Home is not where SAB's profit fizzes

SABMiller, perhaps one of South Africa's best known 'home-grown' successes, has outgrown its mother country ... SA is no longer the company's largest profit region, as Latin America, a region the brewer entered in 2001, has overtaken its country of origin.

The group said last week at the release of its annual results that Latin America now accounted for 25% of earnings in the year to March, and SA for 24%.

Last year, SA accounted for 30% but has lost market share to Europe, North America and the Africa and Asia regions.

Chief financial officer Malcolm Wyman said this was the first time another region had overtaken SA, and the group now had three regions — Latin America, Europe and SA — that each accounted for more than 20% of earnings.

CEO Graham Mackay doubted SA would ever again be the company's largest profit contributor. “It's one country versus several in Latin America.”

The brewing giant now has a presence in six Latin American countries after buying Bavaria in 2005.

Chris Gilmour, an analyst with Absa Asset Management Private Clients, said it was not surprising that Latin America had outgrown SA and that there was further room for growth in that region as beer consumption levels were low.

SA, which is the “mother brand”, from where most of the brewer's managers come, grew 4% during the year, and “probably is capped in terms of growth”. Gilmour expected Europe to displace SA as number two in the next few years.

Revenue grew 15% to $21bn from $18,6bn, while earnings rose 15% to $4bn from $3,6bn.

SABMiller said earnings were up 15% in the year to March, and 9% higher on an organic constant currency basis, despite rising input costs.

Mackay said these costs had been offset through a change in the mix, with a trend towards premium beers, and increased productivity.

Costs of ingredients such as hops, barley, and inputs such as electricity and packaging rose 9%, while the cost of goods rose 6%.

The group was able to pass on absolute increases in its prices, which were generally below inflation.

SABMiller had been pricing below inflation for a while in many of its markets, and it expected to be able to continue raising prices for the next couple of years without a meaningful effect on volumes.

Total beverage volumes grew 6% to 288-million hectolitres. Total lager volumes grew 11% to 239-million hectolitres.

Ian Liddle, chief investment officer at Allan Gray, said that though much had been made of the recent slowdown in the brewer's volume growth rates from 10% last year, this did not mean volumes would not “continue to grow at a fair clip for many years”.

“We would also expect SABMiller to continue to squeeze out productivity gains, particularly in its more recently acquired businesses in Latin America,” he said.

Liddle also expected China to be a “significant contributor to SABMiller profits one day”.

The proposed merger between Miller and Coors in the US, which is expected to be wrapped up at midyear, would give scope for productivity gains as well as making the company more competitive.

Source: Business Day

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