency rates had a negative translation impact on AB InBev’s 2009 revenue of 2 680m US dollar (versus a positive impact in 2008 of 1 159m US dollar), Normalized EBITDA of 977m US dollar (versus a positive impact in 2008 of 459m US dollar) and Normalized EBIT of 758m US dollar (versus a positive impact in 2008 of 359m US dollar).

 

8


AB InBev’s profit (after tax) has been negatively affected by the fluctuation of foreign currencies for 599m US dollar (versus a positive impact in 2008 of 218m US dollar), while the negative translation impact on its EPS base (profit attributable to equity holders of AB InBev) was 441m US dollar or (0.28) per share (versus a positive impact in 2008 of 122m US dollar or 0.12 per share).

The impact of the fluctuation of the foreign currencies on AB InBev’s net debt is 897m US dollar (increase of net debt) and on its equity 2 216m US dollar (increase of equity). In 2008 there was an impact of 1 030m US dollar (increase of net debt) and (3 866)m US dollar (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

AB InBev’s cash flow from operating activities increased from 5 533m US dollar in 2008 to 9 124m US dollar in 2009, mainly explained by the higher profit following the acquisition of Anheuser-Busch, as well as strong working capital management, partly offset by an increase in interests and taxes paid. 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 contributed 787m US dollar to the operational cash flow in 2009. This change includes (578)m US dollar cash outflow from derivatives. Excluding the impact of the derivatives, the change in working capital would have resulted in a 1 365m US dollar cash impact.

The evolution of the cash used in investment activities from (54 878)m US dollar in 2008 to 5 269m US dollar in 2009 mainly results from the cash outflow from the combination with Anheuser-Busch in 2008 followed by the cash inflow from the disposal program AB InBev executed in 2009. Pursuant to this disposal program AB InBev divested during 2009 its 27 % stake in Tsingtao (China), Oriental Brewery (Korea), four metal beverage can lid manufacturing plants from the US metal packaging subsidiary, Busch Entertainment Corporation, the Central European Operations, the Tennent’s Lager brand and associated trading assets in Scotland, Northern Ireland and the Republic of Ireland and the Labatt USA distribution rights. Further details on the acquisition of Anheuser-Busch and on the acquisitions and disposals of other subsidiaries and on the purchase of non-controlling interests are disclosed respectively in Note 6 Acquisitions and disposals of subsidiaries and in Note 14 Goodwill. Further detail on the disposal of assets and investments in associates are disclosed respectively in Note 22 Assets and Liabilities held for sale and in Note 16 Investment in associates.

AB InBev’s net capital expenditures amounted to 1 386m US dollar in 2009 and 2 424m US dollar in 2008. Out of the total capital expenditures of 2009 approximately 47% was used to improve its production facilities while 43% was used for logistics and commercial investments. Approximately 10% was used for improving administrative capabilities and purchase of hardware and software.

The cash outflow from AB InBev’s financing activities amounted to (13 096)m US dollar in 2009, mainly reflecting the effects of its deleveraging program. In 2008, there was a cash inflow of 49 879m US dollar reflecting the funding of the combination with Anheuser-Busch.

AB InBev’s cash and cash equivalents less bank overdrafts as at 31 December 2009 amounted to 3 661m US dollar. As of 31 December 2009, the company had an aggregate of 1 029m US dollar available under committed short-term credit facilities and an aggregate of 4 965m US dollar available under committed long-term credit facilities. Although AB InBev may borrow such amounts to meet its liquidity needs, the company principally relies on cash flows from operating activities to fund its continuing operations.

CAPITAL RESOURCES AND EQUITY

AB InBev’s net debt decreased to 45 174m US dollar as of 31 December 2009, from 56 660m US dollar as of 31 December 2008.

Apart from operating results net of capital expenditures, the net debt is impacted by the net proceeds from the sale of associates, subsidiaries and assets (7 372m US dollar), dividend payments to shareholders of AB InBev (598m US dollar); dividend payments to non-controlling shareholders of AmBev (680m US dollar); the payment to former shareholders of Anheuser-Busch and transaction costs (579m US dollar); and the impact of changes in foreign exchange rates (897m US dollar increase of net debt).

To finance the acquisition of Anheuser-Busch, AB InBev entered into a 45 billion US dollar senior facilities agreement (of which 44 billion US dollar was ultimately drawn) 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. As of December 2009, AB InBev has refinanced approximately 27 billion US dollar of the 44 billion US dollar debt incurred under the senior credit facility with the proceeds of several debt capital markets offerings and the proceeds from the disposal program.

 

9


Net debt to normalized EBITDA as of 31 December 2009 was 3.7 on the Reference base, i.e. calculating EBITDA as if all divestitures had closed on 1 January 2009 – see also further Adjusted segment information.

Consolidated equity attributable to equity holders of AB InBev as at 31 December 2009 was 30 318m US dollar, compared to 22 442m US dollar at the end of 2008. The combined effect of the strengthening of mainly the closing rates of the Brazilian real, the Canadian dollar, the euro, the pound sterling and the Mexican peso and the weakening of mainly the closing rates of the Argentinean peso, the Chinese yuan and the Russian ruble resulted in a foreign exchange translation adjustment of 2 216m US dollar. Further details on equity movements can be found in the consolidated statement of changes in equity.

Further details on interest bearing loans and borrowings, repayment schedules and liquidity risk, are disclosed in Note 24 Interest-bearing loans and borrowings and Note 29 Risks arising from financial instruments.

Research and development

Given its focus on innovation, AB InBev places a high value on research and development. In 2009 AB InBev expensed 159m US dollar in research and development, compared to 75m US dollar in 2008. 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.

Risks and uncertainties

Under the explicit understanding that this is not an exhaustive list, AB InBev’s major risk factors and uncertainties are listed below. There may be additional risks which AB InBev is unaware of. There may also be risks AB InBev now believes to be immaterial, but which could turn out to have a material adverse effect. The sequence in which the risk factors are presented below is not indicative of their likelihood of occurrence or of the potential magnitude of their financial consequence.

RISKS RELATING TO AB INBEV AND THE BEER AND BEVERAGE INDUSTRY

AB InBev relies on the reputation of its brands and its success depends on its ability to maintain and enhance the image and reputation of its existing products and to develop a favorable image and reputation for new products. An event, or series of events, that materially damages the reputation of one or more of AB InBev’s brands could have an adverse effect on the value of that brand and subsequent revenues from that brand or business. Further, any restrictions on the permissible advertising style, media and messages used or the introduction of similar restrictions may constraint AB InBev’s brand building potential and thus reduce the value of its brands and related revenues.

AB InBev may not be able to protect its current and future brands and products and defend its intellectual property rights, including trademarks, patents, domain names, trade secrets and know-how, which could have a material adverse effect on its business, results of operations, cash flows or financial condition, and in particular, on AB InBev’s ability to develop its business.

Certain of AB InBev’s operations depend on independent distributors’ or wholesalers’ efforts to sell AB InBev’s products and there can be no assurance that such distributors will not give priority to AB InBev’s competitors. Further, any inability of AB InBev to replace unproductive or inefficient distributors could adversely impact AB InBev’s business, results of operations and financial condition.

Changes in the availability or price of raw materials, commodities and energy could have an adverse effect on AB InBev’s results of operations.

 

10


AB InBev relies on key third parties, including key suppliers for a range of raw materials for beer and soft drinks, and for packaging material. The termination of or material change to arrangements with certain key suppliers or the failure of a key supplier to meet its contractual obligations could have a material impact on AB InBev’s production, distribution and sale of beer and have a material adverse effect on AB InBev’s business, results of operations, cash flows or financial condition.

Competition in its various markets could cause AB InBev to reduce pricing, increase capital investment, increase marketing and other expenditures, prevent AB InBev from increasing prices to recover higher cost and thereby cause AB InBev to reduce margins or lose market share, any of which could have a material adverse effect on AB InBev’s business, financial condition and results of operations.

The consolidation of retailers could result in reduced profitability for the beer industry as a whole and indirectly adversely affects AB InBev’s financial results.

AB InBev could incur significant costs as a result of compliance with, and/or violations of or liabilities under, various regulations that govern AB InBev’s operations. Also, public concern about beer consumption and any resulting restrictions may cause the social acceptability of beer to decline significantly and consumption trends to shift away from beer to non-alcoholic beverages, which would have a material adverse effect on AB InBev’s business, financial condition and results of operations.

AB InBev’s operations are subject to environmental regulations, which could expose it to significant compliance costs and litigation relating to environmental issues.

Antitrust and competition laws and changes in such laws or in the interpretation and enforcement thereof as well as being subject to regulatory scrutiny, could have a material adverse effect on AB InBev’s business. In particular, the terms and conditions of any authorizations, approvals and/or clearances still to be obtained, or any of the proceedings or actions that seek equitable or other relief that affects the combination of InBev with Anheuser-Busch and its operations in specific jurisdictions or its ability or that of its subsidiaries to exercise rights under existing agreements, or that may require AB InBev to take other actions, including the divestiture of any of its assets or businesses, could diminish substantially the synergies and the advantages which AB InBev expects from the Anheuser-Busch acquisition, and have a material adverse effect on AB InBev and on the trading price of its securities.

Negative publicity regarding AB InBev’s products (e.g. because of concerns over alcoholism, under age drinking or obesity) or publication of studies indicating a significant risk in using AB InBev’s products generally or changes in consumer perceptions in relation to AB InBev’s products could adversely affect the sale and consumption of AB InBev’s products and could have a material adverse effect on its business, results of operations, cash flows or financial condition.

Demand for AB InBev’s products may be adversely affected by changes in consumer preferences and tastes. Consumer preferences and tastes can change in unpredictable ways. Failure by AB InBev to anticipate or respond adequately to changes in consumer preferences and tastes could adversely impact AB InBev’s business, results of operations and financial condition.

The beer and beverage industry may be subject to changes in taxation, which makes up a large proportion of the cost of beer charged to consumers in many jurisdictions. Increases in taxation tend to reduce overall consumption and encourage consumers to switch to lower-taxed categories of beverages. An increase in beer excise taxes or other taxes could adversely affect the financial results of AB InBev as well as its results of operations.

Seasonal consumption cycles and adverse weather conditions in the markets in which AB InBev operates may result in fluctuations in demand for AB InBev’s products and therefore may have an adverse impact on AB InBev’s business, results of operations and financial condition.

AB InBev is exposed to emerging market risks as a proportion of AB InBev’s operations are carried out in emerging European, Asian and Latin American markets, which could adversely impact AB InBev’s business, results of operations and financial condition.

If any of AB InBev products is defective or found to contain contaminants, AB InBev may, despite of it having certain product liability insurance policies in place, be subject to product recalls or other liabilities, which could adversely impact its business, results of operations and financial condition.

AB InBev may not be able to obtain the necessary funding for its future capital or refinancing needs and it faces financial risks due to its level of debt and uncertain market conditions. AB InBev may be required to raise additional funds for AB InBev’s future capital needs or refinance its current indebtedness through public or private financing, strategic relationships or other arrangements and there can be no assurance that the funding, if needed, will be available on attractive terms. AB InBev has incurred substantial indebtedness in connection with the Anheuser-Busch acquisition. AB InBev financed the Anheuser-Busch acquisition in part with fully committed credit facilities. Although AB InBev repaid the debt incurred under the bridge facility and it refinanced a portion of the debt incurred under the senior acquisition facilities, AB InBev will still have an increased level of debt after the acquisition, which could have significant adverse consequences on AB InBev, including (i) increasing its vulnerability to general adverse economic and industry conditions, (ii) limiting its ability to fund future working capital and capital expenditure, to engage in future acquisitions or developmental activities or to otherwise fully realize the value of its assets and opportunities, (iii) limiting its flexibility in planning for, or reacting to, changes in its business and the industry in which AB InBev operates; (iv) impairing its ability to obtain additional financing in the future and (v) requiring AB InBev to issue additional equity (potentially under unfavorable market conditions). AB InBev could also be at a competitive disadvantage compared to other companies that have less debt. AB InBev’s ability to repay its outstanding indebtedness will be partially dependent upon market conditions. Unfavorable conditions could increase costs beyond what is currently anticipated and these costs could have a material adverse impact on AB InBev’s cash flows, results of operations or both. Further, AB InBev expects to reduce the amount of dividends it will pay in the first two to three years after the closing of the acquisition, and may have to make further reductions or reduce dividends for a longer period as a result of management’s strategy to reduce the leverage of AB InBev and its increased level of debt and the effect of the financial covenants in its debt facilities entered into to fund the acquisition. Further, rating agencies may downgrade AB InBev’s credit ratings below its current levels as a result of the merger and the incurrence of the related financial indebtedness, and this would adversely affect AB InBev’s refinancing capacity and business. In addition, AB InBev’s failure to raise additional equity capital or debt financing or to realize proceeds from asset sales when needed could adversely impact its business, results of operations and financial condition.

 

11


AB InBev’s results could be negatively affected by increasing interest rates. Although AB InBev enters into interest rate swap agreements to manage its interest rate risk and also enters into cross-currency interest rate swap agreements to manage both its foreign currency risk and interest-rate risk on interest-bearing financial liabilities, there can be no assurance that such instruments will be successful in reducing the risks inherent in exposures to interest rate fluctuations.

AB InBev results of operations are affected by fluctuations in exchange rates. Any change in exchange rates between AB InBev’s operating companies’ functional currencies and the US dollar will affect its consolidated income statement and balance sheet when the results of those operating companies are translated into US dollars for reporting purposes. Also, there can be no assurance that the policies in place to manage commodity price and foreign currency risks to protect AB InBev’s exposure will be able to successfully hedge against the effects of such foreign exchange exposure, particularly over the long-term. Further, financial instruments to mitigate currency risk and any other efforts taken to better match the effective currencies of AB InBev’s liabilities to its cash flows could result in increased costs.

The ability of AB InBev’s subsidiaries to distribute cash upstream may be subject to various conditions and limitations. The inability to obtain sufficient cash flows from its domestic and foreign subsidiaries and affiliated companies could adversely impact AB InBev’s ability to pay its substantially increased debt resulting from the Anheuser-Busch acquisition and otherwise negatively impact its business, results of operations and financial condition.

Failure to generate significant cost savings and margin improvement through initiatives for improving operational efficiency could adversely affect AB InBev’s profitability and AB InBev’s ability to achieve its financial goals.

The integration process resulting from the acquisition involves inherent costs and uncertainties, and there is no assurance that the acquisition will achieve the business growth opportunities, cost savings, increased profits, synergies and other benefits that AB InBev currently anticipates.

AB InBev may not be able to successfully carry out further acquisitions and business integrations or restructuring.

If the combination of the businesses meets with unexpected difficulties, or if the business of AB InBev does not develop as expected, impairment charges on goodwill or other intangible assets may be incurred in the future which could be significant and which could have an adverse effect on AB InBev’s results of operations and financial condition.

Although AB InBev’s operations in Cuba are quantitatively immaterial, its overall business reputation may suffer or it may face additional regulatory scrutiny as a result of its activities in Cuba based on its identification as a state sponsor of terrorism and target of US economic and trade sanctions. If investors decide to liquidate or otherwise divest their investments in companies that have operations of any magnitude in Cuba, the market in and value of AB InBev’s securities could be adversely impacted.

AB InBev may not be able to recruit or retain key personnel and successfully manage them, which could disrupt AB InBev’s business and have an unfavorable material effect on AB InBev’s financial position, its income from operations and its competitive position.

Further, AB InBev may be exposed to labor strikes, disputes and work stoppages or slowdown, within its operations or those of its suppliers, or an interruption or shortage of raw materials for any other reason that could lead to a negative impact on AB InBev’s costs, earnings, financial condition, production level and ability to operate its business. The reorganization and restructuring of AB InBev’s business to meet current market challenges or as a result of the Anheuser-Busch acquisition has indeed led to a more strained relationship with unions in some of its operations. AB InBev’s production may also be affected by work stoppages or slowdowns that effect its suppliers, as a result of disputes under existing collective labor agreements with labor unions, in connection with negotiations of new collective labor agreements, as a result of supplier financial distress, or for other reasons. A work stoppage or slowdown at AB InBev’s facilities could interrupt the transport of raw materials from its suppliers or the transport of its products to its customers. Such disruptions could put a strain on AB InBev’s relationships with suppliers and clients and may have lasting effects on its business even after the disputes with its labor force have been resolved, including as a result of negative publicity.

Information technology failures or interruptions could disrupt AB InBev’s operations and could have a material adverse effect on AB InBev’s business, results of operations, cash flows or financial condition.

AB InBev’s business and operating results could be negatively impacted by social, technical, natural, physical or other disasters.

AB InBev’s insurance coverage may not be sufficient. Should an uninsured loss or a loss in excess of insured limits occur, this could adversely impact AB InBev’s business, results of operations and financial condition.

AB InBev is exposed to the risk of a global recession or a recession in one or more of its key markets, and to credit and capital market volatility and economic and financial crisis, which could have an adverse effect on AB InBev’s ability to access capital, on AB InBev’s business, results of operations and financial condition and on the market price of AB InBev’s shares and ADSs, as beer consumption in many of the jurisdictions in which AB InBev operates is closely linked to general economic conditions and changes in disposable income.

AB InBev is now, and may in the future be, a party to legal proceedings and claims, including collective suits (class actions), and significant damages may be asserted against it. Given the inherent uncertainty of litigation, it is possible that AB InBev might incur liabilities as a consequence of the proceedings and claims brought against it, which could have a material adverse effect on AB InBev’s business, results of operations, cash flows or financial position. Important contingencies are disclosed in Note 32 Contingencies of the consolidated financial statements.

The uncertainties about the effects of the Anheuser-Busch acquisition could cause disruptions to AB InBev’s business and materially and adversely affect AB InBev’s businesses and operations.

 

12


RISKS ARISING FROM FINANCIAL INSTRUMENTS

Note 29 of the 2009 consolidated financial statements on Risks arising from financial instruments contain detailed information on the company’s exposures to financial risks and its risk management policies.

Events after the balance sheet date

Please refer to Note 34 Events after the balance sheet date of the consolidated financial statements.

Adjusted segment information

Effective from 1 January 2010 onward, AB InBev has updated its segment reporting for purposes of internal review by senior management. This presentation treats all divestitures as if they had closed on 1 January 2009. In addition, certain intra–group transactions, which were previously recorded in the zones, are recorded in the Global export and holding companies segment, thus with no impact at the consolidated level. The tables below provide the segment information per zone for 2009 in the format that will be used by management as of 2010 to monitor performance. The differences between the 2009 Reference base and the comparable 2009 audited income statement represent the effect of divestitures.

 

AB INBEV WORLDWIDE

   1Q 2009
Reference base
    2Q 2009
Reference base
    3Q 2009
Reference base
    4Q 2009
Reference base
    2009
Reference base
 

Volumes

   90 625      98 278      102 044      100 123      391 070   

Revenue

   7 568      8 459      8 808      9 026      33 862   

Cost of sales

   (3 559   (3 830   (4 013   (4 130   (15 532

Gross profit

   4 009      4 629      4 795      4 896      18 330   

Distribution expenses

   (563   (626   (657   (687   (2 533

Sales & marketing expenses

   (963   (1 096   (1 200   (1 359   (4 618

Administrative expenses

   (479   (559   (507   (682   (2 227

Other operating income/(expenses)

   74      269      115      191      649   

Normalized EBIT

   2 078      2 617      2 546      2 359      9 600   

Normalized EBITDA

   2 657      3 229      3 169      3 054      12 109   

Normalized EBITDA margin

   35.1   38.2   36.0   33.8   35.8

NORTH AMERICA

   1Q 2009
Reference base
    2Q 2009
Reference base
    3Q 2009
Reference base
    4Q 2009
Reference base
    2009
Reference base
 

Volumes

   32 750      35 641      35 275      29 927      133 593   

Revenue

   3 724      4 101      4 058      3 497      15 380   

Cost of sales

   (1 780   (1 870   (1 897   (1 708   (7 254

Gross profit

   1 944      2 231      2 162      1 789      8 125   

Distribution expenses

   (177   (215   (208   (178   (778

Sales & marketing expenses

   (381   (410   (461   (439   (1 691

Administrative expenses

   (151   (144   (155   (182   (633

Other operating income/(expenses)

   5      183      16      27      232   

Normalized EBIT

   1 240      1 645      1 354      1 017      5 255   

Normalized EBITDA

   1 465      1 882      1 583      1 295      6 225   

Normalized EBITDA margin

   39.3   45.9   39.0   37.0   40.5

LATIN AMERICA NORTH

   1Q 2009
Reference base
    2Q 2009
Reference base
    3Q 2009
Reference base
    4Q 2009
Reference base
    2009
Reference base
 

Volumes

   25 881      24 078      25 803      34 032      109 794   

Revenue

   1 556      1 555      1 838      2 699      7 649   

Cost of sales

   (504   (482   (615   (887   (2 488

Gross profit

   1 052      1 073      1 224      1 812      5 161   

Distribution expenses

   (161   (161   (194   (264   (781

Sales & marketing expenses

   (183   (231   (240   (362   (1 016

Administrative expenses

   (100   (132   (132   (188   (551

Other operating income/(expenses)

   40      50      63      91      244   

Normalized EBIT

   647      599      721      1 089      3 056   

Normalized EBITDA

   742      698      831      1 222      3 493   

Normalized EBITDA margin

   47.7   44.9   45.2   45.3   45.7

LATIN AMERICA SOUTH

   1Q 2009
Reference base
    2Q 2009
Reference base
    3Q 2009
Reference base
    4Q 2009
Reference base
    2009
Reference base
 

Volumes

   9 215      6 627      7 208      10 269      33 319   

Revenue

   507      376      419      597      1 899   

Cost of sales

   (193   (158   (170   (215   (736

Gross profit

   315      218      249      382      1 163   

Distribution expenses

   (42   (36   (37   (51   (166

Sales & marketing expenses

   (39   (38   (52   (53   (182

Administrative expenses

   (13   (21   (20   (19   (73

Other operating income/(expenses)

   (5   4      (4   (3   (7

Normalized EBIT

   216      128      135      257      735   

Normalized EBITDA

   250      163      172      294      879   

Normalized EBITDA margin

   49.3   43.5   41.0   49.2   46.3

 

13


WESTERN EUROPE

   1Q 2009
Reference base
    2Q 2009
Reference base
    3Q 2009
Reference base
    4Q 2009
Reference base
    2009
Reference base
 

Volumes

   6 549      8 902      8 784      8 098      32 333   

Revenue

   821      1 153      1 171      1 076      4 221   

Cost of sales

   (416   (526   (548   (546   (2 037

Gross profit

   405      627      623      530      2 184   

Distribution expenses

   (98   (107   (109   (103   (418

Sales & marketing expenses

   (192   (173   (192   (218   (775

Administrative expenses

   (83   (98   (79   (128   (389

Other operating income/(expenses)

   15      25      21      27      87   

Normalized EBIT

   46      273      264      107      690   

Normalized EBITDA

   136      366      362      208      1 072   

Normalized EBITDA margin

   16.6   31.7   30.9   19.3   25.4

CENTRAL AND EASTERN EUROPE

   1Q 2009
Reference base
    2Q 2009
Reference base
    3Q 2009
Reference base
    4Q 2009
Reference base
    2009
Reference base
 

Volumes

   5 508      8 440      7 714      5 792      27 454   

Revenue

   281      466      449      374      1 571   

Cost of sales

   (161   (226   (224   (209   (822

Gross profit

   120      240      225      164      749   

Distribution expenses

   (34   (46   (41   (35   (157

Sales & marketing expenses

   (47   (85   (78   (87   (297

Administrative expenses

   (22   (40   (26   (37   (126

Other operating income/(expenses)

   —        —        2      2      4   

Normalized EBIT

   17      68      82      7      174   

Normalized EBITDA

   62      121      137      66      385   

Normalized EBITDA margin

   21.9   26.0   30.4   17.5   24.5

ASIA PACIFIC

   1Q 2009
Reference base
    2Q 2009
Reference base
    3Q 2009
Reference base
    4Q 2009
Reference base
    2009
Reference base
 

Volumes

   9 285      13 095      16 068      10 465      48 914   

Revenue

   369      440      515      395      1 720   

Cost of sales

   (223   (242   (260   (222   (947

Gross profit

   145      199      256      173      773   

Distribution expenses

   (24   (30   (35   (30   (120

Sales & marketing expenses

   (93   (115   (135   (151   (493

Administrative expenses

   (31   (36   (30   (35   (132

Other operating income/(expenses)

   6      2      6      24      37   

Normalized EBIT

   2      19      62      (19   65   

Normalized EBITDA

   46      69      110      34      259   

Normalized EBITDA margin

   12.5   15.6   21.3   8.5   15.0

GLOBAL EXPORT AND HOLDING COMPANIES

   1Q 2009
Reference base
    2Q 2009
Reference base
    3Q 2009
Reference base
    4Q 2009
Reference base
    2009
Reference base
 

Volumes

   1 437      1 495      1 192      1 539      5 663   

Revenue

   309      369      357      388      1 423   

Cost of sales

   (280   (327   (299   (343   (1 249

Gross profit

   29      42      58      45      174   

Distribution expenses

   (26   (31   (33   (24   (114

Sales & marketing expenses

   (27   (45   (42   (50   (164

Administrative expenses

   (78   (88   (66   (92   (324

Other operating income/(expenses)

   13      5      10      24      53   

Normalized EBIT

   (89   (116   (73   (98   (375

Normalized EBITDA

   (44   (70   (25   (65   (204

 

14


Statement of the Board of Directors

The board of directors of AB InBev SA/NV certifies, on behalf and for the account of the company, that, to their knowledge, (a) the financial statements which have been prepared in accordance with International Financial Reporting Standards give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the entities included in the consolidation as a whole and (b) the management report includes a fair review of the development and performance of the business and the position of the company and the entities included in the consolidation as a whole, together with a description of the principal risks and uncertainties they face.

 

15


Independent auditors’ report

 

LOGO    
 

KPMG Bedrijfsrevisoren - Réviseurs

d’Entreprises

Bourgetlaan - Avenue du Bourget 40

1130 Brussel - Bruxelies

Belgium

 

Tel +32 (0)2 708 43 00

Fax +32 (0)2 708 43 99

vww.kpmg.be

STATUTORY AUDITOR’S REPORT TO THE GENERAL MEETING OF SHAREHOLDERS

OF ANHEUSER-BUSCH INBEV NV/SA ON THE CONSOLIDATED FINANCIAL

STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009

In accordance with legal and statutory requirements, we report to you on the performance of our audit mandate. This report includes our opinion on the consolidated financial statements together with the required additional comment and information,

Unqualified audit opinion on the consolidated financial statements

We have audited the consolidated financial statements of Anheuser-Busch InBev NV/SA (“the company”) and its subsidiaries (jointly “the group”), prepared in accordance with International Financial Reporting Standards, as adopted by the European Union, and with the legal and regulatory requirements applicable in Belgium. These consolidated accounts comprise the consolidated statement of financial position as of 31 December 2009 and the consolidated statements of income, comprehensive income, changes in equity and cash flows for the year then ended, as well as the summary of significant accounting policies and the other explanatory notes. The total of the consolidated statement of financial position amounts to USD (million) 112 525 and the consolidated income statement shows a profit for the year of USD (million) 5 877.

The Board of Directors of the company is responsible for the preparation of the consolidated financial statements. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing, legal requirements and auditing standards applicable in Belgium, as issued by the “Institut des Réviseurs d’Entreprises/Instituut der Bedrijfsrevisoren”. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement.

In accordance with these standards, we have performed procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we have considered internal control relevant to the company’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the group’s internal control. We have also evaluated the appropriateness of the accounting policies used, the reasonableness of accounting estimates made by the company and the presentation of the consolidated financial statements, taken as a whole.

LOGO

 

16


LOGO

Statutory auditor’s report to the general meeting of shareholders

of Anheuser-Busch InBev NV/SA on

the consolidated financial statements

for the year ended 31 December 2009

Finally, we have obtained from management and responsible officers of the company the explanations and information necessary for our audit. We believe that the audit evidence we have obtained provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements give a true and fair view of the group’s net worth and financial position as of 31 December 2009 and of its results and cash flows for the year then ended in accordance with International Financial Reporting Standards, as adopted by the European Union, and with the legal and regulatory requirements applicable in Belgium.

Additional comment and information

The preparation of the management report on the consolidated Financial statements and its content are the responsibility of the Board of Directors.

Our responsibility is to supplement our report with the following additional comment and information, which do not modify our audit opinion on the consolidated financial statements:

 

 

The management report on the consolidated financial statements includes the information required by law and is consistent with the consolidated financial statements. The financial information included in the management report labelled as ‘combined’ or ‘reference base’ has not been audited. We are, however, unable to comment on the description of the principal risks and uncertainties which the group is facing, and on its financial situation, its foreseeable evolution or the significant influence of certain facts on its future development. We can nevertheless confirm that the matters disclosed do not present any obvious inconsistencies with the information that we became aware of during the performance of our mandate.

 

 

As disclosed in the notes to the consolidated financial statements, the accounting policies applied when preparing these consolidated financial statements have been modified compared to the previous year.

 

Brussels, 3 March 2010

KPMG Bedrijfsrevisoren –Réviseurs d’Entreprises

Statutory auditor

represented by

LOGO

Jos Briers

Réviseur d’Entreprises/Bedrijfsrevisor

 

17


Consolidated financial statements

Consolidated income statement

 

For the year ended 31 December

Million US dollar

   Notes    2009     2008  

Revenue

      36 758      23 507   

Cost of sales

      (17 198   (10 336
               

Gross profit

      19 560      13 171   

Distribution expenses

      (2 671   (2 725

Sales and marketing expenses

      (4 992   (3 510

Administrative expenses

      (2 310   (1 478

Other operating income/(expenses)

   7    661      440   
               

Profit from operations before non-recurring items

      10 248      5 898   

Restructuring (including impairment losses)

   8    (153   (457

Fair value adjustments

   8    (67   (43

Business and asset disposal (including impairment losses)

   8    1 541      (38

Disputes

   8    —        (20
               

Profit from operations

      11 569      5 340   

Finance cost

   11    (4 291   (1 701

Finance income

   11    501      288   

Non-recurring finance cost

   8    (629   (187
               

Net finance cost

      (4 419   (1 600

Share of result of associates

   16    513      60   
               

Profit before tax

      7 663      3 800   

Income tax expense

   12    (1 786   (674
               

Profit

      5 877      3 126   

Attributable to:

       

Equity holders of AB InBev

      4 613      1 927   

Non-controlling interest

      1 264      1 199   

Basic earnings per share

   23    2.91      1.93   

Diluted earnings per share

   23    2.90      1.93   

Consolidated statement of comprehensive income

 

For the year ended 31 December

Million US dollar

   2009     2008  

Profit

   5 877      3 126   

Other comprehensive income:

    

Exchange differences on translation of foreign operations (gains/(losses))

   2 468      (4 212

Cash flow hedges

    

Recognized in equity

   729      (2 311

Removed from equity and included in profit or loss

   478      (22

Removed from equity and included in the initial cost of inventories

   (37   25   

Actuarial gains/(losses)

   134      (372
            

Other comprehensive income, net of tax

   3 772      (6 892

Total comprehensive income

   9 649      (3 766

Attributable to:

    

Equity holders of AB InBev

   8 168      (4 690

Non-controlling interest

   1 481      924   

The accompanying notes are an integral part of these consolidated financial statements.

 

18


Consolidated statement of financial position

 

As at 31 December

Million US dollar

   Notes    2009    2008
Adjusted1
    2008
Reported2
 

ASSETS

          

Non-current assets

          

Property, plant and equipment

   13    16 461    19 671      19 674   

Goodwill

   14    52 125    50 244      49 556   

Intangible assets

   15    23 165    23 637      23 673   

Investments in associates

   16    6 744    6 871      6 868   

Investment securities

   17    277    239      239   

Deferred tax assets

   18    949    932      932   

Employee benefits

   25    10    8      8   

Trade and other receivables

   20    1 941    1 315      1 334   
                    
      101 672    102 917      102 284   

Current assets

          

Investment securities

   17    55    270      270   

Inventories

   19    2 354    2 868      2 903   

Income tax receivable

      590    580      580   

Trade and other receivables

   20    4 099    4 126      4 136   

Cash and cash equivalents

   21    3 689    2 936      2 936   

Assets held for sale

   22    66    51      51   
                    
      10 853    10 831      10 876   
                    

Total assets

      112 525    113 748      113 160   

EQUITY AND LIABILITIES

          

Equity

          

Issued capital

   23    1 732    1 730      1 730   

Share premium

      17 515    17 477      17 477   

Reserves

      623    (3 247   (3 247

Retained earnings

      10 448    6 482      6 482   
                    

Equity attributable to equity holders of AB InBev

      30 318    22 442      22 442   

Non-controlling interest

      2 853    1 989      1 989   
                    
      33 171    24 431      24 431   

Non-current liabilities

          

Interest-bearing loans and borrowings

   24    47 049    48 039      48 025   

Employee benefits

   25    2 611    2 983      3 009   

Deferred tax liabilities

   18    12 495    12 569      12 076   

Trade and other payables

   28    1 979    1 763      1 688   

Provisions

   27    966    796      796   
                    
      65 100    66 150      65 594   

Current liabilities

          

Bank overdrafts

   21    28    765      765   

Interest-bearing loans and borrowings

   24    2 015    11 301      11 301   

Income tax payable

      526    405      405   

Trade and other payables

   28    11 377    10 238      10 206   

Provisions

   27    308    458      458   
                    
      14 254    23 167      23 135   
                    

Total equity and liabilities

      112 525    113 748      113 160   

The accompanying notes are an integral part of these consolidated financial statements.

 

 

1

2008 as reported, adjusted to reflect the opening balance sheet adjustments following the completion of the purchase price allocation of the Anheuser-Busch acquisition as required by IFRS 3 Business Combinations §45, which requires retrospective application of post-acquisition adjustments (refer Note 6 Acquisitions and disposals of subsidiaries).

2

2008 amounts previously reported in euro, as restated for the change in presentation currency to US dollar and reclassified to conform to the 2009 presentation in line with the adoption of the Improvements to IFRSs (2008).

 

19


Consolidated statement of changes in equity

 

     Attributable to equity holders of AB InBev     Non-controlling
interest
    Total
equity
 

Million US dollar

   Issued
capital
   Share
premium
   Treasury
shares
    Share-
based
payment
reserves
   Translation
reserves
    Hedging
reserves
    Actuarial
gains/

losses
    Other
reserves
    Retained
earnings
    Total      

As per 1 January 2008

   559    8 802    (703   117    4 893      89      (292   (25   6 617      20 057      1 892      21 949   

Profit

   —      —      —        —      —        —        —        —        1 927      1 927      1 199      3 126   

Other comprehensive income

                           

Exchange differences on translation of foreign operations (gains/(losses))

   —      —      —        —      (3 866 )   —        —        —        —        (3 866   (346   (4 212

Cash flow hedges

   —      —      —        —      —        (2 331   —        —        —        (2 331   23      (2 308

Actuarial gains/losses

   —      —      —        —      —        —        (420   —        —        (420   48      (372

Total comprehensive income

   —      —      —        —      (3 866   (2 331   (420   —        1 927      (4 690   924      (3 766

Shares issued

   1 171    8 675    —        —      —        —        —        —        —        9 846      —        9 846   

Transaction cost capital increase

   —      —      —        —      —        —        —        —        (117   (117   —        (117

Dividends

   —      —      —        —      —        —        —        —        (2 010   (2 010   (618   (2 628

Share-based payments

   —      —      —        6    —        —        —        —        —        6      6      12   

Treasury shares

   —      —      (294   —      —        —        —        (421   —        (715   (1   (716

Scope changes

   —      —      —        —      —        —        —        —        65      65      (214   (149
                                                                     

As per 31 December 2008

   1 730    17 477    (997   123    1 027      (2 242   (712   (446   6 482      22 442      1 989      24 431   
     Attributable to equity holders of AB InBev     Non-controlling
interest
    Total
equity
 

Million US dollar

   Issued
capital
   Share
premium
   Treasury
shares
    Share-
based
payment
reserves
   Translation
reserves
    Hedging
reserves
    Actuarial
gains/

Losses
    Other
reserves
    Retained
earnings
    Total      

As per 1 January 2009

   1 730    17 477    (997   123    1 027      (2 242   (712   (446   6 482      22 442      1 989      24 431   

Profit

   —      —      —        —      —        —        —        —        4 613      4 613      1 264      5 877   

Other comprehensive income

                           

Exchange differences on translation of foreign operations (gains/(losses))

   —      —      —        —      2 216      —        —        —        —        2 216      252      2 468   

Cash flow hedges

   —      —      —        —      —        1 190      —        —        —        1 190      (20   1 170   

Actuarial gains/losses

   —      —      —        —      —        —        165      —        (16   149      (15   134   

Total comprehensive income

   —      —      —        —      2 216      1 190      165      —        4 597      8 168      1 481      9 649   

Shares issued

   2    38    —        —      —        —        —        —        —        40      —        40   

Dividends

   —      —      —        —      —        —        —        —        (669   (669   (722   (1 391

Share-based payments

   —      —      —        145    —        —        —        —        —        145      10      155   

Treasury shares

   —      —      338      —      —        —        —        (184   —        154      (3   151   

Scope changes

   —      —      —        —      —        —        —        —        (9   (9   11      2   

Other

   —      —      —        —      —        —        —        —        47      47      87      134   
                                                                     

As per 31 December 2009

   1 732    17 515    (659   268    3 243      (1 052   (547   (630   10 448      30 318      2 853      33 171   

The accompanying notes are an integral part of these consolidated financial statements.

 

20


Consolidated cash flow statement

 

For the year ended 31 December

Million US dollar

   2009     20081  

OPERATING ACTIVITIES

    

Profit

   5 877      3 126   

Depreciation, amortization and impairment

   2 818      1 912   

Impairment losses on receivables, inventories and other assets

   167      149   

Additions/(reversals) in provisions and employee benefits

   188      572   

Net finance cost

   4 419      1 600   

Loss/(gain) on sale of property, plant and equipment and intangible assets

   (189   (56

Loss/(gain) on sale of subsidiaries, associates and assets held for sale

   (1 555   (33

Equity-settled share-based payment expense

   208      63   

Income tax expense

   1 786      674   

Other non-cash items included in the profit

   24      (12

Share of result of associates

   (513   (60
            

Cash flow from operating activities before changes in working capital and use of provisions

   13 230      7 935   

Decrease/(increase) in trade and other receivables

   149      201   

Decrease/(increase) in inventories

   301      (388

Increase/(decrease) in trade and other payables

   337      364   

Pension contributions and use of provisions

   (548   (490
            

Cash generated from operations

   13 469      7 622   

Interest paid

   (2 908   (975

Interest received

   132      126   

Dividends received

   —        1   

Income tax paid

   (1 569   (1 241
            

CASH FLOW FROM OPERATING ACTIVITIES

   9 124      5 533   

INVESTING ACTIVITIES

    

Proceeds from sale of property, plant and equipment and of intangible assets

   327      228   

Proceeds from sale of assets held for sale

   877      76   

Proceeds from sale of associates

   936      13   

Sale of subsidiaries, net of cash disposed of

   5 232      47   

Acquisition of subsidiaries, net of cash acquired

   (608   (51 626

Purchase of non-controlling interest

   (38   (853

Acquisition of property, plant and equipment and of intangible assets

   (1 713   (2 652

Net proceeds/(acquisition) of other assets

   227      (114

Net repayments/(payments) of loans granted

   29      3   
            

CASH FLOW FROM INVESTING ACTIVITIES

   5 269      (54 878

FINANCING ACTIVITIES

    

Net proceeds from the issue of share capital

   76      9 764   

Net purchase of treasury shares

   —        (797

Proceeds from borrowings

   27 834      56 425   

Payments on borrowings

   (39 627   (11 953

Cash net finance costs other than interests

   (62   (632

Payment of finance lease liabilities

   (4   (6

Dividends paid

   (1 313   (2 922
            

CASH FLOW FROM FINANCING ACTIVITIES

   (13 096   49 879   

Net increase/(decrease) in cash and cash equivalents

   1 297      534   

Cash and cash equivalents less bank overdrafts at beginning of year

   2 171      1 831   

Effect of exchange rate fluctuations

   193      (194
            

Cash and cash equivalents less bank overdrafts at end of year

   3 661      2 171   

The accompanying notes are an integral part of these consolidated financial statements.

 

 

1

Reclassified to conform to the 2009 presentation.

 

21


Notes to the consolidated financial statements

 

Corporate information

   1

Statement of compliance

   2

Summary of significant accounting policies

   3

Use of estimates and judgments

   4

Segment reporting

   5

Acquisitions and disposals of subsidiaries

   6

Other operating income/(expenses)

   7

Non-recurring items

   8

Payroll and related benefits

   9

Additional information on operating expenses by nature

   10

Finance cost and income

   11

Income taxes

   12

Property, plant and equipment

   13

Goodwill

   14

Intangible assets

   15

Investment in associates

   16

Investment securities

   17

Deferred tax assets and liabilities

   18

Inventories

   19

Trade and other receivables

   20

Cash and cash equivalents

   21

Assets and liabilities held for sale

   22

Changes in equity and earnings per share

   23

Interest-bearing loans and borrowings

   24

Employee benefits

   25

Share-based payments

   26

Provisions

   27

Trade and other payables

   28

Risks arising from financial instruments

   29

Operating leases

   30

Collateral and contractual commitments for the acquisition of property, plant and equipment, loans to customers and other

   31

Contingencies

   32

Related parties

   33

Events after the balance sheet date

   34

AB InBev companies

   35

 

22


1. CORPORATE INFORMATION

Anheuser-Busch InBev is a publicly traded company (Euronext: ABI) based in Leuven, Belgium, with an American Depositary Receipt secondary listing on the New York Stock Exchange (NYSE: BUD). It is the leading global brewer and one of the world’s top five consumer products companies. A true consumer-centric, sales driven organization, AB InBev manages a portfolio of well over 200 brands that includes global flagship brands Budweiser®, Stella Artois® and Beck’s®, fast growing multi-country brands like Leffe® and Hoegaarden®, and strong “local champions” such as Bud Light®, Skol®, Brahma®, Quilmes®, Michelob®, Harbin®, Sedrin®, Klinskoye®, Sibirskaya Korona®, Chernigivske®, and Jupiler®, among others. In addition, the company owns a 50 percent equity interest in the operating subsidiary of Grupo Modelo, Mexico’s leading brewer and owner of the global Corona® brand. AB InBev’s dedication to heritage and quality is rooted in brewing traditions that originate from the Den Hoorn brewery in Leuven, Belgium, dating back to 1366 and the pioneering spirit of the Anheuser & Co brewery, which traces its origins back to 1852 in St. Louis, USA. Geographically diversified with a balanced exposure to developed and developing markets, AB InBev leverages the collective strengths of its approximately 116 000 employees based in operations in over 23 countries across the world. The company strives to be the Best Beer Company in a Better World. In 2009, AB InBev realized 36.8 billion US dollar revenue. For more information, please visit: www.ab-inbev.com.

The consolidated financial statements of the company for the year ended 31 December 2009 comprise the company and its subsidiaries (together referred to as “AB InBev” or the “company”) and the company’s interest in associates and jointly controlled entities.

The financial statements were authorized for issue by the board of directors on 3 March 2010.

 

2. STATEMENT OF COMPLIANCE

The consolidated financial statements are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (‘IASB”) and in conformity with IFRS as adopted by the European Union up to 31 December 2009 (collectively “IFRS”). AB InBev did not apply any European carve-outs from IFRS. AB InBev has not applied early any new IFRS requirements that are not yet effective in 2009.

 

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

(A) BASIS OF PREPARATION AND MEASUREMENT

Depending on the applicable IFRS requirements, the measurement basis used in preparing the financial statements is cost, net realizable value, fair value or recoverable amount. Whenever IFRS provides an option between cost and another measurement basis (e.g. systematic re-measurement), the cost approach is applied.

 

(B) FUNCTIONAL AND PRESENTATION CURRENCY

Effective 1 January 2009, the company changed the presentation currency of the consolidated financial statements from the euro to the US dollar, reflecting the post-Anheuser-Busch acquisition profile of the company’s revenue and cash flows, which are now primarily generated in US dollars and US dollar-linked currencies. AB InBev believes that this change provides greater alignment of the presentation currency with AB InBev’s most significant operating currency and underlying financial performance. For comparability purposes, the company has restated the historical financial statements as of and for the year ended 31 December 2008 from the euro to the US dollar. Unless otherwise specified, all financial information included in these financial statements have been stated in US dollars and has been rounded to the nearest million. The functional currency of the parent company is the euro.

 

(C) USE OF ESTIMATES AND JUDGMENTS

The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

 

(D) PRINCIPLES OF CONSOLIDATION

Subsidiaries are those companies in which AB InBev, directly or indirectly, has an interest of more than half of the voting rights or, otherwise, has control, directly or indirectly, over the operations so as to govern the financial and operating policies in order to obtain benefits from the companies’ activities. In assessing control, potential voting rights that presently are exercisable are taken into account. Control is presumed to exist where AB InBev owns, directly or indirectly, more than one half of the voting rights (which does not always equate to economic ownership), unless it can be demonstrated that such ownership does not constitute control. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

Jointly controlled entities are those entities over whose activities AB InBev has joint control, established by contractual agreement and requiring unanimous consent for strategic financial and operating decisions. Jointly controlled entities are consolidated using the proportionate method of consolidation.

 

23


Associates are undertakings in which AB InBev has significant influence over the financial and operating policies, but which it does not control. This is generally evidenced by ownership of between 20% and 50% of the voting rights. In certain instances, the company may hold directly and indirectly an ownership interest of 50% or more in an entity, yet not have effective control. In these instances, such investments are accounted for as associates. Associates are accounted for by the equity method of accounting, from the date that significant influence commences until the date that significant influence ceases. When AB InBev’s share of losses exceeds the carrying amount of the associate, the carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that AB InBev has incurred obligations in respect of the associate.

The financial statements of the company’s subsidiaries, jointly controlled entities and associates are prepared for the same reporting year as the parent company, using consistent accounting policies. All intercompany transactions, balances and unrealized gains and losses on transactions between group companies have been eliminated.

Unrealized gains arising from transactions with associates and jointly controlled entities are eliminated to the extent of AB InBev’s interest in the entity. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.

A listing of the company’s most important subsidiaries and associates is set out in Note 35 AB InBev companies.

 

(E) SUMMARY OF CHANGES IN ACCOUNTING POLICIES

The following new standards and amendments to standards are mandatory for the first time for the financial year beginning 1 January 2009.

IAS 1 (revised) Presentation of financial statements

The revised standard prohibits the presentation of items of income and expenses (that is ‘non-owner changes in equity’) in the statement of changes in equity, requiring ‘non-owner changes in equity’ to be presented separately from owner changes in equity. All ‘non-owner changes in equity’ are required to be shown in a performance statement.

Entities can choose whether to present one performance statement (the statement of comprehensive income) or two statements (the income statement and statement of comprehensive income).

AB InBev has elected to present two statements: an income statement and a statement of comprehensive income. The consolidated financial statements have been prepared under the revised disclosure requirements.

Improvements to IFRSs (2008)

Effective 1 January 2009, AB InBev adopted the improvements to IFRSs (2008), which is a collection of minor improvements to existing standards.

In line with these improvements financial assets and liabilities classified as held for trading in accordance with IAS 39 (derivatives) have been split in current and in non-current assets and liabilities. Also the presentation of the comparative 2008 amounts was adapted in this sense.

The application of other improvements had no material impact on AB InBev’s financial results or financial position.

Amended IFRS 7 Financial Instruments: Disclosures

Effective 1 January 2009, AB InBev adopted the amendment to IFRS 7 for financial instruments that are measured in the balance sheet at fair value, this requires disclosure of fair value measurements by level of the following fair value hierarchy:

 

(i) Quoted market prices (unadjusted) in active markets for identical assets or liabilities (level 1);

 

(ii) Inputs other than quoted market prices included within level 1 that are observable for the assets or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2);

 

(iii) Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).

The application of this amendment had no impact on AB InBev’s financial results or financial position. Please refer to Note 29 Risks arising from financial instruments for additional disclosures.

IFRS 8 Operating Segments

Effective from 1 January 2009 onwards, this standard replaces IAS 14 Segment Reporting. It requires AB InBev’s external segment reporting to be based on its internal reporting to its “chief operating decision maker”, which makes decisions on the allocation of resources and assesses the performance of the reportable segments. The application of this new standard did not have an effect on how AB InBev presents its segments.

For more details on the basis on which the segment information is prepared and reconciled to the amounts presented in the income statement and balance sheet, refer to Note 5 Segment reporting in the financial statements of this report.

IAS 23 Borrowing Costs – amended

In March 2007, the IASB issued amendments to IAS 23 Borrowing Costs. The main change from the previous version is the removal of the option of immediately recognizing as an expense borrowing costs that relate to assets that take a substantial period of time to get ready for use or sale. The cost of an asset will in future include all costs incurred in getting it ready for use or sale. The company prospectively adopted the amendment as of 1 January 2009 with no material effect on its financial result or financial position.

IFRS 2 Share-based Payment – amended

In January 2008, the IASB issued an amendment to IFRS 2 Share-based Payment. The amendment clarifies that vesting conditions are service conditions and performance conditions only. Other features of a share-based payment are not vesting conditions. It also specifies that all cancellations, whether by the entity or by other parties, should receive the same accounting treatment. The company adopted the amendment as of 1 January 2009 with no material effect on its financial result or financial position.

 

24


IFRIC 13 Customer Loyalty Programs

In June 2007, the IFRIC issued IFRIC 13 Customer Loyalty Programs. IFRIC 13 addresses how companies, that grant their customers loyalty award credits (often called “points”) when buying goods or services, should account for their obligation to provide free or discounted goods or services if and when the customers redeem the points. Customers are implicitly paying for the points they receive when they buy other goods or services. Some revenue should be allocated to the points. Therefore, IFRIC 13 requires companies to estimate the value of the points to the customer and defer this amount of revenue as a liability until they have fulfilled their obligations to supply awards. AB InBev adopted the interpretation as of 1 January 2009 with no material effect on its financial result or financial position.

IFRIC 16 Hedges of a Net Investment in a Foreign Operation

In July 2008, the IFRIC issued IFRIC 16 Hedges of a Net Investment in a Foreign Operation. IFRIC 16 provides guidance on:

 

   

identifying the foreign currency risks that qualify as a hedged risk in the hedge of a net investment in a foreign operation;

 

   

where, within a group, hedging instruments that are hedges of a net investment in a foreign operation can be held to qualify for hedge accounting; and

 

   

how an entity should determine the amounts to be reclassified from equity to profit or loss for both the hedging instrument and the hedged item.

IFRIC 16 concludes that the presentation currency does not create an exposure to which an entity may apply hedge accounting. Consequently, a parent entity may designate as a hedged risk only the foreign exchange differences arising from a difference between its own functional currency and that of its foreign operation. In addition, the hedging instrument(s) may be held by any entity or entities within the group. While IAS 39 must be applied to determine the amount that needs to be reclassified to profit or loss from the foreign currency translation reserve in respect of the hedging instrument, IAS 21 must be applied in respect of the hedged item. The interpretation is mandatory for annual periods beginning on or after October 1, 2008. It does not have a material effect on the company’s financial result or financial position.

 

(F) FOREIGN CURRENCIES

FOREIGN CURRENCY TRANSACTIONS

Foreign currency transactions are accounted for at exchange rates prevailing at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated at the balance sheet date rate. Gains and losses resulting from the settlement of foreign currency transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement. Non-monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rate prevailing at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to US dollar at foreign exchange rates ruling at the dates the fair value was determined.

TRANSLATION OF THE RESULTS AND FINANCIAL POSITION OF FOREIGN OPERATIONS

Assets and liabilities of foreign operations are translated to US dollar at foreign exchange rates prevailing at the balance sheet date. Income statements of foreign operations, excluding foreign entities in hyperinflationary economies, are translated to US dollar at exchange rates for the year approximating the foreign exchange rates prevailing at the dates of the transactions. The components of shareholders’ equity are translated at historical rates. Exchange differences arising from the translation of shareholders’ equity to US dollar at year-end exchange rates are taken to comprehensive income (translation reserves).

In hyperinflationary economies, re-measurement of the local currency denominated non-monetary assets, liabilities, income statement accounts as well as equity accounts is made by applying a general price index. These re-measured accounts are used for conversion into US dollar at the closing exchange rate. For subsidiaries and associated companies in countries with hyperinflation where a general price index method is not yet stabilized and does not provide reliable results, the balance sheet and income statement are re-measured into US dollar as if it was the operation’s functional currency. As of 30 November 2009 the economy in Venezuela has been assessed to be highly inflationary and AB InBev has applied the price index from Venezuela’s central bank to report its Venezuelan operations by year-end 2009. The impact is not material to the company’s financial results or financial position.

EXCHANGE RATES

The most important exchange rates that have been used in preparing the financial statements are:

 

     Closing rate    Average rate

1 US dollar equals:

   2009    2008    2009    2008

Argentinean peso

   3.796702    3.449805    3.726834    3.116907

Brazilian real

   1.741198    2.337001    2.015192    1.778974

Canadian dollar

   1.050117    1.221383    1.147982    1.047465

Chinese yuan

   6.826993    6.823021    6.863060    7.007161

Euro

   0.694155    0.718546    0.721191    0.676163

Pound sterling

   0.616479    0.684415    0.643458    0.533130

Russian ruble

   30.117797    29.776885    31.833634    24.626252

Ukrainian hryvnia

   7.947278    7.800109    7.743168    5.158557

 

25


(G) INTANGIBLE ASSETS

RESEARCH AND DEVELOPMENT

Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognized in the income statement as an expense as incurred.

Expenditure on development activities, whereby research findings are applied to a plan or design for the production of new or substantially improved products and processes, is capitalized if the product or process is technically and commercially feasible, future economic benefits are probable and the company has sufficient resources to complete development. The expenditure capitalized includes the cost of materials, direct labor and an appropriate proportion of overheads. Other development expenditure is recognized in the income statement as an expense as incurred. Capitalized development expenditure is stated at cost less accumulated amortization (see below) and impairment losses (refer accounting policy P).

Amortization related to research and development intangible assets is included within the cost of sales if production related and in sales and marketing if related to commercial activities.

As from 1 January 2009 and in line with Revised IAS 23 Borrowing Costs, AB InBev changed its accounting policy and capitalizes borrowing cost directly attributable to the acquisition, construction or production of qualifying assets as part of the cost of such assets. AB InBev applies the revised IAS 23 to qualifying assets for which capitalization of borrowing cost commences on or after the effective date of the standard.

SUPPLY AND DISTRIBUTION RIGHTS

A supply right is the right for AB InBev to supply a customer and the commitment by the customer to purchase from AB InBev. A distribution right is the right to sell specified products in a certain territory.

Acquired customer relationships in a business combination are initially recognized at fair value as supply rights to the extent that they arise from contractual rights. If the IFRS recognition criteria are not met, these relationships are subsumed under goodwill.

Acquired distribution rights are measured initially at cost or fair value when obtained through a business combination.

Amortization related to supply and distribution rights is included within sales and marketing expenses.

BRANDS

If part of the consideration paid in a business combination relates to trademarks, trade names, formulas, recipes or technological expertise these intangible assets are considered as a group of complementary assets that is referred to as a brand for which one fair value is determined. Expenditure on internally generated brands is expensed as incurred.

SOFTWARE

Purchased software is measured at cost less accumulated amortization. Expenditure on internally developed software is capitalized when the expenditure qualifies as development activities; otherwise, it is recognized in the income statement when incurred.

Amortization related to software is included in cost of sales, distribution expenses, sales and marketing expenses or administrative expenses based on the activity the software supports.

OTHER INTANGIBLE ASSETS

Other intangible assets, acquired by the company, are stated at cost less accumulated amortization (see below) and impairment losses (refer accounting policy P).

SUBSEQUENT EXPENDITURE

Subsequent expenditure on capitalized intangible assets is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred.

AMORTIZATION

Intangible assets with a finite life are amortized using the straight-line method over their estimated useful lives. Licenses, brewing, supply and distribution rights are amortized over the period in which the rights exist. Brands are considered to have an indefinite life unless plans exist to discontinue the brand. Discontinuance of a brand can be either through sale or termination of marketing support. When AB InBev buys back distribution rights for its own products the life of these rights is considered indefinite, unless the company has a plan to discontinue the related brand or distribution. Software and capitalized development cost related to technology are amortized over 3 to 5 years.

Brands are deemed intangible assets with indefinite useful lives and, therefore, are not amortized but tested for impairment on an annual basis (refer accounting P).

GAINS AND LOSSES ON SALE

Net gains on sale of intangible assets are presented in the income statement as other operating income. Net losses on sale are included as other operating expenses. Net gains and losses are recognized in the income statement when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs can be estimated reliably, and there is no continuing managerial involvement with the intangible assets.

 

(H) BUSINESS COMBINATIONS

The company applies the purchase method of accounting to account for acquisitions of businesses. The cost of an acquisition is measured as the aggregate of the fair values at the date of exchange of the assets given, liabilities incurred, equity instruments issued and costs directly attributable to the acquisition. Identifiable assets, liabilities and contingent liabilities acquired or assumed are measured separately at their fair value as of the acquisition date. The excess of the cost of the acquisition over the company’s interest in the fair value of the identifiable net assets acquired is recorded as goodwill.

 

26


The allocation of fair values to the identifiable assets acquired and liabilities assumed is based on various assumptions requiring management judgment.

 

(I) GOODWILL

Goodwill is determined as the excess of the cost of an acquisition over AB InBev’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquired subsidiary, jointly controlled entity or associate recognized at the date of acquisition. All business combinations are accounted for by applying the purchase method. Business combinations entered into before 31 March 2004, were accounted for in accordance with IAS 22 Business Combinations. This means that acquired intangibles such as brands were subsumed under goodwill for those transactions. When AB InBev acquires non-controlling interests any difference between the cost of acquisition and the non-controlling interest’s share of net assets acquired is taken to goodwill.

In conformity with IFRS 3 Business Combinations, goodwill is stated at cost and not amortized but tested for impairment on an annual basis and whenever there is an indicator that the cash generating unit to which the goodwill has been allocated, may be impaired (refer accounting policy P).

Goodwill is expressed in the currency of the subsidiary or jointly controlled entity to which it relates (except for subsidiaries operating in highly inflationary economies) and is translated to US dollar using the year-end exchange rate.

In respect of associates, the carrying amount of goodwill is included in the carrying amount of the investment in the associate.

If AB InBev’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognized exceeds the cost of the business combination such excess is recognized immediately in the income statement as required by IFRS 3.

Expenditure on internally generated goodwill is expensed as incurred.

 

(J) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is measured at cost less accumulated depreciation and impairment losses (refer accounting policy P). Cost includes the purchase price and any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management (e.g. non refundable tax, transport and the costs of dismantling and removing the items and restoring the site on which they are located, if applicable). The cost of a self-constructed asset is determined using the same principles as for an acquired asset. The depreciation methods, residual value, as well as the useful lives are reassessed, and adjusted if appropriate annually.

As from 1 January 2009 and in line with Revised IAS 23 Borrowing Costs, AB InBev changed its accounting policy and capitalizes borrowing cost directly attributable to the acquisition, construction or production of qualifying assets as part of the cost of such assets. AB InBev applies the revised IAS 23 to qualifying assets for which capitalization of borrowing cost commences on or after the effective date of the standard.

SUBSEQUENT EXPENDITURE

The company recognizes in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when that cost is incurred if it is probable that the future economic benefits embodied with the item will flow to the company and the cost of the item can be measured reliably. All other costs are expensed as incurred.

DEPRECIATION

The depreciable amount is the cost of an asset less its residual value. Residual values, if not insignificant, are reassessed annually. Depreciation is calculated from the date the asset is available for use, using the straight-line method over the estimated useful lives of the assets.

The estimated useful lives are as follows:

 

Industrial buildings

   20 years

Other real estate properties

   33 years

Production plant and equipment:

  

Production equipment

   15 years

Storage and packaging equipment

   7 years

Duo tanks

   7 years

Handling and other equipment

   5 years

Returnable packaging:

  

Kegs

   10 years

Crates

   10 years

Bottles

   5 years

Point of sale furniture and equipment

   5 years

Vehicles

   5 years

Information processing equipment

   3 or 5 years

Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.

Land is not depreciated as it is deemed to have an indefinite life.

 

27


GAINS AND LOSSES ON SALE

Net gains on sale of items of property, plant and equipment are presented in the income statement as other operating income. Net losses on sale are presented as other operating expenses. Net gains and losses are recognized in the income statement when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs can be estimated reliably, and there is no continuing managerial involvement with the property, plant and equipment.

 

(K) ACCOUNTING FOR LEASES

Leases of property, plant and equipment where the company assumes substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are recognized as assets and liabilities (interest-bearing loans and borrowings) at amounts equal to the lower of the fair value of the leased property and the present value of the minimum lease payments at inception of the lease. Amortization and impairment testing for depreciable leased assets, is the same as for depreciable assets that are owned (refer accounting policies J and P).

Lease payments are apportioned between the outstanding liability and finance charges so as to achieve a constant periodic rate of interest on the remaining balance of the liability.

Leases of assets under which all the risks and rewards of ownership are substantially retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the income statement on a straight-line basis over the term of the lease.

When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognized as an expense in the period in which termination takes place.

 

(L) INVESTMENTS

All investments are accounted for at trade date.

INVESTMENTS IN EQUITY SECURITIES

Investments in equity securities are undertakings in which AB InBev does not have significant influence or control. This is generally evidenced by ownership of less than 20% of the voting rights. Such investments are designated as available-for-sale financial assets which are at initial recognition measured at fair value unless the fair value cannot be reliably determined in which case they are measured at cost. Subsequent changes in fair value, except those related to impairment losses which are recognized in the income statement, are recognized directly in other comprehensive income.

On disposal of an investment, the cumulative gain or loss previously recognized directly in equity is recognized in profit or loss.

INVESTMENTS IN DEBT SECURITIES

Investments in debt securities classified as trading or as being available-for-sale are carried at fair value, with any resulting gain or loss respectively recognized in the income statement or directly in other comprehensive income. Fair value of these investments is determined as the quoted bid price at the balance sheet date. Impairment charges and foreign exchange gains and losses are recognized in the income statement.

Investments in debt securities classified as held to maturity are measured at amortized cost.

OTHER INVESTMENTS

Other investments held by the company are classified as available-for-sale and are carried at fair value, with any resulting gain or loss recognized directly in other comprehensive income. Impairment charges are recognized in the income statement.

 

(M) INVENTORIES

Inventories are valued at the lower of cost and net realizable value. Cost includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. The weighted average method is used in assigning the cost of inventories.

The cost of finished products and work in progress comprises raw materials, other production materials, direct labor, other direct cost and an allocation of fixed and variable overhead based on normal operating capacity. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated completion and selling costs.

 

(N) TRADE AND OTHER RECEIVABLES

Trade and other receivables are carried at amortized cost less impairment losses. An estimate is made for doubtful receivables based on a review of all outstanding amounts at the balance sheet date.

An allowance for impairment of trade and other receivables is established if the collection of a receivable becomes doubtful. Such receivable becomes doubtful when there is objective evidence that the company will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter into bankruptcy or financial reorganization, and default or delinquency in payments are considered indicators that the receivable is impaired. The amount of the allowance is the difference between the asset’s carrying amount and the present value of the estimated future cash flows. An impairment loss is recognized in the statement of income, as are subsequent recoveries of previous impairments.

 

28


(O) CASH AND CASH EQUIVALENTS

Cash and cash equivalents include all cash balances and short-term highly liquid investments with a maturity of three months or less from the date of acquisition that are readily convertible into cash. They are stated at face value, which approximates their fair value. For the purpose of the cash flow statement, cash and cash equivalents are presented net of bank overdrafts.

 

(P) IMPAIRMENT

The carrying amounts of financial assets, property, plant and equipment, goodwill and intangible assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. In addition, goodwill, intangible assets that are not yet available for use and intangibles with an indefinite useful life are tested for impairment annually. An impairment loss is recognized whenever the carrying amount of an asset or the related cash-generating unit exceeds its recoverable amount. Impairment losses are recognized in the income statement.

CALCULATION OF RECOVERABLE AMOUNT

The recoverable amount of the company’s investments in unquoted debt securities is calculated as the present value of expected future cash flows, discounted at the debt securities’ original effective interest rate. For equity and quoted debt securities the recoverable amount is their fair value.

The recoverable amount of other assets is determined as the higher of their fair value less costs to sell and value in use. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit on a pro rata basis.

Impairment testing of intangible assets with an indefinite useful life is primarily based on a fair value approach applying multiples that reflect current market transactions to indicators that drive the profitability of the asset or the royalty stream that could be obtained from licensing the intangible asset to another party in an arm’s length transaction.

For goodwill, the recoverable amount of the cash generating units to which the goodwill belongs is based on a fair value approach. More specifically, a discounted free cash flow approach, based on current acquisition valuation models, is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators. As regards the level of goodwill impairment testing, AB InBev’s overall approach is to test goodwill for impairment at the business unit level (i.e. one level below the segments).

REVERSAL OF IMPAIRMENT LOSSES

An impairment loss in respect of goodwill or investments in equity securities is not reversed. Impairment losses on other assets are reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognized. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

 

(Q) SHARE CAPITAL

REPURCHASE OF SHARE CAPITAL

When AB InBev buys back its own shares, the amount of the consideration paid, including directly attributable costs, is recognized as a deduction from equity under treasury shares.

DIVIDENDS

Dividends are recognized as a liability in the period in which they are declared.

SHARE ISSUANCE COSTS

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

 

(R) PROVISIONS

Provisions are recognized when (i) the company has a present legal or constructive obligation as a result of past events, (ii) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and (iii) a reliable estimate of the amount of the obligation can be made. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

RESTRUCTURING

A provision for restructuring is recognized when the company has approved a detailed and formal restructuring plan, and the restructuring has either commenced or has been announced publicly. Costs relating to the ongoing activities of the company are not provided for. The provision includes the benefit commitments in connection with early retirement and redundancy schemes.

ONEROUS CONTRACTS

A provision for onerous contracts is recognized when the expected benefits to be derived by the company from a contract are lower than the unavoidable cost of meeting its obligations under the contract. Such provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract.

 

29


DISPUTES AND LITIGATIONS

A provision for disputes and litigation is recognized when it is more likely than not that the company will be required to make future payments as a result of past events, such items may include but are not limited to, several claims, suits and actions both initiated by third parties and initiated by AB InBev relating to antitrust laws, violations of distribution and license agreements, environmental matters, employment related disputes, claims from tax authorities, and alcohol industry litigation matters.

 

(S) EMPLOYEE BENEFITS

POST-EMPLOYMENT BENEFITS

Post-employment benefits include pensions, post-employment life insurance and post-employment medical benefits. The company operates a number of defined benefit and defined contribution plans throughout the world, the assets of which are generally held in separate trustee-managed funds. The pension plans are generally funded by payments from employees and the company, and, for defined benefit plans taking account of the recommendations of independent actuaries. AB InBev maintains funded and unfunded pension plans.

 

a) Defined contribution plans

Contributions to defined contribution plans are recognized as an expense in the income statement when incurred. A defined contribution plan is a pension plan under which AB InBev pays fixed contributions into a fund. AB InBev has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.

 

b) Defined benefit plans

A defined benefit plan is a pension plan that is not a defined contribution plan. Typically defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. For defined benefit plans, the pension expenses are assessed separately for each plan using the projected unit credit method. The projected unit credit method considers each period of service as giving rise to an additional unit of benefit entitlement. Under this method, the cost of providing pensions is charged to the income statement so as to spread the regular cost over the service lives of employees in accordance with the advice of qualified actuaries who carry out a full valuation of the plans at least every three years. The amounts charged to the income statement include current service cost, interest cost, the expected return on any plan assets, past service costs and the effect of any curtailments or settlements. The pension obligations recognized in the balance sheet are measured at the present value of the estimated future cash outflows using interest rates based on high quality corporate bond yields, which have terms to maturity approximating the terms of the related liability, less any past service costs not yet recognized and the fair value of any plan assets. Past service costs result from the introduction of, or changes to, post-employment benefits. They are recognized as an expense over the average period that the benefits vest. Actuarial gains and losses comprise, for assets and liabilities, the effects of differences between the previous actuarial assumptions and what has actually occurred and the effects of changes in actuarial assumptions on the plans’ liabilities. Actuarial gains and losses are recognized in full in the period in which they occur in the statement of comprehensive income.

Where the calculated amount of a defined benefit liability is negative (an asset), AB InBev recognizes such pension asset to the extent of any cumulative unrecognized past service costs plus any economic benefits available to AB InBev either from refunds or reductions in future contributions.

OTHER POST-EMPLOYMENT OBLIGATIONS

Some AB InBev companies provide post-employment medical benefits to their retirees. The entitlement to these benefits is usually based on the employee remaining in service up to retirement age. The expected costs of these benefits are accrued over the period of employment, using an accounting methodology similar to that for defined benefit pension plans.

TERMINATION BENEFITS

Termination benefits are recognized as an expense when the company is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to terminate employment before the normal retirement date. Termination benefits for voluntary redundancies are recognized if the company has made an offer encouraging voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably.

BONUSES

Bonuses received by company employees and management are based on pre-defined company and individual target achievement. The estimated amount of the bonus is recognized as an expense in the period the bonus is earned. To the extent that bonuses are settled in shares of the company, they are accounted for as share-based payments.

 

(T) SHARE-BASED PAYMENTS

Different share and share option programs allow company senior management and members of the board to acquire shares of the company and some of its affiliates. AB InBev adopted IFRS 2 Share-based Payment on 1 January 2005 to all awards granted after 7 November 2002 that had not yet vested at 1 January 2005. The fair value of the share options is estimated at grant date, using an option pricing model that is most appropriate for the respective option. Based on the expected number of options that will vest, the fair value of the options granted is expensed over the vesting period. When the options are exercised, equity is increased by the amount of the proceeds received.

 

(U) INTEREST-BEARING LOANS AND BORROWINGS

Interest-bearing loans and borrowings are recognized initially at fair value, less attributable transaction costs. Subsequent to initial recognition, interest-bearing loans and borrowings are stated at amortized cost with any difference between the initial amount and the maturity amount being recognized in the income statement (in accretion expense) over the expected life of the instrument on an effective interest rate basis.

 

30


(V) TRADE AND OTHER PAYABLES

Trade and other payables are stated at amortized cost.

 

(W) INCOME TAX

Income tax on the profit for the year comprises current and deferred tax. Income tax is recognized in the income statement except to the extent that it relates to items recognized directly in equity, in which case the tax effect is also recognized directly in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted, or substantively enacted, at the balance sheet date, and any adjustment to tax payable in respect of previous years.

In accordance with IAS 12 Income Taxes deferred taxes are provided using the so-called balance sheet liability method. This means that, taking into account the IAS 12 requirements, for all taxable and deductible differences between the tax bases of assets and liabilities and their carrying amounts in the balance sheet a deferred tax liability or asset is recognized. Under this method a provision for deferred taxes is also made for differences between the fair values of assets and liabilities acquired in a business combination and their tax base. IAS 12 prescribes that no deferred taxes are recognized i) on initial recognition of goodwill, ii) at the initial recognition of assets or liabilities in a transaction that is not a business combination and affects neither accounting nor taxable profit and iii) on differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using currently or substantively enacted tax rates.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously.

The company recognizes deferred tax assets, including assets arising from losses carried forward, to the extent that future probable taxable profit will be available against which the deferred tax asset can be utilized. A deferred tax asset is reduced to the extent that it is no longer probable that the related tax benefit will be realized.

Tax claims are recorded within provisions on the balance sheet (refer accounting policy R).

 

(X) INCOME RECOGNITION

Income is recognized when it is probable that the economic benefits associated with the transaction will flow to the company and the income can be measured reliably.

GOODS SOLD

In relation to the sale of beverages and packaging, revenue is recognized when the significant risks and rewards of ownership have been transferred to the buyer, and no significant uncertainties remain regarding recovery of the consideration due, associated costs or the possible return of goods, and there is no continuing management involvement with the goods. Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net of returns and allowances, trade discounts, volume rebates and discounts for cash payments.

ENTERTAINMENT REVENUE

Revenues at the theme parks are recognized upon admission to a park or when products are delivered to customers. For season pass and other multi-use admissions, AB InBev recognized a pro-rata portion of the revenue over the year based on the terms of the admission product. Entertainment revenue has been recognized up to 30 November 2009 after which date this business has been disposed (see also Note 6 Acquisitions and disposals of subsidiaries).

RENTAL AND ROYALTY INCOME

Rental income is recognized under other operating income on a straight-line basis over the term of the lease. Royalties arising from the use by others of the company’s resources are recognized in other operating income on an accrual basis in accordance with the substance of the relevant agreement.

GOVERNMENT GRANTS

A government grant is recognized in the balance sheet initially as deferred income when there is reasonable assurance that it will be received and that the company will comply with the conditions attached to it. Grants that compensate the company for expenses incurred are recognized as other operating income on a systematic basis in the same periods in which the expenses are incurred. Grants that compensate the company for the acquisition of an asset are presented by deducting them from the acquisition cost of the related asset in accordance with IAS 20 Accounting for Government Grants and Disclosure of Government Assistance.

FINANCE INCOME

Finance income comprises interest received or receivable on funds invested, dividend income, foreign exchange gains, losses on currency hedging instruments offsetting currency gains, gains on hedging instruments that are not part of a hedge accounting relationship, gains on financial assets classified as trading as well as any gains from hedge ineffectiveness (refer accounting policy Z).

Interest income is recognized as it accrues (taking into account the effective yield on the asset) unless collectability is in doubt. Dividend income is recognized in the income statement on the date that the dividend is declared.

 

(Y) EXPENSES

FINANCE COSTS

Finance costs comprise interest payable on borrowings, calculated using the effective interest rate method, foreign exchange losses, gains on currency hedging instruments offsetting currency losses, results on interest rate hedging instruments, losses on hedging instruments that are not part of a hedge accounting relationship, losses on financial assets classified as trading, impairment losses on available-for-sale financial assets as well as any losses from hedge ineffectiveness (refer accounting policy Z).

 

31


All interest costs incurred in connection with borrowings or financial transactions are expensed as incurred as part of finance costs. Any difference between the initial amount and the maturity amount of interest bearing loans and borrowings, such as transaction costs and fair value adjustments, are being recognized in the income statement (in accretion expense) over the expected life of the instrument on an effective interest rate basis (refer accounting policy U). The interest expense component of finance lease payments is also recognized in the income statement using the effective interest rate method.

As from 1 January 2009 and in line with Revised IAS 23 Borrowing Costs, AB InBev changed its accounting policy and capitalizes borrowing cost directly attributable to the acquisition, construction or production of qualifying assets as part of the cost of such assets. AB InBev applies the revised IAS 23 to qualifying assets for which capitalization of borrowing cost commences on or after the effective date of the standard.

RESEARCH AND DEVELOPMENT, ADVERTISING AND PROMOTIONAL COSTS AND SYSTEMS DEVELOPMENT COSTS

Research, advertising and promotional costs are expensed in the year in which these costs are incurred. Development costs and systems development costs are expensed in the year in which these costs are incurred if they do not meet the criteria for capitalization (refer accounting policy G).

PURCHASING, RECEIVING AND WAREHOUSING COSTS

Purchasing and receiving costs are included in the cost of sales, as well as the costs of storing and moving raw materials and packaging materials. The costs of storing finished products at the brewery as well as costs incurred for subsequent storage in distribution centers are included within distribution expenses.

 

(Z) DERIVATIVE FINANCIAL INSTRUMENTS

AB InBev uses derivative financial instruments to mitigate the transactional impact of foreign currencies, interest rates and commodity prices on the company’s performance. AB InBev’s financial risk management policy prohibits the use of derivative financial instruments for trading purposes and the company does therefore not hold or issue any such instruments for such purposes. Derivative financial instruments that are economic hedges but that do not meet the strict IAS 39 Financial Instruments: Recognition and Measurement hedge accounting rules, however, are accounted for as financial assets or liabilities at fair value through profit or loss.

Derivative financial instruments are recognized initially at fair value. Fair value is the amount for which the asset could be exchanged or the liability settled, between knowledgeable, willing parties in an arm’s length transaction. The fair value of derivative financial instruments is either the quoted market price or is calculated using pricing models taking into account current market rates. These pricing models also take into account the current creditworthiness of the counterparties.

Subsequent to initial recognition, derivative financial instruments are re-measured to their fair value at balance sheet date. Depending on whether cash flow or net investment hedge accounting is applied or not, any gain or loss is either recognized directly in other comprehensive income or in the income statement.

Cash flow, fair value or net investment hedge accounting is applied to all hedges that qualify for hedge accounting when the required hedge documentation is in place and when the hedge relation is determined to be effective.

CASH FLOW HEDGE ACCOUNTING

When a derivative financial instrument hedges the variability in cash flows of a recognized asset or liability, the foreign currency risk of a firm commitment or a highly probable forecasted transaction, the effective part of any resulting gain or loss on the derivative financial instrument is recognized directly in other comprehensive income (hedging reserves). When the firm commitment in foreign currency or the forecasted transaction results in the recognition of a non financial asset or a non financial liability, the cumulative gain or loss is removed from other comprehensive income and included in the initial measurement of the asset or liability. When the hedge relates to financial assets or liabilities, the cumulative gain or loss on the hedging instrument is reclassified from other comprehensive income into the income statement in the same period during which the hedged risk affects the income statement (e.g. when the variable interest expense is recognized). The ineffective part of any gain or loss is recognized immediately in the income statement.

When a hedging instrument or hedge relationship is terminated but the hedged transaction is still expected to occur, the cumulative gain or loss (at that point) remains in equity and is reclassified in accordance with the above policy when the hedged transaction occurs If the hedged transaction is no longer probable, the cumulative gain or loss recognized in other comprehensive income is reclassified into the income statement immediately.

FAIR VALUE HEDGE ACCOUNTING

When a derivative financial instrument hedges the variability in fair value of a recognized asset or liability, any resulting gain or loss on the hedging instrument is recognized in the income statement. The hedged item is also stated at fair value in respect of the risk being hedged, with any gain or loss being recognized in the income statement.

NET INVESTMENT HEDGE ACCOUNTING

When a foreign currency liability hedges a net investment in a foreign operation, exchange differences arising on the translation of the liability to the functional currency are recognized directly in other comprehensive income (translation reserves).

When a derivative financial instrument hedges a net investment in a foreign operation, the portion of the gain or the loss on the hedging instrument that is determined to be an effective hedge is recognized directly in other comprehensive income (translation reserves), while the ineffective portion is reported in the income statement.

Investments in equity instruments or derivatives linked to and to be settled by delivery of an equity instrument are stated at cost when such equity instrument does not have a quoted market price in an active market and for which other methods of reasonably estimating fair value are clearly inappropriate or unworkable.

 

32


(AA) SEGMENT REPORTING

Operating segments are components of the company’s business activities about which separate financial information is available that is evaluated regularly by management.

AB InBev’s operating segment reporting format is geographical because the company’s risks and rates of return are affected predominantly by the fact that AB InBev operates in different geographical areas. The company’s management structure and internal reporting system to the board of directors is set up accordingly. A geographical segment is a distinguishable component of the company that is engaged in providing products or services within a particular economic environment, which is subject to risks and returns that are different from those of other segments. In accordance with IFRS 8 Operating segments AB InBev’s reportable geographical segments were determined as North America, Latin America North, Latin America South, Western Europe, Central and Eastern Europe, Asia Pacific and Global Export and Holding Companies. The company’s assets are predominantly located in the same geographical areas as its customers.

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated assets comprise interest bearing loans granted, investment securities, deferred tax assets, income taxes receivable, cash and cash equivalent and derivative assets. Unallocated liabilities comprise equity and non-controlling interest, interest bearing loans, deferred tax liabilities, bank overdrafts, income taxes payable and derivative liabilities.

Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment, and intangible assets other than goodwill.

 

(BB) NON-RECURRING ITEMS

Non-recurring items are those that in management’s judgment need to be disclosed by virtue of their size or incidence. Such items are disclosed on the face of the consolidated income statement or separately disclosed in the notes to the financial statements. Transactions which may give rise to non-recurring items are principally restructuring activities, impairments, and gains or losses on disposal of investments.

 

(CC) DISCONTINUED OPERATIONS AND NON-CURRENT ASSETS HELD FOR SALE

A discontinued operation is a component of the company that either has been disposed of or is classified as held for sale and represents a separate major line of business or geographical area of operations and is part of a single co-coordinated plan to dispose of or is a subsidiary acquired exclusively with a view to resale.

AB InBev classifies a non-current asset (or disposal group) as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use if all of the conditions of IFRS 5 are met. A disposal group is defined as a group of assets to be disposed of, by sale or otherwise, together as a group in a single transaction, and liabilities directly associated with those assets that will be transferred. Immediately before classification as held for sale, the company measures the carrying amount of the asset (or all the assets and liabilities in the disposal group) in accordance with applicable IFRS. Then, on initial classification as held for sale, non-current assets and disposal groups are recognized at the lower of carrying amount and fair value less costs to sell. Impairment losses on initial classification as held for sale are included in profit or loss. The same applies to gains and losses on subsequent re-measurement. Non-current assets classified as held for sale are no longer depreciated or amortized.

 

(DD) RECENTLY ISSUED IFRS

To the extent that new IFRS requirements are expected to be applicable in the future, they have been summarized hereafter. For the year ended 31 December 2009, they have not been applied in preparing these consolidated financial statements.

Revised IFRS 3 Business Combinations (2008)

Revised IFRS 3 Business Combinations (2008) incorporates the following changes that are likely to be relevant to AB InBev’s operations:

 

   

The definition of a business has been broadened, which is likely to result in more acquisitions being treated as business combinations;

 

   

Contingent consideration will be measured at fair value, with subsequent changes therein recognized in profit or loss;

 

   

Transaction costs, other than share and debt issue costs, will be expensed as incurred;

 

   

Any pre-existing interest in the acquiree will be measured at fair value with the gain or loss recognized in profit or loss;

 

   

Any non-controlling (minority) interest will be measured at either fair value, or at its proportionate interest in the identifiable assets and liabilities of the acquiree, on a transaction-by-transaction basis.

Revised IFRS 3, which becomes mandatory for AB InBev’s 2010 consolidated financial statements, will be applied prospectively and therefore there will be no impact on prior periods in AB InBev’s 2010 consolidated financial statements.

Amended IAS 27 Consolidated and Separate Financial Statements (2008)

Amended IAS 27 Consolidated and Separate Financial Statements (2008) requires accounting for changes in ownership interests by AB InBev in a subsidiary, while maintaining control, to be recognized as an equity transaction. When AB InBev loses control of a subsidiary, any interest retained in the former subsidiary will be measured at fair value with the gain or loss recognized in profit or loss. The amendments to IAS 27, which become mandatory for AB InBev’s 2010 consolidated financial statements, are not expected to have a material impact on AB InBev’s consolidated financial statements.

IFRIC 17 Distributions of Non-cash Assets to Owners

IFRIC 17 Distributions of Non-cash Assets to Owners addresses the treatment of distributions in kind to shareholders. A liability has to be recognized when the dividend has been appropriately authorized and is no longer at the discretion of the entity, to be measured at the fair value of the non-cash assets to be distributed. Outside the scope of IFRIC 17 are distributions in which the

 

33


assets being distributed are ultimately controlled by the same party or parties before and after the distribution (common control transactions). IFRIC 17, which becomes mandatory for AB InBev’s 2010 consolidated financial statements, with prospective application, is not expected to have a material impact on AB InBev’s consolidated financial statements.

IFRIC 18 Transfers of Assets from Customers

IFRIC 18 Transfers of Assets from Customers addresses the accounting by access providers for property, plant and equipment contributed to them by customers. Recognition of the assets depends on who controls them. When the asset is recognized by the access provider, it is measured at fair value upon initial recognition. The timing of the recognition of the corresponding revenue depends on the facts and circumstances. IFRIC 18, which becomes mandatory for AB InBev’s 2010 consolidated financial statements, with prospective application, is not expected to have a material impact on AB InBev’s consolidated financial statements.

Amendment to IAS 39 Financial Instruments: Recognition and Measurement – Eligible Hedged Items

Amendment to IAS 39 Financial Instruments: Recognition and Measurement – Eligible Hedged Items provides additional guidance concerning specific positions that qualify for hedging (“eligible hedged items”). The amendment to IAS 39, which becomes mandatory for AB InBev’s 2010 consolidated financial statements, with retrospective application, is not expected to have a material impact on AB InBev’s consolidated financial statements.

Improvements to IFRSs (2009)

Improvements to IFRSs (2009) is a collection of minor improvements to existing standards. This collection, which becomes mandatory for AB InBev’s 2010 consolidated financial statements, is not expected to have a material impact on AB InBev’s consolidated financial statements.

Amendment to IAS 32 Financial Instruments: Presentation – Classification of Rights Issues

Amendment to IAS 32 Financial Instruments: Presentation – Classification of Rights Issues allows rights, options or warrants to acquire a fixed number of the entity’s own equity instruments for a fixed amount of any currency to be classified as equity instruments provided the entity offers the rights, options or warrants pro rata to all of its existing owners of the same class of its own non-derivative equity instruments. The amendment to IAS 32, which becomes mandatory for AB InBev’s 2010 consolidated financial statements, is not expected to have a material impact on AB InBev’s consolidated financial statements.

IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments

IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments provides guidance on the accounting for debt for equity swaps. IFRIC 19, which becomes mandatory for AB InBev’s 2010 consolidated financial statements, is not expected to have a material impact on AB InBev’s consolidated financial statements.

Revised IAS 24 Related Party Disclosures (2009)

Revised IAS 24 Related Party Disclosures amends the definition of a related party and modifies certain related party disclosure requirements for government-related entities. Revised IAS 24, will become mandatory for AB InBev’s 2010 consolidated financial statements, AB InBev does not expect a material impact on its consolidated financial statements.

Amendments to IFRIC 14 IAS 19 The limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction

Amendments to IFRIC 14 IAS 19 The limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction removes unintended consequences arising from the treatment of prepayments where there is a minimum funding requirement. These amendments result in prepayments of contributions in certain circumstances being recognized as an asset rather than an expense. Amendments to IFRIC 14 IAS 19 which becomes mandatory for AB InBev’s 2010 consolidated financial statements, is not expected to have a material impact on AB InBev’s consolidated financial statements.

IFRS 9 Financial Instruments

IFRS 9 Financial Instruments is the first standard issued as part of a wider project to replace IAS 39. IFRS 9 retains but simplifies the mixed measurement model and establishes two primary measurement categories for financial assets: amortized cost and fair value. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset. The guidance in IAS 39 on impairment of financial assets and hedge accounting continues to apply.

Prior periods need not be restated if an entity adopts the standard for reporting periods beginning before 1 January 2012. IFRS 9, which becomes mandatory for AB InBev’s 2013 consolidated financial statements, is not expected to have a material impact on AB InBev’s consolidated financial statements.

 

34


4. USE OF ESTIMATES AND JUDGMENTS

The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

Although each of its significant accounting policies reflects judgments, assessments or estimates, AB InBev believes that the following accounting policies reflect the most critical judgments, estimates and assumptions that are important to its business operations and the understanding of its results: business combinations, intangible assets, goodwill, impairment, provisions, share-based payments, employee benefits and accounting for current and deferred tax.

The fair values of acquired identifiable intangibles are based on an assessment of future cash flows. Impairment analyses of goodwill and indefinite-lived intangible assets are performed annually and whenever a triggering event has occurred, in order to determine whether the carrying value exceeds the recoverable amount. These calculations are based on estimates of future cash flows.

The company uses its judgment to select a variety of methods including the discounted cash flow method and option valuation models and make assumptions about the fair value of financial instruments that are mainly based on market conditions existing at each balance sheet date.

Actuarial assumptions are established to anticipate future events and are used in calculating pension and other postretirement benefit expense and liability. These factors include assumptions with respect to interest rates, expected investment returns on plan assets, rates of increase in health care costs, rates of future compensation increases, turnover rates, and life expectancy.

Judgments made by management in the application of IFRS that have a significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are further discussed in the relevant notes hereafter.

 

35


5. SEGMENT REPORTING

Segment information is presented by geographical segments, consistent with the information that is available and evaluated regularly by the chief operating decision maker. AB InBev operates its business through seven zones. Regional and operating company management is responsible for managing performance, underlying risks, and effectiveness of operations. Internally, AB InBev management uses performance indicators such as normalized profit from operations (normalized EBIT) and normalized EBITDA as measures of segment performance and to make decisions regarding allocation of resources. These measures are reconciled to segment profit in the tables presented (figures may not add up due to rounding).

 

Million US dollar,

except volume (million hls) and full
time equivalents (FTE in units)

  North
America
    Latin
America North
    Latin
America South
    Western
Europe
    Central and Eastern
Europe
    Asia
Pacific
    Global export and
holding companies
    Consolidated  
    2009     2008     2009     2008     2009     2008     2009     2008     2009     2008     2009     2008     2009     2008     2009     2008  

Volume

  135      27      110      102      33      34      33      34      40      46      53      37      5      5      409      285   

Revenue

  15 486      3 753      7 649      7 664      1 899      1 855      4 312      4 754      2 492      3 267      1 985      1 494      2 936      720      36 758      23 507   

Cost of goods sold

  (7 525   (1 586   (2 487   (2 634   (735   (782   (1 962   (2 232   (1 194   (1 693   (1 052   (812   (2 243   (597   (17 198   (10 336

Distribution expenses

  (792   (499   (781   (916   (166   (145   (457   (592   (241   (410   (142   (99   (93   (64   (2 671   (2 725

Sales and marketing expenses

  (1 694   (430   (1 016   (837   (182   (191   (798   (943   (485   (660   (542   (333   (275   (116   (4 992   (3 510

Administrative expenses

  (636   (155   (551   (418   (73   (72   (389   (345   (171   (176   (142   (101   (349   (211   (2 310   (1 478

Other operating income/(expenses)

  54      (4   243      208      (12   11      (107   (144   (121   (132   36      26      568      475      661      440   

Normalized profit from operations (EBIT)

  4 894      1 079      3 056      3 067      731      676      599      498      281      196      144      175      543      207      10 248      5 898   

Non-recurring items (refer note 8)

  62      (220   109      (27   (7   (4   (56   (275   (1   (10   (47   (22   1 261      —        1 321      (558

Profit from operations (EBIT)

  4 956      859      3 165      3 040      724      672      543      223      279      186      96      153      1 805      207      11 569      5 340   

Net finance cost

  (567   (97   (353   (590   (92   (43   (299   (504   (37   (97   (10   (9   (3 061   (260   (4 419   (1 600

Share of result of associates

  514      57      —        —        —        1      (1   —        —        1      —        —        —        1      513      60   

Profit before tax

  4 903      819      2 811      2 450      632      630      244      (281   243      90      86      144      (1 256   (52   7 663      3 800   

Income tax expense

  (1 519   (151   (521   (303   (184   (189   (73   130      (48   (42   (76   (72   636      (47   (1 786   (674
                                                                                               

Profit

  3 384      668      2 290      2 147      448      441      171      (151   195      48      10      72      (620   (99   5 877      3 126   

Normalized EBITDA

  5 868      1 308      3 492      3 540      875      808      983      948      599      571      349      341      870      295      13 037      7 811   

Non-recurring items

  62      (220   109      (27   (7   (4   (56   (275   (1   (11   (47   (22   1 290      —        1 350      (560

Non-recurring impairment

  —        —        —        —        —        —        —        —        —        1      —        —        (29   —        (29   1   

Depreciation, amortization and impairment

  (974   (229   (437   (473   (144   (132   (384   (450   (319   (374   (206   (166   (326   (88   (2 789   (1 912

Net finance costs

  (567   (97   (353   (590   (92   (43   (299   (504   (37   (97   (10   (9   (3 061   (260   (4 419   (1 600

Share of results of associates

  514      57      —        —        —        1      (1   —        —        1      —        —        —        1      513      60   

Income tax expense

  (1 519   (151   (521   (303   (184   (189   (73   130      (48   (42   (76   (72   636      (47   (1 786   (674
                                                                                               

Profit

  3 384      668      2 290      2 147      448      441      171      (151   195      48      10      72      (620   (99   5 877      3 126   

Normalized EBITDA margin in %

  37.9   34.9   45.7