SABMiller interim results F13: Strong revenue and earnings growth

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SABMiller plc, one of the world’s leading brewers with operations and distribution agreements across six continents, reports its interim (unaudited) results for the six months to 30 September 2012.

Operational Highlights

  • Strong brand development and sales capability drove broad-based growth in our emerging markets.
  • Organic, constant currency group revenue growth of 8% and reported group revenue up 11%.
  • Lager volumes rose 4% on an organic basis, while selective price increases and positive brand mix drove group revenue per hectolitre (hl) growth1 of 3%.
  • Organic, constant currency EBITA grew by 9%. Reported EBITA up 17%, despite adverse currency movements and increased commodity costs, enhanced by the inclusion of Foster’s.
  • EBITA margin improvement of 30 basis points (bps) on an organic, constant currency basis with a reported margin uplift of 100 bps driven by last year’s acquisitions and business combinations and strong top line performance.
  • Foster’s integration programme progressing well, synergy delivery and capability build running ahead of schedule.
  • Adjusted EPS up 14% to 118.1 US cents per share.
  • Free cash flow2 up 14% to US$1,684 million, assisted by the timing of tax cash flows.

1 Growth is shown on an organic, constant currency basis.
2 As defined in the financial definitions section. See also note 10b.

Financial highlights6 months to Sept
6 months
to Sept
% change12 months to March
  1. Group revenue includes the attributable share of associates’ and joint ventures’ revenue of US$6,106 million (2011: US$5,149 million).
  2. Revenue excludes the attributable share of associates’ and joint ventures’ revenue.
  3. Note 2 provides a reconciliation of operating profit to EBITA which is defined as operating profit before exceptional items and amortisation of intangible assets (excluding software) but includes the group’s share of associates’ and joint ventures’ operating profit, on a similar basis. EBITA is used throughout this interim announcement.
  4. Adjusted profit before tax comprises EBITA less adjusted net finance costs of US$391 million (2011: US$229 million) and share of associates’ and joint ventures’ net finance costs of US$23 million (2011: US$15 million).
  5. Profit before tax includes exceptional charges of US$127 million (2011: US$191 million). Exceptional items are explained in note 3.
  6. A reconciliation of adjusted earnings to the statutory measure of profit attributable to owners of the parent is provided in note 5.
Group revenuea17,47615,6881131,388
Adjusted profit before taxd2,7592,457125,062
Profit before taxe2,2792,041125,603
Profit attributable to owners of the parent1,5901,382154,221
Adjusted earningsf1,8751,633153,400
Adjusted earnings per share
– US cents118.1103.314214.8
– UK pence74.764.017134.4
– SA cents967.5731.1321,607.0
Basic earnings per share (US cents)100.187.415266.6
Interim dividend per share (US cents)24.021.512
Free cash flow1,6841,479143,048

Executive Chairman’s review

Graham Mackay, Executive Chairman of SABMiller, said:

“Broad-based revenue and profit growth in the first half reflects the continued success of our approach to the development of our brands, product portfolios, distribution and sales effectiveness. We have strengthened our local flagship brands, complemented by product innovation across a wide range of styles and prices. Margins have risen modestly despite higher input costs, as a result of our cost reduction and procurement initiatives supplemented by a positive contribution from the acquisitions and business combinations concluded in the second half of last year.”

Segmental EBITA performanceSept
2012 EBITA
Organic, constant
Latin America9201514
North America47966
Asia Pacific50626510
South Africa: Beverages426(4)11
South Africa: Hotels and Gaming65(2)12

Business review

The group has delivered strong revenue and profit growth during the period, with underlying volumes, aggregate pricing and mix all trending positively and contributing to margin development. We grew volumes and revenues across most regions despite a moderation of growth in some emerging markets. Development of brands, product ranges and the route to market continued across the breadth of our portfolio supported by further improved operating processes. The acquisition of Foster’s in particular has contributed significantly.

Total beverage volumes were 4% ahead of the prior period on an organic basis with lager volumes up 4%, soft drinks volumes up 6% and other alcoholic beverages up 12%. This volume growth, selective price increases and improved brand mix in most regions led to group revenue growth of 8% on an organic, constant currency basis, with group revenue per hl up 3% on the same basis. Reported group revenue, which includes business combinations, was up 11%. Currency movements had an adverse impact of six percentage points on group revenue growth principally due to the weakening of the South African rand and Central European currencies.

EBITA of US$3,173 million represented growth of 17%, including the contribution of Foster’s and other business combinations but also the impact of currency weakness. EBITA grew by 9% on an organic, constant currency basis reflecting a combination of volume growth and rising group revenue per hl combined with some cost savings and efficiencies. On an organic, constant currency basis the EBITA margin rose 30 basis points (bps). Raw material input costs rose, as expected, by mid-single digits (on a constant currency, per hl basis) largely as a result of higher cereal costs partly offset by procurement and other savings. Fixed costs increased with salary inflation and further expenditure on sales and systems capabilities, partly offset by on-going cost efficiency initiatives. Investment in brand development continued, with related marketing costs rising slightly behind the increase in revenue. EBITA margins also benefited from acquisitions and business combinations, particularly Foster’s, and the reported EBITA margin for the group expanded by 100 bps to 18.2%.

Adjusted earnings growth of 15% reflects higher EBITA, boosted by the acquisition of Foster’s, and a reduction in the effective tax rate to 27.5%, partly offset by increased finance costs driven by Foster’s-related debt. Adjusted earnings per share were up 14% to 118.1 US cents.

Despite the adverse currency movements, free cash flow increased by US$205 million compared with the prior period, to US$1,684 million. Adjusted EBITDA, which includes dividends from MillerCoors but excludes the cash impact of exceptional items, increased by US$342 million (12%) with underlying growth enhanced by the contribution from Foster’s. Capital expenditure, including that on intangible assets, of US$655 million was US$105 million lower than in the prior period. We have continued to invest, particularly in Africa, in order to address capacity constraints and to support growth. New brewing capacity was commissioned in South Sudan and Nigeria during the period and new capacity in Ghana, Tanzania, Peru, Uganda and Zambia is currently under construction. Working capital generated a net cash outflow during the period of US$219 million driven by the timing of payments to creditors, increased inventory value particularly in Africa and Latin America, utilisation of provisions in Australia and higher receivables in Europe due to growth in the modern trade channel. Net interest paid increased by US$190 million over the prior period reflecting increased debt primarily reflecting the acquisition of Foster’s, but the timing of a one off tax cash inflow in Australia more than offset this.

The group’s gearing ratio as at 30 September 2012 reduced to 65.0% from 68.6% at 31 March 2012 (as restated). Net debt was reduced by US$750 million to US$17,112 million. An interim dividend of 24.0 US cents per share, up 2.5 cents (12%) from the prior year’s interim dividend, will be paid to shareholders on 14 December 2012.

  • In Latin America, EBITA grew by 15% (14% on a constant currency basis) and EBITA margin improved strongly, reflecting increased volumes and selective price increases, combined with variable production and other cost efficiencies. Lager volumes grew by 4% and soft drinks by 3%, with volume improvements more modest in the second quarter as a result of a slowdown in the pace of economic growth. Group revenue per hl grew by 4% on a constant currency basis. Soft drink volume improvements benefited from wider availability and pack range extensions of our non-alcoholic malt brands.
  • In Europe, reported EBITA declined by 10% (5% on an organic, constant currency basis) with an EBITA margin decline of 170 bps (200 bps on an organic, constant currency basis) driven by negative mix and higher raw material costs together with increased level of marketing spend in advance of peak trading. Reported EBITA was impacted by the weakening of European currencies against the US dollar, but benefited from our alliance with Anadolu Efes. Lager volumes improved by 9% on an organic basis, driven by selective price reductions together with growth in the economy segment and the benefit in the second quarter from cycling a weak comparative period. Performance continues to be affected by the shift from on-premise to off-premise consumption as well as growth of the modern trade channel, particularly discounters. Group revenue per hl declined by 2% on an organic, constant currency basis reflecting negative mix and the price resets. We increased market share in Poland, Romania and some other countries, as we repositioned our brand portfolios, launched new variants and enhanced sales execution.
  • In North America, EBITA increased by 6% with strong pricing and positive brand mix, partly offset by increased marketing costs and lower volumes. MillerCoors’ domestic sales to retailers (STRs) were down 2% on a trading day adjusted basis, with sales to wholesalers (STWs) 1% lower on an organic basis following a slight build-up of distributor stocks. The decline in premium light and economy volumes was partly offset by double digit volume growth in the Tenth and Blake craft and imports division.
  • Reported EBITA in Africa increased by 8% (19% on an organic, constant currency basis) with lager volumes up by 6% on an organic basis. Growth was strong in most markets, although second quarter growth was reduced by the effect of a 25% excise increase in Tanzania. Subsidiary EBITA margins remained under pressure reflecting the impact of capacity expansion-related costs, commodity cost pressures and continued building of our sales and marketing capability. Total EBITA margin improved by 200 bps principally as a result of the combination of our Angola and Nigeria businesses with Castel and associated synergies. Other beverage categories contributed significantly to total volume growth, with soft drinks 8% higher and other alcoholic beverages up 12%, both on an organic basis.
  • The acquisition of Foster’s and higher profits in China and India resulted in reported EBITA in Asia Pacific increasing by 265% (10% on an organic, constant currency basis). Lager volumes improved by 5% on an organic basis while reported volumes grew by 17%. Our associate in China, CR Snow, continued to deliver good growth with volumes up 4% on an organic basis although the second quarter saw volume declines in Sichuan, Anhui and Fujian provinces. In India volumes increased by 23% driven by strong growth in Andhra Pradesh, partly cycling trade restrictions in the prior period, combined with double digit growth across other key states.
  • In Australia, lager volumes declined by 8% on a pro forma(1) basis, slightly worse than the market, excluding the impact of the termination of some licensed brands and the loss of two trading days. Including these impacts lager volumes declined by 13%. Good progress continues to be made on plans to strengthen the brand portfolio and commercial trading relationships, to accelerate the realisation of synergies and to improve operational performance.
  • South Africa: Beverages’ EBITA decreased by 4% (but increased by 11% on a constant currency basis). EBITA margin expanded by 10 bps benefiting from price increases, operational efficiencies and fixed cost productivity, partly offset by a non-recurring charge in our associate, Distell. Group revenue per hl grew by 6% on a constant currency basis. Lager volumes grew by 1% and we continued to gain market share in a challenging economic and trading environment. Soft drinks volumes grew by 8%, cycling a relatively weak comparative period in the prior year and benefiting from increased channel penetration.
  • The business capability programme progressed in line with expectations, with net operating benefits of US$115 million in the six months. The most significant contributions came from Trinity (global procurement) and European regional manufacturing. The exceptional costs of the programme were US$70 million during the half year (2011: US$115 million). The global IS solution was deployed in Ecuador and preparations continue for the next release, due to be initiated in Poland after the year end.