SAB's performance in line with expectations

In an economic environment marked by generally weak consumer spending despite a drop in headline inflation, SAB's revenue grew by 2% (6% on a constant currency basis) as it continued to benefit from price increases implemented in the prior year in both the beer and soft drinks businesses.

EBITA on an organic, constant currency basis grew 4% although EBITA was level with the prior year at reported exchange rates.

Margins reduced slightly as price increases were not sufficient to offset the decline in volumes, continued pressure from significantly higher input costs and additional market-facing investments.

Lager volumes declined by 3%, impacted by reduced consumer spending.

Mainstream volumes, down 2%, performed relatively better supported by strong growth in Castle Lager and Hansa Pilsener.

Carling Black Label continued to be affected by its prevalence in the challenging Western Cape liquor market. Within local premium, Castle Lite returned to growth.

Soft drinks volumes were down 2%, in line with the market.

During the period, SAB grew its share of the sparkling soft drinks segment through effective market execution, particularly in the top-end grocer channel.

Increased input costs

Input costs remained under pressure as medium-term contractual arrangements with key brewing raw material suppliers limited the business' ability to benefit from the downturn in brewing commodity prices, SAB said.

Higher packaging materials and sugar prices also contributed to increased input costs in the first six months.

In addition, dollar-based input costs were higher than the prior year due to adverse foreign exchange rates.

Distribution costs declined in line with relatively lower crude oil prices, aided by distribution efficiencies.

Focus on exposure

SAB MD Norman Adami said: "Sales and marketing investment in South Africa increased, focused on our key brands.

"Investment in customer facing route to market capability intensified, with investment in direct distribution and improved service levels to customers.

"These additional market facing investments were partly financed through an intensified productivity and cost reduction programme.

"Efforts to enhance and grow the core of the lager brand portfolio saw new marketing campaigns for Carling Black Label, Castle Lager and Hansa Pilsener, reinforcing key characteristics of the brands.

"Castle Lite saw growth returning towards the end of the period supported by its 'Extra cold' media campaign and sub-zero fridge placement in targeted outlets.

"At the same time, we are in the process of establishing our international premium lager portfolio with brand building efforts focused on Peroni Nastro Azzurro and Grolsch."

BEE deal

In July 2009 the company announced its broad-based black economic empowerment transaction, which will benefit employees, soft drinks and liquor retailers and the wider South African community by enabling them to participate in the equity of SAB.

The full terms of this transaction will be released shortly.

In reviewing the past six months and looking ahead, Adami said that SAB was operating in a significantly different environment today than it was a few years ago.

"There are still big growth opportunities in SA's beer market, where a strong beer culture has already been established and where alcohol consumption levels are below the international average.

"We are in this business for the long run, and we believe there is sufficient growth potential in the market to allow both ourselves and our new competitor to grow for many years to come.

"We have also made good progress on the five thrusts of our strategy, announced in March this year.

"In particular, we have eliminated out-of-stocks, and efficiencies and cost savings have helped us to increase market facing investment by approximately R700 million.

"Attention has also been paid to creating superior routes to market.

"We have been able to adapt and grow in a time of change. We are confident we have the correct strategy in place and we are now executing it, " he concluded.

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