| Thu 10 Nov 2005, 8:58 | | Sabmiller Plc - Interim announcement |
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Sabmiller Plc - Interim announcement
Sabmiller Plc
JSEALPHA CODE: SAB
ISSUER CODE : SOSAB
ISIN CODE: GB0004835483
SABMILLER PLC - INTERIM ANNOUNCEMENT
Ref: 20/2005
Further growth demonstrates strength of our global footprint
London and Johannesburg, 10 November 2005. SABMiller plc today announces its
first IFRS results for the six months ended 30 September 2005. All comparatives
have been appropriately restated. Highlights are:
Half Half % Full
year year change year
2005 2004 March
US$m US$m 2005
US$m
Group revenue (including 7,901 7,178 10 14,543
share of associates" revenue)
Revenue 7,051 6,443 9 12,901
EBITA (1) 1,264 1,130 12 2,389
Profit before tax (including 1,126 1,324 (15) 2,552
net exceptional credits in
the prior year)
Adjusted profit before tax 1,192 1,039 15 2,221
(2)
Adjusted earnings (3) 667 572 17 1,224
Adjusted earnings per share
(3)
- US cents 52.7 47.9 10 101.0
- UK pence 28.9 26.4 10 54.7
- SA cents 340.5 311.1 9 628.2
- on a comparable basis (3) 52.7 46.3 14 98.4
(4) (US cents)
Basic earnings per share (US 51.3 71.8 (29) 125.5
cents)
Interim dividend per share 13.0 12.0 8
(US cents)
Cash generated from 1,289 1,262 2 2,792
operations
Group lager beer volumes up 10.5% to 91 million hls, organic growth of 5.6%
Group EBITA margin further improved to 16.0%
Strong South Africa Beverages performance
Miller performed satisfactorily in an intensely competitive environment
Europe benefited from strong contributions in Poland and Czech
Good contribution from Africa and Asia driven by China, Mozambique and Tanzania
Major transaction involving Bavaria in South America completed on 12 October
2005 EBITA Reported Organic,
US$m growth % constant
currency
growth %
North America 286 (5) (5)
Central America 32 (12) (8)
Europe 379 27 16
Africa and Asia 209 17 14
South Africa: Beverages 375 19 19
South Africa: Hotels and 38 29 29
Gaming
Corporate (55) - -
Group 1,264 12 9
Statement from Graham Mackay, Chief executive
"The group has delivered further increases in volumes and earnings in the first
half, reaffirming our strong growth profile within the global brewing industry.
"Despite the intensely competitive pricing environment in the US this summer,
Miller has continued to invest in its brands and its organisation to strengthen
its base for sustainable future growth. South Africa"s strong contribution has
been supported by further operational improvements as well as robust consumer
growth in the local economy.
"The group has successfully secured a controlling interest in the leading Andean
brewer Grupo Empresarial Bavaria, which delivers a new platform for growth on
the South American continent."
(1) EBITA comprises operating profit (US$1,103 million) before amortisation of
brands (US$1 million) and exceptional items (US$Nil million) and includes share
of post-tax results of associates (US$100 million) together with exceptional
items, amortisation of brands, interest, tax, and minority interests (US$60
million).
(2) Adjusted profit before tax comprises EBITA less net interest payable (US$77
million) less share of associates" interest (US$8 million) adjusted for the
early redemption penalty in respect of the private placement notes (US$13
million).
(3) The calculation of adjusted earnings and earnings per share is given in note
5.
(4) 2004 figure adjusted for conversion of convertible bonds. Further details
are given in note 5.
Enquiries:
SABMiller plc
Tel: +44 20 7659 0100
Sue Clark
Director of Corporate Affairs
Tel: +44 20 7659 0184
Gary Leibowitz
Vice President, Investor Relations
Mob: +44 7717 428540
Nigel Fairbrass
Head of Media Relations
Mob: +44 7799 894265
Philip Gawith
The Maitland Consultancy Ltd
Tel: +44 20 7379 5151
A live webcast of the management presentation to analysts will begin at 9.30am
(GMT) on 10 November 2005. 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 SABMiller B-roll are available
for accredited journalists and news producers. Contact Lucy Charlesworth or
Nick Spears at Medialink on Tel: +44 20 7554 2700
Registered office: SABMiller House, Church Street West, Woking, Surrey, GU21 6HS
Telephone: +44 1483 264000
Telefax: +44 1483 264103
Chief Executive"s Review (continued)
Page 3
Business review
A good performance was achieved against the comparable prior period"s high base,
reflecting SABMiller"s access to growth in the global beer market. Our
portfolio of developing and developed market operations generated organic growth
of 5.6% in lager volumes. EBITA rose 12% (9% on an organic, constant currency
basis), benefiting from both volume and value growth. The group EBITA margin
increased to 16%, 20 basis points higher than in the comparable prior period.
During the period we announced a major investment in South America, which was
completed on 12 October, obtaining a controlling interest in the leading Andean
brewer, Grupo Empresarial Bavaria. In addition, we increased our interest in
India through acquiring the balance of our joint venture; and our Chinese
associate China Resources Snow Breweries Ltd (CR Snow) has continued to
consolidate its presence in the world"s largest beer market.
The South Africa Beverages division has recorded strong EBITA growth and the
Africa and Asia business also delivered further good results. Europe
contributed a particularly pleasing performance. In North America the results
from Miller Brewing Company reflect higher input costs and an increasingly price
competitive trading environment.
Group beverage volumes totalled 110 million hectolitres (hls), a 10.4% increase
on the comparable six-month period. Lager beer volumes were up 10.5% to 91
million hls, with organic growth of 5.6%. Group revenue, including share of
associates, increased by almost 7% on an organic, constant currency basis, and
on a reported basis at US$7,901 million was 10% ahead of last year.
Reported EBITA of US$1,264 million (up 12%), reflects strong operating
performances with improved pricing and mix in most of our key markets. The
reported results include currency benefits from the Polish zloty and Czech
koruna, whilst the average rand rate was very similar to that in the same period
of the prior year. On an organic, constant currency basis, EBITA increased 9%.
Adjusted earnings are up by 17%, to US$667 million. Adjusted earnings per share
of 52.7 US cents have grown by 10% for the first six months on a reported basis,
and are up 14% on a comparable basis, the calculation of which assumes the
redemption of the group"s convertible bonds on 1 April 2004.
An interim dividend of 13 US cents per share, an 8% increase, will be paid to
shareholders.
North America
Over the period, the Miller business continued to invest in its brands and its
organisational capabilities, despite rising input costs and an intensely
competitive summer pricing environment which contributed to a 5% decline in
EBITA. While domestic sales to retailers (STRs) recorded a small decline
compared to the prior year, Miller competed effectively against the other major
domestic brewers in the face of aggressive price discounting. Results continued
to benefit from the strength of its flagship brand, Miller Lite, which
demonstrated improved brand equity, particularly in the on-premise channel, and
delivered mid-single-digit overall sales growth on top of double-digit growth in
the comparable period last year.
Central America
Group revenue for the period grew by 3% on a constant currency basis, reflecting
improved pricing for beer across the business and for carbonated soft drinks
(CSDs) in Honduras. The decline in EBITA, against last year"s strong recovery
for the same period reflects adverse economic conditions and in El Salvador,
excise changes, together with lower aggregate CSD pricing.
Chief Executive"s Review (continued)
Page 4
Europe
Our Europe business performed well over the important summer period. Organic,
constant currency EBITA increased by 16% and organic volumes were ahead by 4%,
despite unseasonable rainfall and localised flooding in July and August. Strong
growth in Poland, where volumes over the last twelve months have exceeded 11
million hls, was coupled with more moderate growth in the Czech Republic, where
the Plzensky Prazdroj business grew volumes against a declining market. Russia
volumes grew 6% and satisfactory progress is being made in Italy where Birra
Peroni"s branded volumes grew by 2%.
Africa and Asia
Africa produced a further good set of results in the half year, reflecting
excellent trading in Tanzania and Mozambique, partially offset by tougher
conditions in Botswana where currency devaluation and rising inflation impacted
consumer demand across the market.
In China, our associate, CR Snow, generated organic volume growth of 16%, well
ahead of the market, and our leading national brand, Snow, grew 51%. Together
with the impact of acquisitions made in the previous financial year, CR Snow"s
share of the Chinese market has risen to 13%.
South Africa Beverages
Beer and soft drink volumes continued their positive growth trends benefiting
from increased marketing and sales activity, a mild winter and continued strong
economic conditions.
Comparable beer volumes grew by almost 3%, with the premium segment recording
strong growth. The organisation continues to develop its capability to build
local premium and international brands in the market and over the period our
premium portfolio achieved strong double-digit growth compared to the same
period last year.
South America
In preparation for the integration of our South American business, a new
regional management team is being established in Bogota. Whilst the Bavaria
business will be included for five and a half months in the second half of this
financial year, our initiatives - to develop differentiated brand portfolios,
marketing and price management strategies, and reduce operating costs - are only
expected to start taking effect from the following financial year.
Outlook
The group will continue to benefit from its exposure to attractive growth
markets. In the second half of the financial year, increasing input costs from
higher commodity prices, ongoing investment in marketing and in our business
infrastructure, and tough currency comparatives are expected to have an effect
on our results. Nevertheless, the general outlook remains positive and we
expect to deliver growth in comparable adjusted earnings per share for the year.
Chief Executive"s Review (continued)
Page 5
Operational reviews
North America
Financial summary 2005 2004 %
US$m US$m change
Group revenue 2,662 2,615 2
EBITA # 286 301 (5)
EBITA margin (%)# 10.7 11.5
Sales volumes (hl 000s)
Lager - excluding contract brewing 25,655 25,427 1
Lager - contract brewing 5,506 5,562 (1)
Carbonated soft drinks (CSDs) 42 46 (9)
Lager - domestic sales to retailers 23,976 24,041 -
(STRs)
# Before exceptional profit on the sale of Tumwater brewery of US$4 million in
2004
Miller Brewing Company faced significant industry headwinds as pressure from an
intensely competitive pricing environment was exacerbated by rising input costs
and share gains by the spirits and wine industries in the total alcoholic
beverage market. Despite these challenges, Miller"s focus on the fundamentals
of brand-building, sales and distribution execution, cost and productivity
improvement, and its organisational capability ensured that it remains on track
to strengthen its base for future growth.
Industry sales to retailers (STRs) for the first half of the financial year were
largely unchanged as moderately negative domestic beer STRs were offset by
strong growth in the import and craft beer segments. Total US industry domestic
shipments to wholesalers (STWs) for the same period decreased by an estimated
0.4%.
Miller"s US domestic STRs decreased by 0.3% in the reporting period, decreasing
by 1.5% in the second quarter. Domestic STWs rose by 1.1% in the first half,
cycling a reduction in wholesaler inventories during the comparable period in
the prior year. Total volumes including contract brewing for the six month
period increased by 0.6% to 31.2 million hls. Export sales continued to be
depressed by difficult trading conditions in key markets, and contract brewing
volumes were down by 1%.
While overall STRs were down due to price competition and continued softness of
the Miller Genuine Draft brand, Miller competed effectively against the other
major domestic brewers in the face of aggressive price discounting. Results
benefited from the strength of Miller"s flagship brand, Miller Lite, which
showed significant brand equity in delivering a mid-single digit increase in
STRs cycling last year"s double-digit growth in the comparable period. Miller
Lite continues to show momentum despite unprecedented competitor discounting
levels.
Marketing investment and operational focus in the economy portfolio have
resulted in sales increases in the Milwaukee"s Best franchise, and initial
indications are that new advertising for Miller High Life will positively impact
brand performance. Miller Genuine Draft will be re-positioned and re-launched
during the second half of the year.
Group revenue grew by 1.8% to US$2,662 million during the first half versus the
prior period, and within this US domestic revenue excluding contract brewing
grew by 1.7%. This increase is the result of earlier price increases partly
offset by extensive price promotions. Whilst the effect of brand mix was
positive following the improvement in Miller Lite sales, geographic and package
mix were negative. Contract brewing revenues reduced ahead of volume declines as
a result of unfavourable mix impacts.
Chief Executive"s Review (continued)
Page 6
Costs of goods sold increased by more than the US Consumer Price Index, driven
by commodity and fuel price increases. Furthermore, increased investments were
made in brand marketing, specialised sales staff, recruitment, information
systems, health care and retirement funding. Savings from other general costs
and continued improved brewery efficiencies during the period only partially
offset these increases.
EBITA for the period of US$286 million was 5% lower than the prior year"s US$301
million, driven by the well-publicised US pricing environment and higher input
costs of fuel, glass and aluminium. As a result, EBITA margin decreased to
10.7%.
Miller continues to progress in all four areas of its three-year turnaround
strategy. The improved marketing capabilities and brand-building approach that
has helped improve the Miller Lite brand equity measures have been applied to
other key brands, most importantly Milwaukee"s Best and Miller High Life.
Pilsner Urquell and Peroni Nastro Azzurro will also receive greater focus with
the enhancement of the specialised sales force. As the turnaround period nears
completion, improved alignment with distributors, increased rigour and
discipline in local market planning, and the activation of enhanced marketing
activities will drive further improvements in sales and distribution execution.
Miller will continue to invest substantial marketing resources against its core
brands to build a sustainable portfolio of growing brands across all major
segments. Finally, steady progress in building organisational capability will
continue as performance management becomes further entrenched and new talent and
personnel development initiatives are introduced into the organisation.
Profitability in the second half of the year will continue to be impacted by the
effects of the competitive pricing environment and higher raw material and
energy costs together with further investments in brand and local marketing and
sales force improvements.
Chief Executive"s Review (Continued)
Page 7
Central America
Financial summary 2005 2004 %
US$m US$m change
Group revenue 262 260 1
EBITA 32 36 (12)
EBITA margin (%) 12.2 13.9
Sales volumes (hl 000s)
Lager 826 891 (7)
Carbonated soft drinks (CSDs) 2,991 2,886 4
Other beverages 1,451 1,410 3
During the period under review disposable incomes in both countries continued to
be negatively impacted by fuel price increases and consequent increases in
electricity and transport costs. Further progress has been made across both
countries in improving execution through customer focused channel marketing and
growing the worth-more lager segment.
Lager volumes declined by 7% across the business, with growth in Honduras being
more than offset by a decline in El Salvador, driven mainly by the
discriminatory increases in excise taxes in January 2005. The entry of a
competitor into El Salvador also eroded volumes and share, but to a lesser
extent than was anticipated. Improved revenue management through brand
segmentation, enhanced brand equity and portfolio management have yielded
benefits, and supported price increases across the business.
Aggregate CSD volumes increased by 4% reflecting a relatively stable CSD market
share in Honduras, and increased volumes in El Salvador. Selective price
increases were taken in Honduras to improve the profitability of the CSD market,
whilst in El Salvador we have introduced lower-priced offerings in selected
market segments to compete on a price basis with competitors in these market
segments.
Group revenue for the period grew by 3% on a constant currency basis, reflecting
improved pricing for beer across the business and for CSDs in Honduras. The
decline in EBITA (8% in constant currency terms) against last year"s strong
recovery principally reflects the contraction of the El Salvador beer market
following the excise tax changes and the impact of lower aggregate CSD pricing.
We will continue our efforts to stimulate further growth in beer volumes and a
gradual recovery of the CSD profit pool.
Chief Executive"s Review (Continued)
Page 8
Europe
Financial summary 2005 2004 %
US$m US$m change
Group revenue 1,894 1,617 17
EBITA # 379 299 27
EBITA margin (%)# 20.0 18.5
Sales volumes (hl 000s)
Lager 20,813 19,797 5
Lager organic 20,667 19,797 4
# Before exceptional Naples brewery closure costs of US$23 million in 2004.
Europe has delivered an excellent performance in the first half of the year,
with share gains in most markets and organic EBITA growth of 16% in constant
currency, boosted in US dollar terms by currency benefits from the Polish zloty
and the Czech koruna. Following organic volume growth of 6% in the first
quarter, the peak months of July and August were characterised by unseasonable
rainfall and localised flooding. This impacted second quarter volumes, which
grew 3% organically, bringing organic growth in the first half to 4% overall.
Worthmore brands were ahead by 6% regionally, while Poland"s total volumes
surged 12%. EBITA margins were further boosted by productivity and improved
sales mix, adding 150 basis points.
The strong volume growth in Kompania Piwowarska (KP) in Poland exceeded the
industry growth of 5%, reflecting successful brand and channel initiatives, and
our volumes over the last 12 months have exceeded 11 million hls. Together with
the benefits from volume growth, enhanced productivity has resulted in healthy
margin improvement. KP is again the market leader with share gains of 2% year on
year, and commands an estimated 37% market share as at September. Brands
Tyskie, Zubr and Lech now represent the top three beer brands in Poland, with
Tyskie having won the coveted 2005 BIIA (Burton upon Trent) Grand Champion Award
for the second time. Zubr, Lech and Redds have all shown growth in excess of
25% over the last twelve months, with overall sales mix improving. Price
competition is intense and industry prices have reduced by 3% in real terms with
KP achieving selective price increases. Channel initiatives continue to focus on
increasing the off-premise availability of cold beer, developing KP"s leading
key accounts" presence despite greater discounting of competitor brands, and
continuing to build share in the on-premise segment, which rose by over three
percentage points to some 39% in the first half of the year. To support this
rapid growth, further capacity is being installed at the Poznan and Bialystok
breweries.
In Czech the domestic beer industry recorded a decline of 1%, reflecting higher
summer rainfall than in the prior year, and against this market performance
Plzensky Prazdroj grew by 1%. The Pilsner Urquell brand has grown 1%
domestically, with domestic focus on key accounts and further on-premise
availability. Improving mix resulting from growth in the worthmore and
mainstream segments, together with real price gains, increased net revenue per
hectolitre by 5%. These positive developments, along with cost benefits from
centralised procurement, have resulted in satisfactory profit growth. On 25
July 2005 the group announced that it had initiated a buy-out process to acquire
the remaining 3.1% interest held by minority shareholders in the group"s Czech
operating company, Plzensky Prazdroj a.s. This transaction has yet to complete.
Our Russian operations continued to perform favourably with volume growth of
over 6%. The performance was particularly strong in the important Moscow area,
following accelerated cooler placement in retail and on-premise trade outlets.
We benefited from strong growth in the worthmore sector, led by Kozel which grew
by 54% and is now Russia"s leading licensed brand. Multi-pack offerings were
introduced for Miller Genuine Draft (MGD), Redds and Zolotaya Botchka, with
Redds growth of almost 100%. According to AC Nielsen, SABMiller now markets
three (MGD, Holsten and Kozel) of the top four licensed brands in Russia on both
a volume and value basis. Additional local supply lines have reduced input costs
and assisted margin growth.
Chief Executive"s Review (Continued)
Page 9
Birra Peroni"s branded volumes have grown by 2% in the Italian market, which is
level year on year. Key brands Peroni and Nastro Azzurro have performed
particularly well and both show volume growth of over 5%. Birra Peroni increased
pricing on its economy private label brands in conjunction with its deliberate
strategy to significantly reduce these volumes, which fell nearly 40% in the
period. The combination of mainstream and premium growth, combined with the
economy segment decline, has produced a better sales mix with net revenue per
hectolitre increasing by 8%, and production efficiencies have been improved.
Export volumes continue their improving trend with the United Kingdom performing
particularly well showing 25% growth on the back of the new packaging launch for
the international brand Peroni Nastro Azzurro. In line with its premium-focused
strategy, marketing investment has increased, particularly for the core domestic
and international brands. Overhead productivity has benefited from the
rationalisation of production which took place in the prior year.
Ursus Breweries in Romania has produced a good performance with 6% organic and
14% reported volume growth overall and 56% growth for the Timosoreana Lux brand
assisted by its increased distribution footprint. Peroni Nastro Azzurro was
launched in the worthmore segment while the Ciucas brand was successfully
launched in PET packs nationally, creating a full brand portfolio alongside
Ursus and Timosoreana Lux. Capacity expansion and upgrading continues and should
be finalised by May 2006.
Our Hungarian operations have shown 4% volume growth in a market that has
declined 4% in the first six months. This has been achieved through renewed
focus on Arany Aszok, our largest brand, which has grown 7%. International
worthmore brands Pilsner Urquell and MGD have grown volume sharply, albeit from
a low base. Significant price competition continues in the industry while lower
input costs assisted by favourable pack mix have improved margins.
In the Canary Islands the market declined by around 2% with weaker summer demand
and lower tourism. We have maintained our value share of the market at 57%. The
restructuring plan announced in the prior year is on plan.
Volumes at our Slovakian operations have declined by 1% in a market showing a
decline of 4% while price competition remains fierce. The acquisition of Topvar
a.s announced on the 9 May 2005 remains under review by the Slovakian Anti-
Monopoly office.
In the second half of the year, growth will be impacted by the cycling of the
prior year"s earnings boost from Easter. Investments in sales, marketing and
manufacturing will also continue in our major markets. Together with a
challenging pricing environment and a more modest improvement in sales mix, this
is expected to affect margins and profitability.
Chief Executive"s Review (Continued)
Page 10
Africa and Asia
Financial summary 2005 2004 %
US$m US$m change
Group revenue (including share of 1,065 870 22
associates" revenue)
EBITA # 209 179 17
EBITA margin (%) # 19.7 20.6
Sales volumes (hl 000s)*
Lager 31,156 23,851 31
Lager organic 8 27,268 23,851 14
Carbonated soft drinks (CSDs) 1,939 2,000 (3)
Other beverages 7,142 6,113 17
# Excludes exceptional profit of US$96 million on the disposal of the group"s
interest in Harbin Brewery Group Limited (Harbin) in 2004
* Castel volumes of 6,826 (2004: 6,397) hls 000s lager beer, 4,382 (2004: 4,215)
hls 000s carbonated soft drinks and 1,740 (2004: 1,337) hls 000s other beverages
are not included.
8During 2004, the management responsibility for sales to Angola was transferred
from South Africa: Beverages to the Africa and Asia division. On a pro forma
comparable basis, the organic growth in lager volume in Africa and Asia would
have been 13% compared to the same period in the prior year.
Africa
Our business in Africa delivered further growth in the first six months
following three years of outstanding results, and reported lager volumes
increased by almost 6%. This lager volume performance was underpinned by
excellent trading in Tanzania, with growth of 7% led by the Kilimanjaro brand,
and Mozambique with growth of 12% led by the 2M and Laurentina brands. In both
Tanzania and Mozambique, favourable economic conditions and improved
availability through distribution initiatives drove this success. In Uganda the
launch of Eagle Extra, a sorghum based lager beer, resulted in high double-digit
volume growth and market share gains, and in Zambia results were led by market
share gains in the traditional beer sector, with volume growth of 20%. A 12.5%
currency devaluation in Botswana, with resulting rising inflation and fuel
prices, dampened consumer demand across the beer and soft drink product range,
while beer volumes also declined in Zimbabwe.
CSD volume growth moderated following an entry by a competitor in the economy
segment in Angola and continuing tough economic conditions in Zimbabwe, partly
offset by further growth in Zambia.
Group revenue in Africa was supported by inflation-led pricing growth. Volume
and pricing growth and selected brand and package mix improvements more than
offset fuel and distribution cost increases, and in conjunction with
productivity gains, these resulted in good EBITA increases in the period.
Higher organic, constant currency EBITA was achieved in most African countries,
but the reported results were negatively impacted by currency devaluations in
Botswana and other countries. The EBITA contribution from Castel reflected solid
growth for the period.
Lager volumes for Castel grew 7% compared to the first half of the prior year,
with strong growth in Angola, Gabon and Ethiopia. Within these volumes, our
Castle Milk Stout brand produced under licence in Cameroon continues to grow in
a competitive environment.
Asia
In China, organic lager volume growth of 16% outperformed the market, with the
Snow brand growing by 51% and gaining further market share in the period. Total
volumes grew 31% following the acquisitions in the previous financial year. All
regions posted strong organic volume growth for the period including the North
East where competitive pressures continue. This growth reflects the success of
initiatives to strengthen and simplify the route to market, a significant
increase in brand marketing investment and a focus on Snow as the lead brand
within the portfolio
Chief Executive"s Review (Continued)
Page 11
In addition to volume growth, turnover has gained from continued modest and
selective price increases in many regions. Mix has improved and includes the
increased contribution made by the sales of the Snow brand. This, together with
more stable input costs and further operational efficiencies, contributed to
good double-digit organic growth in EBITA. The acquisitions that we have made
during the past year, including that in southern Jiangsu, are benefiting from
greater efficiencies with resulting improvements in profitability.
In India, we acquired the balance of our joint venture with Shaw Wallace
Breweries in late May 2005, from which date the results have been consolidated.
Trading compared with the same period in the prior year has shown improvement
with volumes up 12% on a pro forma basis. Regulatory reform remains a key issue
in liberalising the industry, which is poised for further growth in line with
strong economic fundamentals.
Chief Executive"s Review (Continued)
Page 12
South Africa: Beverages
Financial summary 2005 2004 %
US$m US$m change
Group revenue (including share of 1,864 1,684 11
associates" revenue)
EBITA 375 315 19
EBITA margin (%) 20.1 18.7
Sales volumes (hl 000s)
Lager 12,153 11,992 1
Carbonated soft drinks (CSDs) 5,922 5,384 10
Other beverages 492 394 25
Beer and soft drink volumes continued their positive growth trends during the
six months to September, despite the absence of an Easter period in the current
financial year. The growth was driven by the continued strength of the economy,
a mild winter and targeted marketing and sales activity.
A programme is continuing to establish and leverage benefits from the
combination of our beverage businesses in South Africa. ABI now trades as the
Soft Drink division of The South African Breweries Limited (SAB Limited).
Beer volumes grew by almost 3% on a pro forma comparable basis, having adjusted
for the transfer of management responsibility for exports to Angola to the
Africa division during 2004. Within this performance, the premium portfolio
continues to show strong growth with Miller Genuine Draft, Castle Lite and
Amstel achieving double digit growth versus the comparable six-month period in
2004.
The organisation continues to increase its capability to build both local
premium and international brands in the market. The introduction of bulk packs
in October for both Miller Genuine Draft and Brutal Fruit will continue to
provide consumers with more choice, enhancing availability and value for money
and an accessible premium offering.
In line with our strategy to improve market penetration and with increased
liquor licensing in two of the major areas of South Africa, the delivered
customer base increased by 10% over the past six months.
CSD volumes have benefited from the favourable economic environment, which has
continued from the prior year into the first half of the current year, with ABI
sales volume ending 10% above prior year. Significant consumer promotional
activity during the winter months, improved market execution and distribution
reach, price restraint and favourable weather conditions throughout the trading
period ensured that sales volume accelerated from a buoyant base. Although
still a relatively small contribution to sales, non-carbonated beverage volume
performed exceptionally well, contributing to the excellent volume growth.
The increased sales volumes, together with selective price increases in both
beer and soft drinks and an improved mix with higher sales of premium products,
resulted in an 11% increase in group revenue. Both beer and soft drink
categories performed well, contributing to strong EBITA growth and improved
margins. EBITA grew by 19% in constant currency, benefiting from increased
revenue, lower commodity prices (including benefits from favourable effective
exchange rates), and continued focus on cost productivity. In addition, EBITA
improved as capacity was better utilised during the winter months. These
factors combined to increase the EBITA margin by 140 basis points to 20.1%.
Chief Executive"s Review (Continued)
Page 13
SAB Limited"s reputation as one of South Africa"s leading companies, has been
further confirmed in a series of recent awards. The business was voted "most
admired company in South Africa" in a poll of CEOs and top business executives
and the "best company to work for" in a survey carried out by Finance Week. In
the Sunday Times/Markinor poll, SAB Limited was voted second most favourite
brand in South Africa, the only corporate brand that is not also a product brand
to be recognised in the top ten. SAB Limited"s product brand portfolio
dominated the top ten brands in the same survey.
The process of provincial licensing of the liquor trade continues to progress
slowly. Temporary liquor permits have been issued to previously unlicensed
outlets, a significant proportion of which are investing to upgrade their
outlets to meet formal licensing requirements and enhance the consumer
experience. In line with our intention to actively support the normalisation of
the retail liquor industry we have provided commercial training to almost 4,000
licensees during the last six months, at a cost of some US$2 million.
In line with the BEE (Broad Based Black Economic Empowerment) Act, the liquor
industry has been developing a liquor charter. The completion of the charter is
dependent on Government finalising the codes of good conduct. We are led to
believe that these codes will be published later this year, following which the
liquor charter will be completed. We continue to successfully progress our
internal BEE agenda with spend on preferential procurement up by 37% on the
comparable period last year and the first two franchise distribution centres
also opening during the period. These centres have been created to enable
direct delivery to an increasing customer base and positively improve enterprise
development in the country.
Appletiser
Total volumes rose 7% following on from significant growth in the prior period.
The business continues to benefit from marketing initiatives including the new
bottle styles introduced in July 2004 and the good economic conditions.
Distell
Volumes have increased by 1.8%, with South African volumes up 1%, consistent
with muted growth experience in the South African wine and spirit industry. The
business recognised strong improvements in performance due to enhancements in
revenue, mix, and logistics.
South Africa: Hotels and Gaming
Financial summary 2005 2004 %
US$m US$m change
Group revenue (including share of 154 132 17
associates" revenue)
EBITA # 38 29 29
EBITA margin (%) # 25.0 22.1
Revpar (US$) * 52.58 46.07 14
# Excludes share of associates" exceptional profit of US$11 million on the
disposal of property, plant and equipment in 2004.
* Revenue per available room.
The Tsogo Sun group reported a strong first half year performance with our share
of EBITA for the period being US$38 million, an increase of 29% over the
comparable period. The beneficial effects of low interest rates, low inflation
and growth in household spending have all contributed to the good results
achieved by both Gaming and Hotels divisions. In particular, the gaming industry
has remained buoyant during the past half year, and within this Tsogo Sun"s
major casinos maintained or grew their share and achieved operational
efficiencies. Good occupancy levels have been achieved in the group"s hotels,
with most of the growth occurring in the higher-priced sectors of the market,
leading to the increased Revpar. These factors combined to produce an
improvement in the group EBITA margin to 25%, 290 basis points higher than
reported for the comparable period.
Chief Executive"s Review (Continued)
Page 14
Financial review
New accounting standards and restatements
The group previously prepared its financial statements under United Kingdom
Generally Accepted Accounting Principles (UK GAAP). From 1 April 2005, SABMiller
plc is required to adopt the International Financial Reporting Standards (IFRS)
endorsed by the European Union (EU) and has made available comparative financial
information for the year ended 31 March 2005 prepared on a basis consistent with
the IFRS accounting policies as set out in note 9 to this interim financial
report (www.sabmiller.com/SABMiller/Financial+centre/ - Restatement of Financial
Information under International Financial Reporting Standards). The group"s
accounting policies in note 9 detail certain permitted exemptions from the full
requirements of IFRS which the group has elected to take in adopting IFRS for
the first time.
IAS 34 Interim Financial Reporting has not been applied in preparing this report
due to the continual changes to timing and content of the IFRSs and due to
certain elements which the group expects to use having not been endorsed by the
EU at the date of this report, principally in relation to the proposed
amendments to IAS 19 Employee Benefits. This report has been prepared based on
accounting standards the group expects to apply for the 31 March 2006 annual
report and not on the accounting standards in place at the time of issuing this
report.
In accordance with the exemption available in IFRS 1, the group has applied IAS
32 Financial Instruments: Disclosure and Presentation and IAS 39 Financial
Instruments: Recognition and Measurement with effect from 1 April 2005. This
has resulted in increases in total assets of US$6 million and total liabilities
of US$1 million, giving an increase in net assets of US$5 million, as at 1 April
2005. The impact includes adjustments to the carrying value of borrowings where
there was a fair value hedge and an increase in borrowings reflecting the
reclassification of interest accruals, previously shown as creditors under UK
GAAP. Further details of the impact of the adoption of these standards are given
in note 8.
Segmental analysis
The group"s 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 brand amortisation, and including associates on a gross
operating profit basis (i.e. before interest, tax and minority interests) -
provide additional 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.
This announcement includes segmental results and commentaries for South Africa:
Beverages. This follows the acquisition in December 2004 of all of the shares in
ABI which the group did not own, and the commencement of a programme of work to
establish and leverage the benefits from the combination of our beverage
businesses in South Africa. South Africa: Beverages combines two previously
separate business segments: Beer South Africa and Other Beverage Interests.
Presentation of volumes
In the determination and disclosure of reported sales volumes, the group
aggregates 100% of 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 IFRS but volumes are
excluded. Contract brewing volumes are excluded from total volumes; however
revenue from contract brewing is included within group revenue. Reported
volumes exclude intra-group sales volumes.
Chief Executive"s Review (Continued)
Page 15
Organic, constant currency comparisons
The group has made some additional 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 six months ended 30
September 2005 at the exchange rates for the comparable period in the prior
year.
Acquisitions
On 27 May 2005 the group announced that its Indian subsidiary, MBL Investments
had acquired the Shaw Wallace Group"s interest in the brewing operations of its
Indian investment, taking the group"s interest to 99%.
On 19 July 2005 the group announced a major investment through a transaction
involving the Santo Domingo Group, which completed on 12 October 2005, in which
SABMiller obtained a 71.77% controlling interest in Bavaria S.A., a company
listed on the Colombian Stock Exchange. As consideration, SABMiller plc issued
225 million ordinary shares, amounting to some 15.04% of the enlarged ordinary
share capital of SABMiller. Following the share issue, the group has made or
will make cash offers to acquire the remaining 28.23% of Bavaria and certain
other minority interests held in the Bavaria group.
Profit before tax
Profit before tax of US$1,126 million was down 15% on prior period. However
excluding the impact of exceptional items in the prior year and the early
redemption penalty on the private placement notes in the current year (see
below) and including the share of results of associates before tax and minority
interests, adjusted profit before tax increased 15% reflecting performance
improvements in the majority of our business segments, excluding those in the
Americas. Additional acquisitions have not had a significant impact on profit
before tax for the period.
Exceptional items
Items that are material either by size or incidence are classified as
exceptional items. Further details on the treatment of these items can be found
in notes 3 and 9(r).
There were no exceptional items during the six months ended 30 September 2005.
In the prior period, an exceptional profit of US$316 million was included within
operating profit. This comprised a US$239 million profit on the disposal of the
group"s 21% investment in Edgars Consolidated Stores Ltd (Edcon), a US$96
million profit on the disposal of the group"s 29.4% stake in Harbin Brewery
Group Limited (Harbin) and a US$4 million profit on the disposal of the Tumwater
brewery at Miller, partly offset by US$23 million of brewery closure costs in
Italy. In addition there was an exceptional profit within the share of post-tax
results of associates of US$11 million, relating to the share of associate"s
profit on the disposal of property, plant and equipment in South Africa: Hotels
and Gaming.
Interest
Net interest costs are broadly in line with the prior year, despite the early
redemption penalty referred to below.
Taxation
The effective tax rate, before exceptional items and including share of
associates" operating profit before exceptional items and share of associates"
tax, is 35.3%, broadly in line with the prior period.
Chief Executive"s Review (Continued)
Page 16
Treasury
Gross debt, comprising borrowings of the group together with the fair value of
derivative assets or liabilities held to manage interest rate and foreign
currency risk of borrowings, have increased to US$3,570 million from US$3,354
million at 1 April 2005 (restated). Net debt comprises gross debt net of cash
and cash equivalents. Net debt has increased to US$2,428 million from US$2,210
million at 1 April 2005 (restated) reflecting the increase in cash generated
from operating activities offset by additional borrowings to fund the purchase
of the Indian business. The group"s gearing (presented as a ratio of
debt/equity) has increased to 27.2% from 25.2% (restated) at 1 April 2005.
The group previously had US dollar and sterling private placement notes in issue
with final maturity in 2008. As part of the refinancing for the Bavaria
transaction, notice was given to repay all of these notes in accordance with
their terms, with repayment on 22 September 2005. The amounts on repayment
totalled US$179 million and GBP25 million (US$37 million) and were met out of
existing resources. These amounts included an early redemption penalty of US$13
million, included in interest payable but which has been treated as an adjusting
item for adjusted earnings purposes.
The average loan maturity in respect of the US$ fixed rate debt portfolio is 5.9
years. The average borrowing rate for the total debt portfolio at 30 September
2005 was 5.6% (2004: 5.1%).
On 9 September 2005 the group entered into a US$3,500 million 364 day revolving
credit facility for general corporate purposes (including financing the Bavaria
minority acquisitions). This facility can be extended at the group"s election
for a term of a further year.
Goodwill
Goodwill increased by US$234 million compared to 31 March 2005, due primarily to
the goodwill arising on the Indian acquisition, partially offset by the effect
of foreign exchange movements.
Cash flow
Net cash generated from operations before working capital movement (EBITDA) rose
to US$1,418 million from last half year"s US$1,278 million. Management believes
that an appropriate ratio for showing the conversion of revenue into cash is
EBITDA to revenue. This ratio increased in the period to 20.1% (2004: 19.9%).
Dividend
The board has declared an interim dividend of 13 US cents per share. The
dividend will be payable on 19 December 2005 to all shareholders registered on
the London and Johannesburg Registers on 2 December 2005. The ex-dividend
trading dates will be 30 November 2005 on the London Stock Exchange (LSE) and 28
November 2005 on the JSE Limited, South Africa. As the group reports in US
dollars, dividends are declared in US dollars. They are payable in South African
rand to shareholders on the South African register, in US dollars to
shareholders on the UK register with a registered address in the United States
(unless mandated otherwise), and in sterling to all remaining shareholders on
the UK section of the register.
The rates of exchange will be calculated on 17 November 2005 and announcements
will be made on the LSE"s Regulatory News Service and on the JSE Securities
Exchange News Service to shareholders, indicating the exchange rates to be
applied.
To comply with the requirements of STRATE in South Africa, from the close of
business on 25 November 2005 until the close of business on 2 December 2005, no
transfers between the UK and South African registers will be permitted and no
shares may be dematerialised or rematerialised.
Directors" Responsibility for Financial Reporting
Page 17
This statement, which should be read in conjunction with the independent review
report of the auditors set out below, is made to enable shareholders to
distinguish the respective responsibilities of the directors and the auditors in
relation to the consolidated interim financial information, set out on pages 18
to 40, which the directors confirm has been prepared on a going concern basis
and follows all applicable accounting standards. The directors consider that the
group has used appropriate accounting policies, consistently applied and
supported by reasonable and appropriate judgements and estimates.
A copy of the interim report of the group is placed on the company"s website.
The directors are responsible for the maintenance and integrity of information
on the company"s website. Information published on the internet is accessible
in many countries with different legal requirements. Legislation in the United
Kingdom governing the preparation and dissemination of the financial statements
may differ from legislation in other jurisdictions.
On behalf of the board
EAG Mackay
