Weaker demand hits SABMiller

CE Graham Mackay said Thursday, 14 May 2009, the company maintained organic volumes despite weak consumer demand, and reported flat operating profit.

SABMiller said revenue moved up 6% to $25bn from $23bn but earnings per share fell 7% to 125.2c from 134.9c as beer consumption stalled in emerging markets and the dollar's strength diminished earnings in some markets.

However, while the medium term outlook was still characterised by the difficult trading environment, things should look up in the longer term. The group was now looking forward to “making headway when we finally have the wind at our backs again”, Mackay said.

SABMiller grew market share across the board, except in the Czech Republic the US and SA.

In the US and the Czech Republic it was investing in brands to enhance profitability, while the South African market share lost 3.3% to 89% as a result of its loss of the Amstel brand.

South African Breweries MD Norman Adami said the company was investing in building brands and putting resources behind its mainstream brews.

Chief financial officer Malcolm Wyman said organic volumes had grown 2.2% during the year, and organic revenue had grown 4.2%.

However, the operating profit margin had taken pressure, and was down 0.7% in constant currency rates at an organic level, he said. The company had been pricing strongly in most markets to counter commodity prices.

Total raw materials per hectolitre had increased 16% in the year to March, compared with 9% in the previous period.

Total cost of goods sold increased 12% compared with the previous year's 6%. Wyman said supplier contracts and hedging programmes delayed benefits of falling commodity prices.

Adami said SA was hit hardest by the commodity price cycle as the forward suppliers were purchased near the top of the cycle and the company was purchasing against a stronger dollar, in addition to the fact that many suppliers bolstered margins through import parity pricing. The unit had not been able to claw back all the increases despite two price hikes as it sold in rands, he said.

SABMiller was seeking to limit the effects of the global economic crisis, said Mackay. It was putting capital expenditure on hold where possible, as well as looking into ways of reducing working capital. In some countries, such as Colombia, it was restructuring its operations to be more efficient, he said.

The brewer expected the current year's results to be adversely affected by the recent strength of the US dollar and expected difficult economic conditions to continue.

It was, however, continuing to focus on it strategy of developing brands, raising the performances of local units and leveraging its global scale. SABMiller also sought to continue to create an attractive spread of global businesses, said Mackay. The company remained a growth business and he had confidence in its medium-term growth prospects because its units were resilient.

SABMiller also said it would acquire the outstanding 28.1% interest in its Polish subsidiary, Kompania Piwowarska, from Kulczyk Holding in exchange for 60-million new SABMiller shares.

Source: Business Day

Published courtesy of