Sunday Times

Head­winds blow froth off the beer

- ANN CROTTY Business · Finance · South Africa · United States of America · China · North America · Asia · SABMiller · Alan Clark · South African Breweries · School of American Ballet · Rustenburg · Rustenburg Airfield

OR­GAN­ISED re­li­gion got the bet­ter of SABMiller in the 12 months to March.

The ab­sence of an Easter pe­riod dur­ing SABMiller’s fi­nan­cial 2014 was one of the fac­tors that re­strained profit per­for­mance by the world’s num­ber two beer group.

CE Alan Clark calls them “head­winds”, and notes that de­spite them the group could re­port a 1% rise in op­er­at­ing profit be­fore ex­cep­tional items and amor­ti­sa­tion (ebita).

The Easter im­pact was par­tic­u­larly no­tice­able in South Africa, where South African Brew­eries (SAB) was forced to re­port a zero in­crease in lager vol­umes and in soft-drink vol­umes for the 12 months.

SAB’s out­go­ing ex­ec­u­tive chair­man, Nor­man Adami, says that, in ad­di­tion to the ab­sence of Easter, SAB’s soft­drink re­sults were hit by bad weather in March, the un­rest in Rusten­burg and in­ten­si­fied com­pe­ti­tion from econ­omy soft-drink brands.

But the first two months of fi­nan­cial 2015, which have in­cluded Easter and sev­eral pub­lic hol­i­days, are show­ing a sig­nif­i­cant im­prove­ment with vol­ume in­creases in dou­ble dig­its.

For the over­all group, the strong­est head­wind came in the form of the US dol­lar, which ap­pre­ci­ated sig­nif­i­cantly against all cur­ren­cies of the emerg­ing mar­kets that dom­i­nate SABMiller’s op­er­a­tions.

The strength of the dol­lar has a twofold neg­a­tive im­pact on SABMiller’s re­ported profit. It in­creases the cost of raw ma­te­ri­als such as wheat, maize and malt, which are priced in dol­lars on the world mar­ket, and it re­duces the

Soft-drink vol­umes were up 5% on an or­ganic ba­sis

dol­lar value of prof­its earned in the weaker emerg­ing-mar­ket cur­ren­cies.

Adami notes that some 95% of SAB’s pur­chases are sourced in South Africa, but that much of this is priced in dol­lars.

The re­ported re­sults look sig­nif­i­cantly stronger if the cur­rency head­wind is ex­cluded.

On a con­stant cur­rency ba­sis, ebita rose 7% on a 1% in­crease in larger vol­ume. “Lager vol­umes grew by 1% on both re­ported and or­ganic ba­sis, re­flect­ing ro­bust growth in Latin Amer- ica, Africa and China, par­tially off­set by de­clines in Europe and North Amer­ica,” says Clark.

Soft-drink vol­umes were up 5% on an or­ganic ba­sis driven by Latin Amer­ica, Europe and Asia.

Jean Pierre Ver­ster of 36ONE As­set Man­age­ment de­scribes the re­sults as “not great but rea­son­able given the cir­cum­stances”.

Ver­ster says in­vestors wel­comed the sav­ings ex­pected from the cen­tral­is­tion of the group’s pro­cure­ment sys­tems and back-of­fice func­tions.

“This sort of cen­tral­i­sa­tion is typ­i­cal of multi­na­tion­als, es­pe­cially those that have been built on the back of M&A ac­tiv­ity. Once the group’s fo­cus is on con­sol­i­da­tion rather than ac­qui­si­tion, it is pos­si­ble to lift mar­gins by squeez­ing ef­fi­cien­cies in this man­ner,” says Ver­ster.

Sig­nif­i­cant and bet­ter-than-ex­pected cost sav­ings al­ready achieved on this front in­di­cate that talk of a ‘‘busi­ness ca­pa­bil­ity pro­gramme” was not just ‘‘MBA-speak”, he says.

The African mar­ket continues to be the group’s stel­lar per­former.

Ver­ster says that a ma­jor is­sue in Africa’s growth re­lated to af­ford­abil­ity, which SABMiller had worked hard to ad­dress.

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