| Mon 30 Jun 2003, 10:30 | | SABMiller report warns of lower 2004 earnings |
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SABMiller report warns of lower 2004 earnings
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I-Net Bridge
SABMILLER, the world's secondlargest brewer by volume, expects to see earnings before interest, tax and amortisation (ebita) from its Miller Brewing operations in the US "trend lower" in the coming financial year compared to previous years, the group said in its latest annual report.
In the report, released on Friday, SABMiller said Miller's profitability would be affected over the next two to three years by volume declines, adverse mix effects and the restructuring and reorganisation necessary to establish its platform for growth.
"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," the group said.
However, it said, management was confident that its restructuring efforts would deliver shareholder value in the medium term.
In his chairman's statement, SABMiller chairman Meyer Kahn said: "We remain confident that integrating the business into the group and building a platform for growth can be achieved within three years."
SAB acquired Miller, the US's second-largest brewing group, in July last year. In the nine months to end-March, Miller's volumes fell 3,7%, with domestic volume falling 4,5%.
SABMiller said the US beer industry had been 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.
Certain of Miller's core brands had been losing market share for a number of years, the company said. However, the rate of decline increased over the past year.
This was attributed to a combination of factors, including loss of management focus on core brands following the introduction of four flavoured malt beverages and disruption during the transaction and subsequent integration into SABMiller.
Contract brewing volumes grew 3,6%, while international volumes grew 6,6%.
Ebita for the nine-month period of 250m before exceptional items of 52m reflected 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 writeoff of excess production of the flavoured malt brands, Sauza Diablo and Stolichnaya Citrona, and the reduction of inventory held in distributor warehouses, which together totalled 40m.
SABMiller said in its report a number of tactical initiatives had been implemented in respect of its Miller Lite and Miller Genuine Draft brands. New packaging for Miller Lite was introduced at the beginning of this year and recent advertising had attracted considerable consumer attention, particularly with the 21- to 28-yearold target audience.
This increase in brand visibility would be followed up with a clear repositioning of the brand itself this year.
Supporting these brand initiatives was the high quality of the Miller Lite product, which had been recognised and was evidenced by Miller Lite winning its third gold medal at last year's World Beer Cup.
Miller High Life enjoyed modest volume gains, continuing the 2%-a-year growth trend established with the 1998 brand repositioning. Award-winning advertising, innovative packaging initiatives and a recent low-calorie brand extension had contributed to the success of this brand.
SABMiller would continue to invest behind this brand, building on its achievements to date.
Skyy Blue, meanwhile, the flavoured malt launched in April last year, had become the fourthlargest spirits-branded flavoured malt brand in the US, with volumes totalling more than 500000 hectolitres. SABMiller continued to view the segment of the market as offering value and would "invest appropriately" behind its brands, it said.
Exports and international sales of Miller brands, led by Miller Genuine Draft, continued to provide volume growth and stable income. The company expected to achieve further growth in this area through leveraging the distribution network across the SABMiller group during the current year.
Much work was being undertaken on rebuilding the Miller brands and reshaping the portfolio. SABMiller would reposition the Miller trademark based upon extensive consumer research and mapping, with the first elements of the new architecture becoming visible later this year.
During the next 18 months the company would implement initiatives including better channel management to strengthen sales and distribution based upon its experience in other parts of the SABMiller group.
Jun 30 2003 07:57:52:000AM Lynn Bolin Business Day 1st Edition
