| Thu 22 May 2003, 10:26 | | Preliminary Results Announcement |
|
SABMiller Plc -
SABMILLER PLC
(Registration No. 3528416)
JSEALPHA CODE: SAB
ISSUER CODE: SOSAB
ISIN CODE: GB0004835483
PRELIMINARY ANNOUNCEMENT
Strong Organic Earnings Growth and Expansion
London and Johannesburg, 22 May 2003. SABMiller plc today announces its
preliminary (unaudited) results for the year to 31 March 2003. Highlights are:
Financial
2003 2002
US$m US$m % change
#
Turnover 9,112 4,364 109
- excluding Miller 5,639 4,364 29
EBITA * 1,270 766 66
- excluding Miller 1,020 766 33
Profit before tax 770 606 27
Adjusted profit before tax 1,107 668 66
Adjusted earnings 581 350 66
Adjusted earnings per share
- US cents 54.0 48.7 11
- UK pence (up 3%) 34.9 34.0
- SA cents (up 9%) 513.0 472.5
Basic earnings per share (US 27.5 40.7 (32)
cents)
Dividends per share (US cents) 25.0 25.0 -
# Includes Miller Brewing Company for nine months, except
where indicated.
* Earnings before interest, taxation and goodwill
amortisation, and before exceptional items (see note 4).
Note: Adjusted profit before tax and adjusted earnings
exclude exceptional items and goodwill amortisation.
Operational
Total beverage volumes up 52% to 151.4 million hectolitres (hls), organic growth
of 3.0%
Total lager volumes increase 65% to 115.8 million hls, organic growth of 4.2%
Strong performances and EBITA margin improvement in Beer South Africa, Europe
and Africa & Asia
Adjusted earnings per share increase by 11%
Miller Brewing Company acquired and being integrated into the group
Birra Peroni and Shaw Wallace transactions announced
2
Statement from Meyer Kahn, Chairman
"This has been a year of outstanding growth from our businesses in South Africa,
Europe and Africa & Asia. Strong operational performances and favourable
currency movements have led to an increase in EBITA of 33% from our businesses
excluding Miller.
The acquisition of Miller, an important strategic step for the group, was
completed in July. We remain confident that integrating the business into the
group and building a platform for growth can be achieved within three years.
Today, SABMiller has a brewing presence in over 40 countries. Through our
geographic reach and balance, the quality and breadth of our brand portfolio and
our widespread distribution network, we are well placed to continue delivering
shareholder value."
Enquiries:
SABMiller plc Tel: +44 20 7659 0100
Sue Clark Director of Corporate Mob: +44 7850 285471
Affairs
Nick Chaloner Communications Director Mob: +44 7880 502755
Anna Miller Salzman Head of Investor Mob: +44 7973 837070
Relations
Ciaran Baker Head of Corporate Mob: +44 7979 954493
Communications
Angus Maitland The Maitland Consultancy Tel: +44 20 7379 5151
Ltd
Philip Gawith The Maitland Consultancy Tel: +44 20 7379 5151
Ltd
A live webcast of the management presentation to analysts will begin at 9.30am
(BST) on 22 May 2003.
This announcement, a copy of the slide presentation and video interviews with
management are available on the SABMiller plc website at www.sabmiller.com.
Video interviews with management can also be found at www.cantos.com.
Pictures for the media are available from www.newscast.co.uk.
Copies of the press release and the detailed Preliminary Announcement are
available from the Company Secretary at the Registered Office, or from 2 Jan
Smuts Avenue, Johannesburg, South Africa.
Registered office: Dukes Court, Duke Street, Woking, Surrey, GU21 5BH
Telephone: +44 1483 264000
Telefax: +44 1483 264117
Incorporated in England and Wales (Registration Number 3528416)
CHIEF EXECUTIVE"S REVIEW 3
Business review
During the past year we have clearly positioned SABMiller as a leader in the
global beer market. The acquisition of Miller Brewing Company and, more
recently, transactions with Birra Peroni and Shaw Wallace demonstrate the
considerable financial strength of the group as it continues to expand. We have
achieved organic sales growth and productivity improvements across many of our
markets, and added to our established positions with a number of smaller
acquisitions in Europe and Africa & Asia.
Total group beverage volumes of 151.4 million hectolitres (hls) were 52% above
last year"s 99.4 million hls (organic growth 3%). Lager volumes were up 65% to
115.8 million hls, with organic growth of 4.2%. Beer South Africa recorded a
second consecutive year of growth, with volumes up 0.8% to 24.4 million hls.
Other beverages totalled 35.6 million hls.
Our widespread portfolio of businesses delivered an impressive financial
performance over the year. Turnover, including share of associates, increased by
109% to US$9,112 million (organic growth 17.8%) and EBITA grew 66% to US$1,270
million, driven by continued focus on volume growth, productivity and cost
containment. EBITA margins have continued to improve in most of our businesses,
reaching 18.1% for the group excluding Miller. The lower EBITA margin at Miller
has diluted the group"s margin in comparison with the prior year. Adjusted
earnings were up by 66%, to US$581 million, with adjusted earnings per share of
54 US cents, up 11% on the prior year.
The board has proposed a final dividend of 18.5 US cents per share, making an
unchanged total of 25 US cents per share for the year. The dividend is covered
2.2 times by adjusted earnings and is in line with our declared aim of achieving
dividend cover of 2.2 to 2.5 times. Shareholders will be asked to ratify this
proposal at the annual general meeting, scheduled for 30 July 2003.
North America
We acquired Miller Brewing Company in July 2002. In the nine month reporting
period, after adjusting for a distributor stock reduction programme implemented
in March, total Miller volume was down 3.7% with domestic volume falling by 4.5%
(6.2% before adjustment). Contract brewing volumes grew 3.6% and international
volumes grew by 6.6%.
EBITA for the nine month period is US$250 million, before exceptional items,
reflecting volume decline, as well as the negative impact of brand, pack and
geographic mix, increased cost of raw materials and greater energy costs, offset
partly by higher selling prices. EBITA for the period was determined after
providing for a number of significant one-time charges associated with the
Flavoured Malt Beverage (FMB) brands, Sauza Diablo and Stolichnaya Citrona, and
the reduction of four and one half days of inventory held in distributor
warehouses.
Since acquiring the business we have commenced the integration of Miller into
the group and strengthened the management team, whilst developing our longer-
term strategy and action plans to deliver value. We expand on these issues in
the operational review, below.
Central America
Our Central America business delivered a first full year EBITA contribution of
US$56 million, before exceptional items, which was below our expectations. This
was largely due to aggressive, and in our view unsustainable, price-based
competition in the carbonated soft drinks (CSD) market in El Salvador. Since
acquisition we have undertaken a major restructuring of the business, reducing
costs and rationalising headcount and have brought in management with extensive
CSD experience. We are confident that the CSD profit pool in El Salvador will be
re-established over time and that the changes we have made in the business,
combined with positive forecasts for economic growth, will deliver improved
earnings performance in the year ahead.
CHIEF EXECUTIVE"S REVIEW (continued) 4
Europe
Our Europe operations delivered another excellent year of profit growth. EBITA
was up 39% to US$275 million with almost every country improving volumes, market
share and margins. Poland, our largest contributing business, grew EBITA
strongly on the back of 9% volume growth. Volumes in our Russian business grew
27% following the introduction of new brands and packaging. The Pilsner Urquell
brand grew volumes by 12% in the Czech Republic, and volumes outside the country
increased by 17% to 653,000 hls.
On 14 May 2003, the group announced it had reached an unconditional agreement to
acquire a majority interest in Birra Peroni, the number two brewer in Italy,
with rights to increase the holding in the future. The transaction is expected
to close within three weeks and SABMiller will have an initial stake of between
51% and 60%, to be determined on closing. The acquisition will be funded in
cash, from existing resources.
Africa & Asia
Africa & Asia performed exceptionally well, with EBITA up 36% to US$233 million.
Africa benefited from strong volume growth in key markets, market share gains
and the results of successful acquisition activity. Our equity accounted
associate, Castel, also delivered strong results. In China, the Wuhan and Blue
Sword acquisitions have been successfully integrated and EBITA has more than
doubled. In India we achieved our target of break even at the operating profit
level in our first full year incorporating four operating units.
On 21 May 2003, we announced that SABMiller had become a strong number two
brewer in India through a joint venture with the Shaw Wallace group of
companies. This positions us well in the high growth Indian beer market.
South Africa
Beer South Africa EBITA grew by 18% to US$338 million, with volumes up 0.8%.
Operating performance in this business is at an all time high, with operating
margin up 80 basis points. Improved productivity offset significant increases in
raw material prices and higher marketing spend on new product development and
introductions into the market place.
ABI succeeded in delivering good results through volume growth and overhead
productivity gains, and EBITA increased by 24%. Southern Sun achieved strong
earnings growth this year with positive operational contributions coming from
both the hotel and gaming divisions.
Outlook
The global economic and socio-political outlook remains uncertain. However,
SABMiller is a business, which has geographic reach and balance, a quality brand
portfolio, a widespread distribution network and financial strength, and it
remains well placed to continue to deliver value for shareholders.
We have commenced our restructuring of the Miller organisation, but major
benefits will only be evident over time. There are some positive signs in
Central America, although competitive pressures remain. Our other businesses
have all performed extremely well, and it is expected that this momentum will
continue into the current year.
CHIEF EXECUTIVE"S REVIEW (continued) 5
Operational review
North America
2003*
Financial summary US$m
Turnover 3,473
EBITA** 250
EBITA margin (%) 7.2
Sales volumes (hls `000"s)
- Lager - excluding contract 33,852
brewing
- contract brewing 8,172
- Carbonated soft drinks (CSDs) 55
* Nine months.
** Before exceptional items being integration costs of US$17 million and
Tumwater brewery closure costs of US$35 million.
We acquired Miller Brewing Company in July 2002, giving the group access,
through a national player, to a growing beer market with the world"s largest
profit pool, and at the same time diversifying the currency and geographic risk
of the group.
Since acquisition, we have commenced the integration of Miller into the group,
and we have made some important changes to the management team. Norman Adami,
previously Chief Executive of our highly successful Beer South Africa business,
was appointed as President and Chief Executive in February 2003. Whilst a number
of tactical initiatives have been implemented in the period under review, we are
focused on developing our longer-term strategy and action plans to deliver
value.
In the nine month reporting period, US beer industry volumes were affected by
low consumer confidence, a lacklustre economy, recent world events, and poor
weather, resulting in industry volumes being level with those of the prior year.
Total Miller volume, after adjusting for a distributor stock reduction programme
implemented in March, was down 3.7% with domestic volume falling by 4.5% (6.2%
before adjustment). Certain of Miller"s core brands have been losing market
share for a number of years. However, the rate of decline increased over the
past year and we believe this to be due to a combination of factors including
loss of management focus on core brands following the introduction of four FMBs
and perhaps some understandable disruption during the transaction and subsequent
integration into SABMiller. Contract brewing volumes grew 3.6% and
international volumes grew by 6.6%.
EBITA, for the nine month period, of US$250 million, before exceptional items of
US$52 million, reflects the impact of the volume decline, as well as negative
brand, pack and geographic mix, increased cost of raw materials and greater
energy costs, partly offset by higher selling prices. There were also a number
of significant one-time restructuring charges including costs associated with
the uplift and write-off of excess production of the FMB brands, Sauza Diablo
and Stolichnaya Citrona, and the reduction of four and one half days of
inventory held in distributor warehouses, which together amount to US$40
million. A further US$16 million of FMB launch costs, as reported in our
interim results, were also expensed during the year. Before taking account of
the exceptional and other costs referred to above, EBITA for the nine-month
period was US$306 million.
CHIEF EXECUTIVE"S REVIEW (continued) 6
A number of tactical initiatives, noted above, have been implemented in respect
of Miller Lite and Miller Genuine Draft (MGD). New packaging for Miller Lite
was introduced at the beginning of this year and the recent advertising has
attracted considerable consumer attention, particularly with the 21-28 year old
target audience. This increase in brand visibility will be followed up with a
clear repositioning of the brand itself in the autumn of 2003. Supporting these
brand initiatives is the high quality of the Miller Lite product which has been
recognised and is evidenced by Miller Lite winning its third gold medal at the
2002 World Beer Cup. Miller High Life enjoyed modest volume gains, continuing
the 2% per annum growth trend established with the 1998 brand repositioning.
Award winning advertising, innovative packaging initiatives and a recent low
calorie brand extension have contributed to the success of this brand. We will
continue to invest behind this brand, building on our success.
SKYY Blue has become the fourth largest spirits branded FMB in the US with
volumes totalling over 500,000 hls since its introduction in April 2002. We
continue to view the FMB segment of the market as offering value and will invest
appropriately behind our brands.
Exports and international sales of Miller brands, led by MGD, continue to
provide volume growth and stable income. We expect to achieve further growth in
this area through leveraging the distribution network across the SABMiller group
during the current year.
Much work is being undertaken on rebuilding the Miller brands and reshaping the
portfolio. We will reposition the Miller trademark based upon extensive in-depth
consumer research and mapping, with the first elements of the new architecture
becoming visible in autumn 2003. We will, during the next 18 months, also be
implementing initiatives to strengthen sales and distribution based upon our
experience in other parts of the SABMiller group. These initiatives include
prioritisation of local markets, improved channel management, strengthening and
reorganising our sales force and improved management of distributors.
It will take time for the benefits of the brand repositioning and sales and
distribution initiatives to become evident. However, we have identified
opportunities to reduce costs over and above those included in the US$50 million
of synergies described at the time of the acquisition. Importantly, we are also
upgrading the performance management systems across the organisation and will be
taking appropriate actions to implement a productivity and cost reduction
programme.
Miller profitability will be impacted over the next two to three years by the
current volume declines, adverse mix effects and the ongoing restructuring and
reorganisation necessary to establish our platform for growth, although we are
confident that our efforts will deliver shareholder value in the medium term.
For the current financial year, we expect that EBITA, pre exceptional and before
restructuring and reorganisation costs, will be trending lower than comparable
previous periods.
CHIEF EXECUTIVE"S REVIEW (continued) 7
Central America
2003 2002*
Financial summary US$m US$m
Turnover 514 186
EBITA** 56 22
EBITA margin (%) 10.8 11.9
Sales volumes (hls `000"s)
- Lager 1,747 624
- Carbonated soft drinks (CSDs) 6,257 2,231
- Other beverages 2,499 824
* Four months.
** Before exceptional items being reorganisation costs of US$12 million in 2003.
The current year represents the first full year of the group"s ownership of its
Central American investments. The period under review was characterised by weak
economic performance in both El Salvador and Honduras and strong competitive
pressures in the CSD market, particularly El Salvador. Major structural
changes, aimed at establishing a foundation for future growth, have been
actioned in both of our businesses.
Against this broad background, CSD volumes were down in both El Salvador and
Honduras, registering a 6.9% decline in total versus the comparable prior year.
In particular, El Salvador endured the entry of an aggressive CSD competitor,
which has effectively led to a short-term and, we believe, unsustainable
reduction in prices. Lager volumes fared better, and were flat on a pro forma
basis. Honduras achieved a 4.4% growth - the first time that growth has been
achieved in four years, but there was a 6.5% decline in El Salvador. Water
volumes in El Salvador were up 1%.
Sales declines have depressed the reported EBITA performance and reduced
operating margins. However, the year has been one of major structural change.
The restructuring of our Central American businesses has proceeded well. In
each country we have merged the sales and distribution functions for beer and
CSDs. We have rationalised packaging assets in the businesses and closed
certain production and distribution sites. Across the region we have merged our
back office operations and integrated our financial systems. The above has
resulted in significant headcount reduction in both countries" operations and
will lead to substantial savings in future financial years. The El Salvadorian
companies have been merged and we expect to do the same in Honduras in the
current year.
The strategy is to continue the conversion of the company into a marketing
focussed enterprise with a strong portfolio of relevant brands. A number of
brand and packaging changes are planned, and these should support improved
performance in the market place.
Initiatives are also in place to improve production efficiencies with the roll
out of the World Class Manufacturing initiative, continued rationalisation of
surplus facilities and ongoing sales and distribution integration.
CHIEF EXECUTIVE"S REVIEW (continued) 8
Europe
2003 2002
Financial summary US$m US$m %
change
Turnover 1,646 1,280 29
EBITA 275 198* 39
EBITA margin (%) 16.7 15.5
Sales volumes (hls `000"s)
- Lager 24,472 22,359 9
- Lager comparable 24,240 22,359 8
- Other beverages 137 178 (23)
* Before exceptional items of US$8 million.
The division enjoyed another excellent year of profit growth with EBITA up 39%.
Lager comparable volumes grew 8% assisted by good summer weather in our two key
markets of Poland and Czech. Productivity (measured in hectolitres per person
per annum) improved by 12% and contributed to the 120 point expansion in EBITA
margin. Currencies in central Europe have strengthened against the US dollar,
and this has contributed to the improvement in reported results.
Growth in the Polish beer market was 5% for the twelve months to March 2003.
Kompania Piwowarska (KP) outperformed the industry with a volume increase of
10%, reaching 32% market share. A new brand Debowe, competing in the strong beer
segment, had a highly successful launch capturing over 20% of that segment
within nine months. Recently, we announced the acquisition of Browar Dojlidy Sp.
z.o.o. for US$38 million. This acquisition has now secured all regulatory
approvals and provides us with an economy brand in the mainstream segment,
adding a third production facility and improving KP"s representation in the east
of the country.
In the Czech Republic, the Pilsner Urquell group exceeded expectations. The
overall market declined, as anticipated, by around 1% this past year. However,
we saw volumes grow by 4%, signalling good market share gains. In particular,
the premium Pilsner Urquell brand grew by some 12%, assisting margin expansion.
Local management is to be commended on rapid reaction to, and recovery from, the
devastating floods in August.
Our international premium brand Pilsner Urquell continues to perform well in the
key export markets of the USA, Germany, and the United Kingdom. Sales volumes in
these markets are encouraging, with volumes up 13%, 17% and 60% respectively on
the prior year. In total, volumes of Pilsner Urquell outside the Czech Republic
have increased by 17% to 653,000hls. The stand-alone Pilsner Urquell business in
the USA was integrated with the Miller Brewing Company operations shortly after
the financial year end and this will provide a strong platform for the future
potential of the brand in this market.
In Russia, industry volumes were up some 9% for the year and SABMiller enjoyed a
sharp recovery in the second half to end the year with 27% growth. This followed
the introduction of cans, a new brand Try Bogatyrya launched into the growing
mainstream segment, and the newly licensed production of Kozel from our Czech
brand portfolio. MGD, Holsten and Pilsner Urquell volumes all more than doubled
and our share of the Russian premium segment is now over 10%. Expansion to 3.5
million hectolitres at the Kaluga brewery is virtually complete and well within
budget.
CHIEF EXECUTIVE"S REVIEW (continued) 9
In Hungary, general price stability continued, assisting overall industry
profitability. Our Dreher subsidiary"s volumes were up 5% against the industry"s
3% and profits and cash flow surged during the year. Romania"s beer market
continues to disappoint with virtually stagnant volumes. However, SABMiller"s
volumes grew organically by 12% and this, together with ongoing synergy
developments from the prior year"s Timosoreana acquisition, boosted Romania"s
profitability albeit off a small base. Slovakia continues to benefit from
management and marketing integration with the Pilsner Urquell group. Volumes
were up 14% and our market share is now 25%. The Canary Islands have suffered
from the decline in global tourism and the beer industry lost ground this past
year; volumes were down by 3% though profits improved slightly.
Within Central and Eastern Europe, consolidation of the brewing industry
continues. SABMiller expects to maintain a leading position in the region, and
to continue competing effectively.
Africa and Asia
2003 2002
Financial summary US$m US$m %
change
Turnover 1,209 946 28
EBITA 233 171 36
EBITA margin (%) 19.2 18.1
Sales volumes (hls `000"s) *
- Lager 31,332 23,141 35
- Lager comparable 23,686 22,797 4
- Carbonated soft drinks (CSDs) 4,206 3,648 15
- Other beverages 9,920 10,204 (3)
*Castel volumes of 10,680 hls `000"s (2002: 9,633 hls `000"s) lager, 8,925 hls
`000"s (2002: 7,489 hls `000"s) carbonated soft drinks, and 804 hls `000"s
(2002: 569 hls `000"s) other beverages are not included.
Africa
Africa performed exceptionally well in the year under review with the momentum
reported at the half year carrying through to the year-end. The region
benefited from strong volume growth in key markets, market share gains in our
competitive markets and successful acquisition activity in a number of
countries.
Clear beer growth of 3.2% in our African businesses was achieved with strong
performances from Tanzania, Mozambique and Ghana. Tanzania experienced a good
agricultural harvest, beer market growth and additional volume from the
restructuring of our East African operations; whilst Mozambique benefited from
the Laurentina acquisition. Ghana enjoyed strong market share gains. Our soft
drink volumes grew by 15.3% as a result of the inclusion of Zambia bottlers
following the February 2002 acquisitions and an outstanding performance from
Angola, where we exceeded the one million hectolitre mark and achieved organic
growth of 41.2% following the end of the civil war and an improving economy.
Traditional beer, however, ended below prior levels following the decision to
exit the low margin bulk beer segment in Zambia.
The introduction of VAT in Botswana, which resulted in across the board consumer
price increases, curbed the strong sales momentum enjoyed in prior years. US
dollar weakness assisted reported results in Botswana, Lesotho and Swaziland but
did not impact other African currencies to the same extent.
CHIEF EXECUTIVE"S REVIEW (continued) 10
Our SABMiller pan-African premium brands, Castle Lager and Castle Milk Stout,
grew 17% in total over prior year. Other key market initiatives included the
successful launch of Eagle Lager in Uganda, an innovative sorghum based clear
beer aimed at the low-income segment of the market. The product has been well
received and aided market share growth in this competitive environment.
Throughout the region, the momentum in terms of unit cost reduction was
maintained via the combined effect of the application of our Manufacturing
Excellence Programme as well as purchasing, logistics and working capital
savings delivered by Sabex, our Johannesburg-based procurement subsidiary.
Associate volumes and earnings include Zimbabwe, which held up reasonably well
despite experiencing difficult political and economic conditions, and earnings
include our newly acquired stake in Kenya Breweries with effect from December
2002.
The Castel group, in which we have a 20% interest, posted strong results with
clear beer and soft drink volume growth of 10.9% and 19.2% respectively.
Operational benefits have been achieved by both groups from the relationship,
including areas such as procurement. We have recently entered Algeria with a
joint investment in soft drinks, to be supplemented with brewing in the short
term and we continue to evaluate other opportunities.
Asia
Within Asia, our Chinese joint venture performed well with a key area of
achievement being the successful integration of the Wuhan and Blue Sword
acquisitions. Volumes reached the 24 million hectolitre mark for clear beer and
total volumes exceeded 27 million hectolitres. The Chinese beer market is now
estimated to be the biggest in the world by volume. The roll-out of the
Snowflake brand throughout our 30 Chinese breweries continues, with the brand
achieving volumes in excess of five million hectolitres during the year.
Organic volume growth for the year of 5.7% was achieved against total volume
growth of 45.3%. EBITA growth in China more than doubled year on year.
In India we achieved our target of break even at the operating profit level in
our first full year with the expanded base of four operating units, including
the acquisition of the Rochees brewery in Rajastan which was finally completed
towards the end of the period. During the year we launched Castle Lager in
Mumbai, Bangalore and Delhi with encouraging early signs.
On 21 May 2003, we announced that SABMiller had become a strong number two
brewer in India through a joint venture with the Shaw Wallace group of
companies. This positions us well in the high growth Indian beer market.
CHIEF EXECUTIVE"S REVIEW (continued) 11
South Africa:
Beer South Africa
2003 2002
Financial summary US$m US$m %
change
Turnover 1,270 1,112 14
EBITA 338 287 18
EBITA margin (%) 26.6 25.8
Sales volumes (hls `000"s) 24,428 24,246 1
Volumes grew by 0.8%, despite the continuing tough trading conditions and the
period under review not benefiting from the inclusion of Easter. Positive
growth in the second half of the year, particularly over the important peak
season, was driven by favourable weather conditions and the diminishing surplus
in the wine lake. Beer price increases at the retail level were lower than for
other liquor types, with evidence of some volume flow back to beer.
Operating performance, particularly relating to efficiencies and reliability,
are at record levels. Operating margins are up 80 basis points to 26.6%,
notwithstanding the continued focus on cost productivity being offset somewhat
by significant increases in raw material prices. Continued focus on operating
performance and asset management boosted EVA growth to a creditable 19% on a
five year compounded basis while working capital reflected improvement for the
eighth consecutive year.
Marketing spend on new product development has increased, with a number of
brands launched during the year and the company well positioned to go to market
with exciting new offerings during this year. Sterling Light Lager was launched
during the year and received immediate consumer acceptance. Redd"s has gained
significant share through the 660ml returnable pack. Brutal Fruit, launched as a
new brand in June 2002, has shown significant potential but has been constrained
by packaging supply limitations since its launch.
Castle was a major sponsor of the recent Cricket World Cup tournament held in
South Africa. This event provided an excellent opportunity to support the brand
with a new advertising campaign and promotional activity.
The Premium/Light market segment reflected double digit growth. Two of
SABMiller"s international brands, Pilsner Urquell and Miller Genuine Draft, will
be added to this segment to broaden the local portfolio during the early part of
the current financial year. This follows agreement between SAB Limited and
Heineken NV that their joint venture in South Africa to brew and distribute the
Heineken brand would end. The existing arrangement for the brewing and
distribution of the Amstel brand through the SAB network remains unchanged.
Legislation on the revised Liquor Bill is expected to be finalised in 2003. It
has again been confirmed that assurances from the relevant government department
regarding the retention by manufacturers of their depots and their ability to
deliver direct to retailers, remain intact.
CHIEF EXECUTIVE"S REVIEW (continued) 12
Other Beverage Interests
2003 2002
Financial summary US$m US$m %
change
Turnover 788 676 17
- ABI 594 500 19
EBITA 120 95 27
- ABI 98 79 24
EBITA margin (%) 15.3 14.0
- ABI 16.5 15.8
Sales volumes (hls `000"s)
Soft drinks 12,489 11,912 5
ABI 12,063 11,488 5
Amalgamated Beverage Industries (ABI)
The South African consumer environment improved during the second half of the
year under review, assisted by a strengthening of the rand and favourable tax
measures in the recent Government budget. Against this background ABI succeeded
in delivering good results, through volume growth and overhead productivity
gains.
Sales volume grew 5% in the year: 4.1% in CSDs, and 22.3% in other soft drinks.
This strong growth was a function of the good weather conditions, continued
improvement in market execution, and organic as well as market share growth in
certain areas of the expanding other soft drinks category.
Increased input costs and the adverse effect of mix changes towards lower margin
returnable glass packs were countered by strong productivity gains, leading to a
24% increase in EBITA.
Appletiser
Appletiser recorded a significantly increased trading profit, building upon last
year"s successes with further volume growth in all markets other than the United
Kingdom. Focused brand activity to increase consumer awareness and Appletiser
brand equity in the United Kingdom has recently been implemented. Sales volumes
in the remaining international markets grew 10%. Combined volumes for Appletiser
and Grapetiser grew 16% in South Africa.
Distell
The group"s 30% equity accounted listed associate, Distell, achieved sales
volume growth in its domestic and international markets. Operating profit was
significantly better, assisted by favourable sales mix at improved overall
margins.
CHIEF EXECUTIVE"S REVIEW (continued) 13
Hotels and Gaming
2003 2002
Financial summary US$m US$m %
change
Turnover 212 164 30
EBITA** 42 28 47
EBITA margin (%) 19.7 17.4
Revpar - dollar * $32.10 $23.98 34
* Revenue per available room.
** Before exceptional profit on partial disposal of subsidiary US$4 million.
Hotels and Gaming achieved good earnings growth with increased operational
contributions from both segments. The transaction regarding the restructuring of
SABMiller"s Hotels and Gaming interests became unconditional on 31 March this
year. This consolidated subsidiary will in future be accounted for as an
associate. The new `Tsogo Sun Group" is now set to pursue an independent future
with the expectation that SABMiller"s 49% shareholding will be reduced over
time.
The hotel industry benefited from a significant increase in foreign visitor
arrivals to South Africa which has driven strong operating profit growth for the
period. Occupancies at 72% were well up from the 66% achieved last year.
Average room rates increased by 19%, translating into an overall revpar increase
of 34% to $32.10. The successful hosting of the World Summit on Sustainable
Development and the Cricket World Cup were also contributing factors.
Gaming division"s results were strongly influenced by the performance of
Montecasino, the division"s flagship casino and entertainment complex, which
continues to trade well. The Gauteng casino market grew by approximately 15%
when measured against the previous financial year, with Montecasino marginally
gaining market share. Phase one of the Suncoast casino development in Durban was
successfully opened in late November at a capital cost US$95 million.
CHIEF EXECUTIVE"S REVIEW (continued) 14
Financial review
Segmental analysis
Our operating results by region are set out in the segmental analysis of
operations, and the disclosures accord with the manner in which the group is
managed. SABMiller believes that the reported profit measures - before
exceptional items and amortisation of goodwill - provide additional and more
meaningful information on trends to shareholders and allows for greater
comparability between segments. Following a study of head office services, the
group has introduced a method of allocation for head office service costs, which
increased during the year as a result of the expansion of the group following
the recent major acquisition. Segmental performance is reported after the
specific apportionment of attributable head office service costs.
Accounting for volumes
In the determination and disclosure of reported sales volumes, the group
aggregates the volumes of all consolidated subsidiaries and its equity accounted
associates, other than associates where primary responsibility for day to day
management rests with others (such as Castel and Distell). In these latter
cases, the financial results of operations are equity accounted in terms of UK
GAAP but volumes are excluded. Contract brewing volumes are excluded from total
volumes, however turnover from contract brewing is included within group
turnover.
Acquisitions
With effect from 9 July 2002, South African Breweries plc (SAB) purchased the
entire share capital of Miller Brewing Company (Miller) from Philip Morris
Companies Inc. (Philip Morris) in exchange for the issue of 430 million shares
in SAB. The shares issued to Philip Morris comprise two classes of equity
capital: ordinary shares and unlisted participating shares. The total of these
shares is equivalent to an economic interest of 36.02% (excluding the shares
owned by Safari Ltd) in the enlarged SABMiller. Philip Morris" total voting
rights have been capped at 24.99% of the votes exercisable at a general meeting.
Further details of the acquisition, together with other acquisitions made in the
year, are given in note 11. The enlarged SAB group was renamed SABMiller plc,
and Philip Morris Companies Inc. was recently renamed Altria Group Inc.
Disposals
With effect on 31 March 2003, the group reduced its interests in the Hotels and
Gaming division to 49%, through the disposal of all its holdings in the Southern
Sun hotels group and the Tsogo Sun gaming group in exchange for cash and shares
in a new company, Tsogo Sun Holdings. Further details are given in note 11.
Profit before tax
Profit before tax, excluding exceptional items and goodwill amortisation, of
US$1,107 million was up 66% on prior year, reflecting performance improvements
from established businesses, and the impact of acquisitions, offset by increased
interest charges.
Exceptional items
The group recorded net exceptional items of US$66 million, comprising Tumwater
(USA) brewery closure and impairment costs of US$35 million, Miller and related
integration costs of US$23 million, Central America reorganisation costs of
US$12 million and a profit of US$4 million on partial disposal of the group"s
holdings in the Hotels and Gaming group. This compares to prior year net
exceptional items in Europe of US$8 million, comprising brewery closure costs in
Romania at Pitesti of US$9 million and an impairment of the Ursus brewery in
Romania of US$10 million offset by a release of a prior period impairment
provision in the Czech Republic (US$11 million).
CHIEF EXECUTIVE"S REVIEW (continued) 15
Treasury
Gross borrowings have increased to US$3,523 million from US$1,535 million at 31
March 2002, principally as a result of the US$2 billion of borrowings assumed
with Miller Brewing Company. Net debt has also increased to US$2,962 million.
The average loan maturity is less than 1.5 years and the average borrowing rate
is now below 4.5%. Following these activities, the group"s gearing increased at
the year-end to 42.4% from last year"s 40.8%. Nevertheless, the group has
substantial unutilised borrowing facilities. A review of the group debt
financial structure and debt refinancing proposals is taking place.
Interest
Net interest costs increased to US$163 million, a 65.9% increase on prior year"s
US$98 million. This increase is due primarily to the borrowings acquired with
Miller, and interest cover is still viewed as satisfactory, at more than five
times.
Taxation
The effective tax rate, before goodwill amortisation and exceptional items, is
33.6%. This, however, includes an exceptional US$9 million deferred tax credit
in relation to tax losses in one of ABI"s wholly owned subsidiaries, which have
been assessed in the year. Excluding this, the effective tax rate before
goodwill amortisation is 34.4%. The increase compared to the prior year is
attributable to increased profits earned in countries with higher effective tax
rates.
Pensions
Historically, the group has had limited exposures associated with defined
benefit pension schemes and post retirement benefits, with the ABI Pension Fund,
which is in surplus, and the South African post retirement medical aid schemes,
which are fully provided under SSAP24, being the most significant. With the
acquisition of Miller, substantial defined benefit pension scheme and post
retirement medical aid liabilities were assumed, which were fully provided under
SSAP24 in the acquisition balance sheet. The updated valuations as at the year
end, required for FRS17 disclosure purposes only, indicate a deficit on the
Miller schemes in aggregate, in excess of amounts provided in the balance sheet,
of some US$191 million, after taking account of the related deferred taxation.
The group has no other significant exposures to pension and post retirement
liabilities as measured in accordance with FRS17.
Goodwill
Intangible assets increased by US$4,647 million, due primarily to the inclusion
of goodwill of US$4,673 million arising on the Miller acquisition in July 2002.
Goodwill in ABI is considered to have an indefinite life (consistent with prior
years), all other goodwill being amortised over 20 years. The attributable
amortisation charge for the year under review rose to US$250 million from last
year"s US$46 million.
Cash flow
Net cash inflow from operating activities before working capital movement
(EBITDA) rose to US$1,483 million, from last year"s US$904 million. The ratio of
EBITDA to group turnover declined in the year to 17.9% (2002: 24.3%), with the
reduction attributable to lower margins in recently acquired businesses.
Currency
During the first half of the financial year, the SA rand demonstrated
significant weakness against the US dollar, before strengthening in the second
half, and the currency ended the financial year at R7.91 to the US dollar. As a
result the weighted average rand/dollar rate improved by 2.2% to R9.50 (compared
with R9.71 in the prior year).
CHIEF EXECUTIVE"S REVIEW (continued) 16
Dividend
The board has proposed a final dividend of 18.5 US cents making an unchanged
total of 25 US cents per share for the year. Shareholders will be asked to
ratify this proposal at the annual general meeting, scheduled for 30 July 2003.
In the event that ratification takes place, the dividend will be payable on 8
August 2003 to shareholders on the London and Johannesburg Registers. The ex-
dividend trading dates, as stipulated by the London Stock Exchange will be 9
July 2003 on the London Stock Exchange and 7 July 2003 on the Johannesburg
Securities Exchange South Africa as stipulated by STRATE. As the group reports
in US dollars, dividends are declared in US dollars. They are payable in
sterling to shareholders on the UK section of the register and in South African
rand to shareholders on the RSA section of the register. The rates of exchange
applicable on 16 May 2003, being the last practical date before the declaration
date, will be used for conversion ($/GBP = 1.6240 and R/$ = 7.8000), resulting
in an equivalent final dividend of 11.3916 UK pence per share for UK
shareholders and 144.3000 SA cents per share for RSA shareholders. The
equivalent total dividend for the year for UK shareholders is 15.5081 UK pence
(2002: 17.2931 UK pence) and for RSA shareholders is 207.0250 SA cents (2002:
250.6000 SA cents).
To comply with the requirements of STRATE in South Africa, from the close of
business on 4 July 2003 until the close of business on 11 July 2003, no
transfers between the UK and South African Registers will be permitted and no
shares may be materialised or dematerialised.
The pro-rata interim dividend paid in US dollars to Altria on the 430,000,000
listed and unlisted shares held by them was apportioned to the number of days in
which they held the shares for the first half year, and was calculated at
2.98360 US cents a share. The final dividend is to be paid in full, thus giving
a total dividend of 21.48360 US cents a share.
Annual report and accounts
The group"s unaudited summarised financial statements and certain significant
explanatory notes follow. The annual report will be mailed to shareholders in
early July 2003 and the annual general meeting of the company will be held at
1100hrs on 30 July 2003.
SABMiller plc
CONSOLIDATED PROFIT AND LOSS ACCOUNTS
for the years ended 31 March 17
2003 2002
Unaudited Audited
Notes US$m US$m
Turnover (including share of associates" 2 9,112 4,364
turnover)
Continuing operations 5,639 4,364
Acquisitions 3,473 -
Less: share of associates" turnover (all (817) (647)
continuing)
Group turnover 2 8,295 3,717
Net operating costs 3 (7,492) (3,098)
Group operating profit 2 803 619
Continuing operations 780 619
Acquisitions 23 -
Share of operating profit of associates 2 126 85
(all continuing)
Profit on partial disposal of subsidiary 4 4 -
Profit on ordinary activities before 933 704
interest and taxation
Net interest payable (163) (98)
Group (142) (83)
Associates (21) (15)
Profit on ordinary activities before 770 606
taxation
Taxation on profit on ordinary activities 5 (349) (208)
Profit on ordinary activities after 421 398
taxation
Equity minority interests (125) (105)
Profit for the financial year 296 293
Dividends (283) (187)
Retained profit for the financial year 13 106
Basic earnings per share (US cents) 6 27.5 40.7
Headline earnings per share (US cents) 6 52.6 48.0
Adjusted basic earnings per share (US 6 54.0 48.7
cents)
Diluted earnings per share (US cents) 6 27.8 40.3
Adjusted diluted earnings per share (US 6 52.7 47.7
cents)
Dividends per share (US cents) 25.0 25.0
On 9 July 2002, the group acquired the entire issued share capital of Miller
Brewing Company, the results of which are shown as acquisitions in the table
above. During the year and the previous year, the group made a number of other
acquisitions and increased its shareholdings in several subsidiaries. As
disclosed in note 11, these acquisitions were material to individual business
segments, however, they were not material to the group as a whole. All
operations are continuing.
There is no material difference between the results disclosed above and those
disclosable on an unmodified historical cost basis.
SABMiller plc
CONSOLIDATED BALANCE SHEETS
at 31 March 18
2003 2002
Unaudited Audited
Notes US$m US$m
Fixed assets
Intangible assets 7 6,451 1,804
Tangible assets 3,244 1,858
Investments 1,365 1,096
Investments in associates 705 462
Other fixed asset investments 660 634
11,060 4,758
Current assets
Stock 456 238
Debtors 802 405
Investments 10 2 45
Cash at bank and in hand 10 559 245
1,819 933
Creditors - amounts falling due within (4,027) (1,160)
one year
Interest bearing 10 (2,409) (240)
Other (1,618) (920)
Net current liabilities (2,208) (227)
Total assets less current liabilities 8,852 4,531
Creditors - amounts falling due after one (1,130) (1,311)
year
Interest bearing 10 (1,114) (1,295)
Other (16) (16)
Provisions for liabilities and charges 8 (743) (166)
Net assets 6,979 3,054
Shareholders" funds 6,201 2,309
Equity minority interests 778 745
Capital employed 6,
