SABMiller poised for Latin American growth

Addressing a divisional seminar on Latin America on Tuesday, 5 July 2011, Karl Lippert, president of SABMiller Latin America, said the region had attractive prospects for continued growth, with topline growth being driven by volume combined with retrained pricing.

The group's medium-term outlook for the region is for beer volumes to grow at a compound annual growth rate of 5%-8%, revenue per hectolitre to rise 2%-4% and ebita (earnings before interest, tax and appreciation) margin growth of 60 to 100 basis points.

Lippert said the Latin American division had a strong track record. The region was the largest contributor to group ebita in the year to March, contributing 20% of volumes, 22% of revenues and 31% of ebita.

Lippert said the region had strong economic prospects with the population in countries in which SABMiller has a presence growing at a faster rate than the continental Latin American average of 1.1%.

He added that the legal drinking adult (LDA) drinking population was growing at a faster pace than the general population, and there was a sizeable pool of adults for the group to service in the marketplace. The LDA population was above 60% in all the countries, expect Honduras and El Salvador.

In addition, he added, the region's economies are resilient, with expected growth rates of 4.4% by 2012, compared with the global average of 3.4%.

Colombia was seeing consumption recovering after the global economic crisis, while demand for durable goods was growing due to low interest rates and the strong local currency, he added.

In the year ended March 2011, Colombian full year lager volumes declined by 6% as a result of increased consumer prices in response to the emergency VAT increase levied specifically on the beer category in February 2010 as well as exceptional widespread flooding.

Lippert did, however, note significant security concerns in Honduras and El Salvador as drug routes to US have migrated and started hitting those countries. This, he said, had affected consumption, with a shift from on trade to off trade.

Lippert said SABMiller had made significant progress in the region with mainstream brand upgrades, creating a premium segment, outlet renovation and creating a cold beer culture.

It had also made progress in modernising its operations in the region, upgrading its manufacturing and sales modules and route to market and distribution.

It had also had a strong cost reduction focus in all its operations and in extracting scale and synergies from soft drinks in central America. It has a Coca Cola bottler in Honduras and El Salvador and a Pepsi and Schweppes bottler in Panama.

Lippert said that beer per capita consumption would continue to increase due to growth in disposable incomes and an increased beer share of alcohol displacing particularly informal alcohol.

In the region as a whole, SABMiller has a solid foundation to capitalise on, and by 2014 it expects consumers will account for 337 million hectolitres (hl) of beer, from 286 million hl in 2010 - that is an increase of 51million hl of beer and a 4.2% compound annual growth rate (CAGR).

The growth will be driven by strategies that include persuading alcohol consumers to prefer beer, with a switch from informal alcohol to beer and a push for consumers to enjoy more expensive beer and drink beer on more occasions.

Lippert said there were significant affordability opportunities in Colombia, Honduras and El Salvador.

In addition the group also planned to strength the local Worthmore brands across its markets and strengthen the mainstream brands in the region.

Mainstream brands represent more than 87% of SABMiller's total volume in Latin America.

For the year to March, Latin America delivered ebita growth of 17%, or 11% on an organic, constant currency basis, to US1.62 billion, despite lager volumes being level with the prior year on an organic basis.

Ebita growth resulted from selective price increases, mainly in the second half of the prior year, lower raw material costs and an ongoing focus on the reduction of fixed costs.