| Thu 20 May 2004, 12:31 | | SABMiller plc - PRELIMINARY ANNOUNCEMENT |
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Release Date: 20/05/2004 08:00:05 Code(s): SAB
SABMiller plc - PRELIMINARY ANNOUNCEMENT
SABMiller plc
Incorporated in England and Wales (Registration Number 3528416)
JSE ALPHA CODE : SAB
ISSUER CODE : SOSAB
ISIN : GB0004835483
PRELIMINARY ANNOUNCEMENT
Strong Organic Earnings Growth Across All Businesses
London and Johannesburg, 20 May 2004. SABMiller plc today announces its
preliminary (unaudited) results for the year to 31 March 2004. Highlights are:
2004 2003
US$m US$m # % change
Turnover
12,645 8,984 41
EBITA * 1,893 1,270 49
Profit before tax 1,391 770 81
Adjusted profit before tax* 1,705 1,107 54
Adjusted earnings * 925 581 59
Adjusted earnings per share*
- US cents 77.6 54.0 44
- UK pence (up 31%) 45.8 34.9
- SA cents (up 7%) 547.6 513.3
Basic earnings per share (US 54.1 27.5 97
cents)
Dividends per share (US cents) 30.0 25.0 20
Net cash inflow from operating 2,292 1,568 46
activities
# Includes Miller Brewing Company for nine months.
2003 turnover has been restated downward by US$128 million to
reflect the adoption of FRS5 Reporting the substance of
transactions, application note G - revenue recognition.
* EBITA and adjusted profit before tax comprise profit before
interest and tax (US$1,579 million) and profit before tax (US$1,391
million) respectively before goodwill amortisation (US$355 million),
and before exceptional items (net credit US$41 million - see note
4). The calculation of adjusted earnings is given in note 6.
Total lager volumes increase 18.9% to 137.8 million hls, organic growth of 3.7%
Miller turnaround on track and showing momentum
Continuing excellent performances in Europe, EBITA* up 39%
Further good performance from Africa & Asia, EBITA* up 31%
Strong growth in Beer South Africa, EBITA up 54%
Balance sheet strength reflects cash generation and successful refinancing
2
Reported Organic,
2004 growth constant
Pre- % currency
exceptional growth
EBITA %
US$m
North America* 424 70 28
Central America 76 36 39
Europe 383 39 22
Africa and Asia 306 31 21
Beer South Africa 522 54 15
Other Beverage 186 55 17
Interests
Hotels and Gaming 53 26 24
Central (57) - -
Administration
Group 1,893 49 22
* Organic, constant currency growth reflects nine
months, July to March
Statement from Meyer Kahn, Chairman
`I am delighted to report that the financial year has been an outstanding one
for your company, with adjusted earnings per share up by 44%. Recognising this
strong performance, the board has recommended an increased final dividend,
bringing the total for the year to 30 US cents, a 20% increase on the prior
year.
It is particularly gratifying that all of our businesses performed well. The
results from Miller are beginning to show the benefits of our turnaround
programmes and our Central American operation delivered higher earnings. There
were strong results from South Africa, in both beer and soft drinks, with Africa
and Asia again producing an impressive performance. Once again we saw good
growth in Europe, with Russia performing particularly well.
Looking ahead our strategy continues on course and we have generated the
momentum to produce another year of growth.`
Enquiries:
Tel: +44 20 7659 0100
SABMiller plc
Sue Clark Director of Corporate Mob: +44 7850 285471
Affairs
Gary Leibowitz Vice President, Investor Mob: +44 7717 428540
Relations
Nigel Fairbrass Head of Corporate Mob: +44 20 7659 0105
Communications (Finance)
Ciaran Baker Head of Corporate Mob: +44 7979 954493
Communications
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 20 May 2004.
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.
High resolution images are available for the media to view and
download free of charge from www.vismedia.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 264103
Incorporated in England and Wales (Registration Number 3528416)
CHIEF EXECUTIVE`S REVIEW 3
Business review
We have delivered excellent results over the past financial year with our strong
growth in reported earnings being attributable to three main factors. Firstly,
sound operational performances from each of our businesses around the world.
Secondly, our turnaround programme at Miller is starting to deliver results and
while there is still much work to be done there is evidence of momentum
particularly behind the Miller Lite brand. Thirdly, we have benefited from
currency movements, mainly the strengthening of the rand which has enhanced the
strong organic growth and performance improvement delivered from our South
African businesses.
Total group beverage volumes of 173.9 million hectolitres (hls) were 15% above
last year`s 151.4 million hls (organic growth 3.3%) and lager volumes were up
19% to 137.8 million hls, (organic growth 3.7%). Other beverages totalled 36.1
million hls.
Turnover, including share of associates, increased by 41% to US$12,645 million
(organic, constant currency growth 8%) and pre-exceptional EBITA grew 49% to
US$1,893 million (organic, constant currency growth 22%). EBITA margins
improved in most of our businesses, reaching 15.0% for the group. Reported
profit before tax increased by 81% to US$1,391 million. Adjusted earnings were
up by 59%, to US$925 million, with adjusted earnings per share of 77.6 US cents,
up 44% on the prior year. Reported basic earnings per share of 54.1 US cents
increased 97% on the prior year.
The balance sheet remains strong and net cash inflow generated from operating
activities reached US$2,292 million, a 46% increase over prior year. Borrowings
incurred regarding acquisitions undertaken during the year were largely offset
by the group`s strong cash flow so that group net debt increased by only US$63
million to US$3,025 million. The group`s gearing decreased at the year-end to
43.3% from last year`s 46.6% (restated*).
The board has proposed a final dividend of 22.5 US cents per share, making a
total of 30 US cents per share for the year, an increase of 20% over prior year.
The dividend, which is covered 2.6 times by adjusted earnings, is at a level
that we believe should grow over time in line with the trend of any increase in
earnings.
North America
Last year we announced our three-year plan to stabilise the business and
establish a platform for growth. During the year we completed the analysis and
restructuring phases of the plan and we have made good progress in the four key
areas: brands, sales and distribution, costs and productivity and organisational
capability. As a consequence the Miller portfolio of brands returned to volume
growth in the domestic market in the fourth quarter and profitability has
improved.
Today Miller is a stronger business than it was a year ago. The Miller Lite
brand is leading the recovery and in the coming year we will seek to improve the
trends in other key brands as we increase the marketing investment.
Central America
Our Central America business delivered pre-exceptional EBITA of US$76 million,
an increase of 36% over prior year. This reflects management action in
improving our brand portfolios, market focus and operating efficiencies. Whilst
beer volumes grew by 5%, volumes of carbonated soft drinks (CSDs) fell by 4% in
line with regional weakness and increased competitive intensity in El Salvador.
However CSD volume trends improved through the course of the year and further
brand portfolio and sales execution enhancements are planned for fiscal 2005.
*The group has adopted UITF 38 - Accounting for ESOP trusts, which has resulted
in a reclassification of shares held in both employee share trusts and the
Safari Ltd investment, from other fixed asset investments, reducing net assets
by US$629 million at 31 March 2003. This amount has been deducted in arriving
at shareholders` funds.
CHIEF EXECUTIVE`S REVIEW (continued) 4
Europe
Our Europe operations delivered another excellent year of profit growth, with
organic lager volume up by 8%. Pre-exceptional EBITA was up 39%, up 22%
organically in constant currency, with most countries improving volumes, market
share and margins. Poland, our largest contributing business, grew EBITA
through improved productivity and continuing cost reductions whilst underlying
volume growth was below the rate achieved in recent years. The Czech Republic
had another strong year, while Hungary and Romania performed well, and the
integration process within Peroni remains on plan. Volumes in our Russian
business increased 70%, with sales of Miller Genuine Draft growing by 90%. The
international premium brand Pilsner Urquell grew some 11% domestically and 7%
globally.
Four of our markets were included in the European Union (EU) enlargement which
took place on 1 May 2004: Czech Republic, Hungary, Poland and Slovakia. We
believe this will lead over time to greater political, economic and currency
stability in the region, underpinning future consumption growth.
Africa and Asia
Africa and Asia performed very well with pre-exceptional EBITA up 31%, 21%
organically in constant currency, continuing the solid performance reported at
the half year. Our African businesses, including our Castel alliance, benefited
from generally firm pricing, productivity enhancements and favourable exchange
rate movements in some countries. China recovered from the SARS epidemic at the
beginning of the year to record 5% organic lager volume growth.
In June 2003 we announced the acquisition of a 29.6% stake in the Harbin Brewery
Group Ltd (Harbin). On 5 May 2004 we announced an offer for the entire issued
share capital of Harbin of HK$4.30 in cash per share. We believe that Harbin
represents a powerful strategic fit with our existing operations in China and
that majority ownership by SABMiller will bring benefits for all stakeholders.
Further details relating to Harbin will be given in our formal offer document,
which will be published shortly.
South Africa
Beer South Africa EBITA grew by 54%, 15% on a constant currency basis,
benefiting from volume growth of 3%, an improvement in year-on-year pricing and
ongoing operational productivity. The business did well to maintain the EBITA
margin at 26.6%, having absorbed launch costs and higher ongoing marketing costs
of the new premium brands introduced during the year.
Other Beverage Interests (OBI) pre-exceptional EBITA grew 55%, 17% organically
in constant currency, driven by an 8% increase in ABI volumes, price rises,
overhead productivity and reduced raw material costs. ABI continues to
diversify its product range into non-carbonated beverage categories, driving
growth. Tsogo Sun has had a successful first year, with strong trading
performances in both its hotel and gaming businesses.
Outlook
We are well positioned by virtue of our geographic reach and balance, the
quality of our businesses and our financial strength, to continue to deliver
value to shareholders. The 2004 results reflect strong performances across the
group, and for the coming year we believe that we are in a good position to
continue to generate growth in earnings.
CHIEF EXECUTIVE`S REVIEW (continued) 5
Operational review
North America
2004 2003*
Financial summary US$m US$m
Turnover
4,778 3,408
EBITA** 424 250
EBITA margin (%) ** 8.9 7.3
Sales volumes (hls 000s)
- Lager - excluding contract 47,258 33,852
brewing
- contract 10,593 8,172
brewing
- Carbonated soft drinks 70 55
(CSDs)
* 2003: nine months only.
** Before exceptional items of US$14 million being restructuring costs of US$13
million, Tumwater brewery closure cost reversal of US$4 million and asset
impairment of US$5 million (2003: integration costs of US$17 million and
Tumwater brewery closure costs of US$35 million).
2003 turnover has been restated downward by US$65 million to reflect the
adoption of FRS5 Reporting the substance of transactions, application note G -
revenue recognition.
Total Miller shipment volumes, comprising domestic US and international sales,
fell by 0.8% for the full year versus proforma fiscal 2003, as compared to a
decline of 5.7% during the first half of the year. This improved full year
performance was driven by more robust sales in the second half when total
shipment volumes grew by 5.3%.
Miller`s US domestic shipments fell by just 0.4% for the year, again reflecting
better second half volumes, which increased by 5.9%. Strong growth in Miller
Lite sales in the second half was the prime contributor to this improved
performance, offsetting declines in Miller Genuine Draft, certain economy brands
and the flavoured malt beverage (FMB) brands.
Domestic US industry shipment volumes increased by approximately 1% for the
fiscal year despite the influence of the continuing Iraq conflict and higher
fuel prices. Miller`s US domestic sales to retailers (STRs) fell by 1.5% versus
proforma fiscal 2003, but in the second six months STRs grew by 2% compared with
the prior year.
Total turnover declined by 0.8% on a proforma1 basis, impacted by declines in
contract brewing and international revenues. US domestic turnover (excluding
contract brewing) increased by 0.3% on a proforma basis, reflecting growth in
beer revenues largely offset by a decline in FMBs. Industry pricing throughout
the year was solid, especially in the fourth quarter of the fiscal year. Miller
Lite sales increases had a positive impact on brand mix. However this was
partially offset by adverse geographic and pack mix. Costs of goods sold
increased at approximately the prevailing inflation rate.
EBITA for the year, before exceptional items of US$14 million, was US$424
million, an increase of 5.0% over the proforma adjusted prior year1 of US$404
million. EBITA for the second half increased by 18% to US$175 million
reflecting the stronger performance described above.
1 Proforma adjusted prior year turnover was US$4,815 million, consisting of
US$3,408 million (as shown above) plus US$1,407 million under the ownership of
Altria during the period April - June 2002. Proforma adjusted prior year EBITA
was US$404 million, consisting of US$250 million (as shown above) plus US$16
million of one time costs associated with the launch of FMBs, plus US$138
million under the ownership of Altria during the period April - June 2002.
CHIEF EXECUTIVE`S REVIEW (continued) 6
In the past year, we have driven productivity across all functions of the
business realising savings in excess of our original US$50 million target. This
has been achieved by improving the operation of our breweries, better
procurement, more effective marketing spend and a reduced overall headcount.
The expected cost benefits from the closure of the Tumwater brewery have also
been realised during the year. The current cost base of Miller reflects these
changes and although incremental improvement is possible further large one-off
savings are not expected. The costs of pensions, healthcare and labour
increased above the prevailing inflation rate offsetting some of the benefits
achieved through productivity improvement.
Capital expenditure was maintained at previous year`s levels. Projects included
information systems upgrades, warehouse automation at the Albany and Eden
breweries, `fridge pack` packaging capability as well as a number of quality-
focused investments.
Our more disciplined approach to brand marketing, focused on the attributes of
our beers, began to deliver benefits in the second half. Our new advertising
and promotions around the Miller name began in November 2003 and were followed
by specific brand campaigns, first for Miller Lite beginning in December 2003
and subsequently for Miller Genuine Draft, in March 2004. New packaging linking
Miller Lite and Miller Genuine Draft has also been launched to maximise the
impact of the Miller name. The effect of these activities has been to cause
consumers to reconsider Miller products and allowed us to engage with them about
choice and taste. Revitalised campaigns will follow for our economy and
worthmore brands.
During the year, we segmented the US market into 88 market areas and have
developed detailed local market plans in each of our 33 high focus markets.
These plans allow our sales efforts to be more appropriately directed, better
supporting our wholesalers. We have deployed additional sales people and
marketing funds at a local level to further enhance this process. Plans will be
completed for the remaining markets in the current year, and we will continue to
refine and improve the process. Furthermore a marketing and sales integration
project is underway to drive further improvement.
Good progress had been made towards improving the Miller organisation`s
effectiveness. The organisation was restructured in August and approximately
200 new people have also been recruited, primarily in marketing and sales, while
maintaining the overall net reduction in salaried staffing levels. Performance
management processes are now entrenched across Miller, and work continues on
upgrading our talent through ongoing development and recruitment.
CHIEF EXECUTIVE`S REVIEW (continued) 7
Central America
2004 2003
Financial summary US$m US$m % change
Turnover 531 514 3
EBITA* 76 56 36
EBITA margin (%) * 14.2 10.8
Sales volumes (hls 000s)
- Lager 1,839 1,747 5
- Carbonated soft drinks 6,031 6,257 (4)
(CSDs)
- Other beverages 2,643 2,499 6
* Before exceptional reorganisation costs of US$6 million (2003: US$12 million).
Progress was made throughout the year in improving our brand portfolios, market
focus and the operating efficiency of the business.
Beer volumes rose by 7% in the second half (up from 4% in the first half),
resulting in an increase of 5% for the year. Our beer brand segmentation and
portfolio management was improved as we executed refocused advertising and new
product and sales initiatives. Our leading brand franchises (Pilsener and Salva
Vida) have been strengthened, alongside new premium offerings (Bahia and Miller
Genuine Draft) and enhanced lower-mainstream brands (Regia Extra and Imperial)
designed to compete more effectively with low-priced spirits. Resulting recent
volume trends are particularly encouraging in El Salvador, whilst further trade
marketing and sales effectiveness initiatives are now underway throughout the
region.
CSD volumes fell by 1% in the second half (compared to a 6% fall in the first
half), reflecting an improving trend towards stabilisation following the
regional weakness and increased competitive intensity in El Salvador, both of
which began in the latter half of 2002. Our market share has stabilised in El
Salvador and increased slightly in Honduras where volumes grew modestly in the
second half. Strengthened brand positioning and marketing execution for Coke
and Sprite are well underway, supporting our sector leadership in focusing on
attribute rather than price-based competition. Further brand portfolio
enhancement utilising the Fanta and Tropical brands is also a focus for fiscal
2005.
Turnover grew by 3%, as virtually unchanged total beverage sales volumes were
accompanied by both price increases (for beer in Honduras and CSDs throughout)
and the favourable mix impact of beer`s greater contribution to sales. This
favourable impact was partly offset by strong growth in bottled water sales in
the second half that, while contributing attractive gross margins, have lower
price points. CSD prices rose by between 5% and 8% near the beginning of the
fiscal year, while Honduran beer pricing increased by some 10% in March 2004.
These increases have been accompanied by the positive impact of both pricing
standardisation within channels and channel mix improvement.
Pre-exceptional EBITA more than doubled in the second half and grew by 36% for
the full year as a result of operating cost reductions, improved operating
leverage (on rising beer sales), favourable product mix trends, positive
pricing, and unit cost savings through procurement synergies. Following our
wide-ranging business restructuring, which resulted in a headcount reduction of
1,600, we are now realising the synergies between countries and from combining
beer and CSD categories. EBITA margin rose in the second half compared to the
prior year, driving the full year margin to 14.2% against last year`s 10.8%.
CHIEF EXECUTIVE`S REVIEW (continued) 8
Europe
2004 2003
Financial summary US$m US$m % change
Turnover
2,420 1,583 53
EBITA * 383 275 39
EBITA margin (%) * 15.8 17.4
Sales volumes (hls 000s)
- Lager 30,925 24,472 26
- Lager comparable 26,309 24,472 8
- Other beverages 97 137 (29)
* Before exceptional items being water plant closure costs of US$6 million
(2003: US$Nil).
2003 turnover has been restated downward by US$63 million to reflect the
adoption of FRS5 Reporting the substance of transactions, application note G -
revenue recognition.
Lager volumes grew 26% (8% on an organic basis), influenced by the good European
summer of 2003 and a very strong performance in Russia. The division produced a
third consecutive year of excellent profit growth with pre-exceptional EBITA up
39%. In constant currency terms, organic EBITA growth was 22%. The rate of
EBITA increase against prior year was lower in the second half than in the
first, reflecting the increased seasonality in the division following the Peroni
acquisition. Improved sales mix within most markets, pricing ahead of local
cost increases and improved productivity resulted in organic, constant currency
EBITA margin enhancement. However, the reported margin was impacted by the
lower current margins of Peroni and Dojlidy.
The Polish beer market expanded by around 6%, with disproportionate growth in
the lower priced segments. Kompania Piwowarska`s total volumes increased by
over 8%, while organic volumes were marginally ahead of prior year. The Dojlidy
business, which we acquired during the year, grew 10% on a proforma basis
against prior year. The rate of Kompania Piwowarska`s volume growth improved
during the second half as distributors responded to an improved incentive
programme, and increased focus in the on-premise channel started yielding
results. The Zubr and Debowe brands showed particularly strong growth, with
Zubr now at a 4% national share and the flagship Tyskie brand exceeding 5.6
million hectolitres. Improved production standards and continuing good cost
productivity contributed to continued growth in EBITA.
In the Czech Republic a strong domestic volume improvement of 4% in a market
that grew by 2% reflects the hot summer as well as share gains. Increases in
marketing spend helped boost growth to 6% in the higher value on-premise channel
and this, together with increased average prices of 4%, improved overall
margins. Our international premium brand Pilsner Urquell grew some 11%
domestically and 7% globally. Favourable procurement contracts and operating
efficiencies contributed to a substantial profit improvement, which was further
enhanced by the firm Czech currency.
In May 2003, SABMiller acquired 60% of Birra Peroni SpA for Euro246 million
(US$299 million, including acquisition costs). Industry volumes in Italy grew
strongly during the summer and the full year`s growth rate was approximately 6%,
with Peroni volumes in line with the market. Both key brands, Peroni and Nastro
Azzurro, performed satisfactorily, with Peroni retaining its position as the
market`s leading brand. The Miller Genuine Draft brand was introduced in
November 2003 and is now produced in the Padova brewery. The integration
process within Peroni remains on plan although the company`s profitability for
the period was impacted by integration costs and significant marketing and
promotional investment behind our brands, together with the first beer excise
increase for 13 years.
CHIEF EXECUTIVE`S REVIEW (continued) 9
In Russia, our business, which is clearly focused in the premium segment, had a
very strong year with volumes up 70% and continuing growth in segment share.
Miller Genuine Draft grew by 90% and our Czech brand, Kozel, more than doubled
volume. We are continuing to expand our market coverage and our presence in the
on-premise channel, and this contributed to strong growth in EBITA and cash
flow. A further expansion is being planned at the Kaluga plant.
Our business in Hungary enjoyed 6% volume growth against a market growth of 4%
and we retained our market leadership in value share. The premium Dreher brand
volume grew by 3%, and together with initiatives to improve margin this led to
strong profit growth. In Romania, the market expanded by approximately 15% with
our volume growth being in line. However, our share of value increased and
margins improved, while the broader market growth was driven by lower-priced
volumes in PET packages. In May 2004, SABMiller announced its agreement to
acquire 81.1% of Aurora SA. This will consolidate our position as number two in
the country and will add a strong new sales platform in the central region.
Our volume in Slovakia grew by 6%, while the market was held back by a
significant increase in excise. The business moved to direct distribution
during the year and this change should improve market penetration and
profitability in the medium term. The Canary Islands enjoyed renewed growth,
influenced by the hot summer and an increase in immigration, with our beer
volumes increasing by 6%. We closed the Pinalito water business at an
exceptional cost of some US$6 million.
Africa and Asia
2004 2003
Financial summary US$m US$m % change
Turnover 1,555 1,209 29
EBITA * 306 233 31
EBITA margin (%) * 19.7 19.2
Sales volumes (hls 000s) **
- Lager 32,492 31,332 4
- Lager comparable 31,915 30,917 3
- Carbonated soft drinks 3,879 4,206 (8)
(CSDs)
- Other beverages 10,166 9,920 2
* Before exceptional items being US$6 million share of associate`s profit on
disposal of the CSD business in Morocco and US$1 million share of associate`s
profit on disposal of a brand in Angola (2003: US$Nil).
** Castel volumes of 12,049 hls 000s (2003: 10,680 hls 000s) lager, 9,221 hls
000s (2003: 8,925 hls 000s) carbonated soft drinks, and 3,326 hls 000s (2003:
804 hls 000s) other beverages are not included.
Africa
Our portfolio of businesses in Africa combined with our Castel alliance
diversifies country risk across the continent and the benefits of this can be
seen in the fiscal 2004 results. Overall, our African businesses continued the
solid performance reported at the half year, delivering strong results for the
full year. Lager volume growth was recorded in Uganda, Ghana, Tanzania, Zambia
and Swaziland, but this was more than offset by a modest decline in Botswana and
a significant reduction in Zimbabwe where the depressed economy impacted sales.
A similar pattern was evident in carbonated soft drinks, where exceptionally
strong volume gains in Angola were also offset principally by steep declines in
Zimbabwe. Lager brand growth was 2%, driven by the two principal pan-African
brands, Castle and Castle Milk Stout. Across the continent there have been a
number of successful brand rejuvenation projects, particularly Safari in
Tanzania, Laurentina in Mozambique and Nile and Club in Uganda.
CHIEF EXECUTIVE`S REVIEW (continued) 10
Our African business delivered a strong pre-exceptional EBITA performance
reflecting volume developments in key markets, improved productivity and
operating performance and currency strength principally in Botswana, Lesotho and
Swaziland. In addition, the group recorded market share gains in Uganda and
Ghana, the former including the benefits of new product development. We continue
to benefit from last year`s East African consolidation in Tanzania and Kenya,
and Angola is proving to be an exciting market with strong growth in our CSD
business as the economy normalises after years of civil war. Botswana delivered
strong earnings growth despite the marginal drop in volumes following the
introduction of VAT.
Our alliance partner, Castel, enjoyed an excellent year with strong organic
growth in its key markets of Cameroon, Ivory Coast and Gabon, augmented by a
number of strategic acquisitions and currency strength. We recently announced
our 40% participation in joint ventures in Algeria and Morocco.
Asia
Our Chinese associate, China Resources Breweries Ltd (CRB), performed well,
recovering from the SARS epidemic at the beginning of the year to record 7.5%
lager volume growth for the year of which 5% was organic. The Chinese beer
market is estimated to be the biggest in the world by volume, with CRB enjoying
the number two position in the market. The development of a national brand
remains a key focus area in the business, with the Snowflake brand achieving
volumes of 7 million hectolitres during the current year. The volume growth
during the year contributed to an increase in EBITA.
In June 2003 we announced the acquisition of a 29.6% stake in the Harbin Brewery
Group Ltd (Harbin), which we have accounted for as a fixed asset investment for
the period of ownership. On 5 May 2004 we announced an offer for the entire
issued share capital of Harbin of HK$4.30 in cash per share. We believe that
Harbin represents a powerful strategic fit with our existing joint venture
operations in China and that majority ownership by SABMiller will bring benefits
for all stakeholders. Further details relating to Harbin will be given in our
formal offer document, which will be published shortly.
In March 2004, CRB announced that it had entered into a conditional agreement
with the majority shareholder of Zhejiang Qianpi Group Company Ltd (Qianjiang),
the largest brewery in Zhejiang Province, to co-operate to reorganise Qianjiang
and establish a joint venture company, whereby CRB will have a 70% equity
interest in the company and the shareholders of Qianjiang will have the
remaining 30% interest. Further, in May 2004 CRB announced that it had acquired
a 90% interest in two breweries in Anhui Province. The two breweries in
Shucheng and Liuan produce the Longjin brand.
In India, we announced the formation of a 50:50 joint venture with the Shaw
Wallace group to achieve a strong number two position in this populous country`s
developing beer industry. The operational integration of our businesses has been
completed ahead of expectation and we have a solid foundation to capture ongoing
volume growth as the beer industry develops. Certain conditions are in the
process of being completed, and until the transaction becomes unconditional the
business will be accounted for as a fixed asset investment.
CHIEF EXECUTIVE`S REVIEW (continued) 11
South Africa:
Beer South Africa
2004 2003
Financial summary US$m US$m % change
Turnover 1,964 1,270 55
EBITA 522 338 54
EBITA margin (%) 26.6 26.6
Sales volumes (hls 000s)
- Lager 25,261 24,428 3
Beer volumes continued the positive trends of the first half, ending the year
3.4% above prior year. The improved economic climate in South Africa has
underpinned this growth and has led to trading up amongst consumers both in the
beer segment and in the broader liquor market where beer has continued to take
share primarily from natural wine, with our share of the liquor market now
59.3%, up from last year`s 57.1%. This trend has been enhanced by effective in-
trade execution and the price and value of offerings of products within our
portfolio.
For the first time in many years the mainstream market grew, and there has been
continued strong growth from the premium and alcoholic fruit beverage segments
of the portfolio with year on year growth of 30% and 50% respectively. These
segments continue to be the prime focus of our innovation programme with the
introduction of our international premium brands, Miller Genuine Draft and
Pilsner Urquell, and a new variant of Brutal Fruit, `Sultry Strawberry`. Our
international premium brands have achieved widespread availability in their
target markets.
The higher volumes, improvements in pricing and positive mix trends led to
turnover being up 15% in constant currency. EBITA margins have been maintained
notwithstanding the launch costs and higher ongoing marketing costs of the
international premium brands introduced in the year, the negative impact of the
stronger rand on export margins and higher raw material costs arising in part
from the previous year`s hedging strategy. As a result EBITA has also improved
by 15% in constant currency. This profit performance has been further enhanced
by the strengthening of the rand leading to a 54% increase in reported EBITA.
Disciplined cost management enhanced productivity in all areas. Investments in
the manufacturing excellence programmes over the past few years have resulted in
a significant improvement in production raw material usage, with efficiencies at
an all time high.
The new liquor act, which was approved in November 2003, has yet to be enacted.
The material contents of the act remain unchanged from the time of approval and
the department of Trade and Industry is currently developing the regulations
applying to the Act, which we expect to be published later this year.
CHIEF EXECUTIVE`S REVIEW (continued) 12
Other Beverage Interests
2004 2003
Financial summary US$m US$m % change
Turnover 1,171 788 49
- ABI 912 594 54
EBITA * 186 120 55
- ABI 158 98 61
EBITA margin (%) * 15.9 15.3
- ABI 17.3 16.5
Sales volumes (hls 000s)
Soft drinks 13,227 12,489 6
ABI 12,999 12,063 8
* Before exceptional US$13 million profit on disposal of trademarks (2003:
US$Nil).
Amalgamated Beverage Industries (ABI)
Drivers of the 8% volume growth were increased promotional activity and improved
execution thereof, favourable weather patterns during the year and higher
consumer spending resulting from interest rate cuts and improved consumer
confidence.
Carbonated soft drinks (CSDs) grew by 7% and contributed 95% of the volume. The
balance of volume was contributed by alternative beverages (water and fruit
juices) which grew by in excess of 30%.
EBITA increased by 61% (19% in constant currency), driven by volume growth, a
weighted price increase of 8%, overhead cost productivity and reduced raw
material costs, partly offset by sales mix including the impact of new product
introductions.
Appletiser
EBITA was in line with prior year, as the costs of additional marketing expenses
in export markets were offset by benefits from a stronger rand.
Distell
Distell`s sales volumes in the domestic market reflect a favourable sales mix,
and growth in the spirits category. International sales volumes showed strong
volume growth, and initiatives were completed to reduce the company`s overhead
costs and to reduce the cost of materials.
CHIEF EXECUTIVE`S REVIEW (continued) 13
Hotels and Gaming
2004 # 2003
Financial summary US$m US$m % change
Turnover 226 212 6
EBITA** 53 42 28
EBITA margin (%) ** 23.7 19.7
Revpar - US$ * $42.71 $32.10 33
# SABMiller 49% share of the new Tsogo Sun group formed on 31 March 2003.
SABMiller 100% share of Hotels and 50% share of Gaming.
* Revenue per available room.
** Before exceptional profit of US$4 million on partial disposal of subsidiary
in 2003.
The new Tsogo Sun group, which was formed on 31 March 2003 through the
restructure of the SABMiller hotel and gaming interests, in conjunction with the
group`s empowerment partners, Tsogo Investments, has had a successful first
year, with strong trading performances in both its hotel and gaming businesses.
In hotels, the key domestic corporate market continues to perform well and
occupancies in the domestic leisure segment have improved, while international
tourism has been hampered by the strong rand and a global travel market that has
experienced weak trends.
In gaming, results are dominated by the performance of the group`s flagship
Montecasino operation in Gauteng. The Gauteng gaming market continued to
experience growth during the fiscal 2004 year, and this has resulted in
Montecasino achieving further improvements in turnover.
CHIEF EXECUTIVE`S REVIEW (continued) 14
Financial review
Segmental analysis
Our operating results 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 allow for greater comparability between segments.
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 the group exercises significant
influence but 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. Reported volumes exclude
intra-group sales volumes.
New accounting standards
The reported turnover for the year ended 31 March 2003 has been restated
following the adoption of FRS5 - Reporting the substance of transactions,
application note G - revenue recognition. The change reduced each of turnover
and net operating costs by US$128 million for the year ended 31 March 2003 in
respect of the following segments - US$65 million in North America and US$63
million in Europe. Had the 2004 financial results been prepared on the previous
basis, the impact would have been to increase turnover by US$178 million (US$100
million in North America and US$78 million in Europe). There was no impact on
EBITA in either year, however the adjustment does increase the group`s reported
EBITA margin by approximately 20 basis points.
The group has also adopted UITF 38 - Accounting for ESOP trusts, which has
resulted in a reclassification of shares held in both employee share trusts and
the Safari Ltd investment, from other fixed asset investments, reducing net
assets by US$629 million at 31 March 2003. This amount has been deducted in
arriving at shareholders` funds. The revised UITF 17 - Employee share schemes,
has also been adopted. There were no material changes to reported profits for
the year ended 31 March 2003.
Organic, constant currency comparisons
The group has made some disclosures of its results on an organic, constant
currency basis, to analyse the effects of acquisitions net of disposals and
changes in exchange rates on the group`s results. Organic results exclude the
first twelve months` results of acquisitions and the last twelve months` results
of disposals. Constant currency results have been determined by translating the
local currency denominated results for the year ended 31 March 2004 at the
exchange rates for the comparable period in the prior year.
Acquisitions
The acquisition of a 60% interest in Birra Peroni SpA, the number two brewer in
Italy, with options to increase the holding in the future, was completed on 4
June 2003, although control passed to SABMiller on 21 May 2003 when the
SABMiller appointed directors assumed control of the business. Consequently the
business has been accounted for from 21 May 2003. The acquisition was funded in
cash from existing resources. Further details of the acquisition, together with
other acquisitions made during the year, are given in note 11.
CHIEF EXECUTIVE`S REVIEW (continued) 15
Profit before tax
Profit before tax of US$1,391 million was up 81% on prior year, reflecting
performance improvements from existing businesses, the inclusion of a full
year`s results from Miller and the impact of favourable exchange rates,
partially offset by increased interest charges.
Exceptional items
The group recorded net exceptional costs within operating profit of US$26
million, comprising Miller restructuring costs of US$13 million; a reversal of
US$4 million of the Tumwater brewery closure costs at Miller; and a US$5 million
impairment charge in relation to FMB assets at Miller; US$6 million of
reorganisation costs in Central America; and US$6 million costs associated with
the closure of the water bottling plant in the Canary Islands. Exceptional
profits of US$67 million were recorded after operating profit and comprised
surplus on the pension fund of a disposed operation of US$47 million; profit on
the disposal of trademarks in Appletiser of US$13 million; and the group`s share
of the profit on disposal of Castel`s Moroccan CSD business of US$6 million and
a brand in Angola of US$1 million.
This compares to prior year exceptional costs within operating profit of US$70
million, comprising Tumwater brewery closure and impairment costs of US$35
million and integration costs of US$23 million within Miller, and Central
America reorganisation costs of US$12 million. A profit of US$4 million on
partial disposal of the group`s holdings in the Hotels and Gaming group was
recorded after operating profit.
Treasury
Gross borrowings have increased to US$3,707 million from US$3,523 million at 31
March 2003. Net debt has increased to US$3,025 million from US$2,962 million
reflecting the net increase in borrowings incurred regarding the acquisitions in
the year partly offset by cash inflow from operations. In August 2003 the
US$2,000 million bank facility assumed with Miller was refinanced with the
successful issue of US$1,100 million 5.5% ten-year bonds and US$600 million
4.25% five-year bonds by Miller Brewing Company, with effective interest rates
of 5.21% and 3.94% respectively, the balance being repaid by Miller from its
surplus cash resources. Concurrently SABMiller plc also issued US$300 million
6.625% 30-year bonds with an effective interest rate of 6.41%. The effective
interest rates are arrived at after taking into account hedges which were put in
place prior to the issuance of the bonds to protect against rising underlying
Treasury interest rates.
The average loan maturity in respect of the US$ fixed rate debt portfolio is
some 5.25 years. The average borrowing rate for the total debt portfolio at
March 2004 was 4.8% (prior year less than 4.5%). The group`s gearing decreased
at the year-end to 43.3% from last year`s 46.6% (restated).
Interest
Net interest costs increased to US$188 million, a 15% increase on the prior
year`s US$163 million. This increase is due primarily to the increase in
borrowings incurred regarding the acquisitions undertaken in the last two years,
together with the effects of the higher interest rates payable on the fixed debt
issued during the year. Interest cover, based on pre-exceptional profit before
interest and tax, has improved to 8.2 times.
Taxation
The effective tax rate, before goodwill amortisation and exceptional items, is
34.3%, broadly in line with the prior year excluding the exceptional deferred
tax credit. While there is virtually no change in the rate compared to the
prior year the tax charge has increased as a result of higher profits earned
partly offset by impacts of various tax saving measures introduced during the
year.
CHIEF EXECUTIVE`S REVIEW (continued) 16
Pensions
The group has exposures associated with defined benefit pension schemes and post
retirement benefits: the Miller defined benefit pension plans and post
retirement benefit plans, the ABI Pension Fund which is in surplus, and the
South African post retirement medical aid schemes which are almost fully
provided for under SSAP24, being the most significant. The updated valuations
as at the year end, required for FRS17 disclosure purposes only, indicate a
deficit on the schemes in aggregate, in excess of amounts provided in the
balance sheet, of some US$140 million, after taking account of the related
deferred taxation. This compares to the prior year deficit of US$194 million.
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$62 million, due primarily to the inclusion of
goodwill of US$283 million arising on the Peroni acquisition in May 2003,
partially offset by the amortisation for the year. 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$333 million from last year`s US$250 million.
Cash flow
Net cash inflow from operating activities before working capital movement
(EBITDA) rose to US$2,185 million from last year`s US$1,483 million. The ratio
of EBITDA to group turnover increased in the year to 19.2% (2003: 18.2%
restated).
Currency: rand
During the financial year, the SA rand showed strength against the US dollar and
the currency ended the financial year at R6.39 to the US dollar. As a result,
the weighted average rand/dollar rate improved by 34.6% to R7.06 compared with
R9.50 in the prior year.
Dividend
The board has proposed a final dividend of 22.5 US cents making a total of 30.0
US cents per share for the year. Shareholders will be asked to ratify this
proposal at the annual general meeting, scheduled for 29 July 2004. In the event
that ratification takes place, the dividend will be payable on 6 August 2004 to
shareholders on the London and Johannesburg Registers. The ex-dividend trading
dates, as stipulated by the London Stock Exchange will be 7 July 2004 on the
London Stock Exchange and 5 July 2004 on the Johannesburg Securities Exchange
South Africa as stipulated by STRATE. As the group reports in US dollars,
dividends are declared in US dollars. They are payable in sterling to
shareholders on the UK section of the register and in South African rand to
shareholders on the RSA section of the register. The rates of exchange
applicable on 14 May 2004, being the last practical date before the declaration
date, will be used for conversion ($/GBP = 1.7599 and R/$ = 6.7775), resulting
in an equivalent final dividend of 12.7848 UK pence per share for UK
shareholders and 152.4938 SA cents per share for RSA shareholders. The
equivalent total dividend for the year for UK shareholders is 17.2350 UK pence
(2003: 15.5081 UK pence) and for RSA shareholders is 202.6501 SA cents (2003:
207.0250 SA cents).
To comply with the requirements of STRATE in South Africa, from the close of
business on 2 July 2004 until the close of business on 9 July 2004, no transfers
between the UK and South African Registers will be permitted and no shares may
be materialised or dematerialised.
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 2004 and the annual general meeting of the company will be held at
11:00hrs on 29 July 2004.
SABMiller plc
CONSOLIDATED PROFIT AND LOSS ACCOUNTS
for the years ended 31 March 17
2004 2003
Unaudited Restated
Notes US$m US$m
Turnover (including share of 1,2 12,645 8,984
associates` turnover)
Less: share of associates` turnover (1,279) (817)
Group turnover 2 11,366 8,167
Net operating costs 3 (10,043) (7,364)
Group operating profit 2 1,323 803
Share of operating profit of associates 2 189 126
Share of associate`s profit on disposal
of CSD business and brands in
Morocco and a brand in Angola 4 7 -
Profit on disposa
