SAB beer keeps flowing in tough times

140508 SAB RESULT.PICTURE: LEON MAULEKE

140508 SAB RESULT.PICTURE: LEON MAULEKE

Published Nov 19, 2010

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In the world of beer it seems that the World Cup was not such a big deal. For South African Breweries (SAB) the gain from the World Cup was only worth half of the loss of an Easter.

Thus the additional 100 000 hectolitres of beer sold by SAB during the World Cup made up just half of the 200 000 hectolitres of beer that SAB would have sold during the six months to end-September if Easter had fallen in April and not March this year.

For financial 2011 there will be no Easter for SAB, whose year begins April 1 and ends 31 March. In calendar 2010 Easter fell in March and in calendar 2011 it falls in April.

But despite having no Easter, SAB looks well on its way to reporting strong earnings growth for financial 2011, an outlook that is expected to help to underpin yesterday’s strong surge in the SABMiller share price.

Norman Adami, SAB’s chief executive, said yesterday that he was confident that the South African division of the world’s second-largest beer group, SABMiller, would sustain its sterling first-half performance.

Adami, who was speaking after the release of SABMiller’s strong interim results, said he was particularly pleased with the performance of the South African operation, which was achieved despite the muted economic conditions and the intensified competition.

The more aggressive strategy, primarily focused on marketing, which was launched by SAB 18 months ago, is credited with the above-expectation 8 percent growth in revenue and the 8 percent increase in earnings before interest, tax and amortisation (Ebita) for the six months to September. The hike in Ebita was achieved on a 3 percent rise in lager volumes, indicating an impressive improvement in margins. A reduction in raw material costs helped to counter the increase in packaging and labour costs.

South Africa was one of the significant contributors to the better-than-expected 16 percent hike in earnings to 93 US cents a share reported by SABMiller. This compared favourably with analysts’ consensus of earnings of 88.7c a share. The dividend payment was increased 15 percent to 19.5c a share.

Latin America, Africa, Asia and North America all contributed to the group’s strong performance. Latin America, which is now the largest contributor to group profits, reported a 10 percent hike in Ebita due to lower raw material costs and reduced fixed costs. Firm pricing and synergies enabled the group’s troubled North American operations to turn in an impressive 27 percent increase in Ebita despite a decline in volumes.

In Asia, Ebita was up 22 percent due to strong volume increases recorded in China.

Volume growth, following capacity expansion, enabled Africa to report an 11 percent hike in Ebita.

Europe was the only section of SABMiller’s well-diversified portfolio that reported a decline. A drop in volumes and downtrading saw Ebita drop 4 percent in that region.

The strong first-half performance by SABMiller even surpassed the comparatively bullish expectations of Bernstein Research. In a recent report, Bernstein forecast interim earnings of 91 US cents and noted: “SABMiller offers the greatest exposure to high-growth, high-return, emerging markets, with approximately 82 percent of profits coming from a broad geographic spread of businesses.”

SABMiller expects trading in most of its key emerging markets to steadily improve.

The shares surged 3.79 percent to close at R239.75. - Business Report

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