In the spotlight - SABMiller
At a time when so many companies are feeling the pressures of the economic downturn and cost inflation, it was heartening to see SABMiller report relatively robust full-year results this week.
In spite of rising costs and heightened competition, the brewer reported a 6% rise in total beverage volumes to 288m hls, 15% revenue growth and a 15% rise in EBITA to US$4.14bn, on the back of strong demand in developing markets, price increases, mix improvements and productivity gains, all of which offset the rise in input costs.
Latin America achieved lager volume growth of 5%, following on from high growth in the previous year, and the record profit from the region means it has now overtaken South Africa as the group's largest profit centre. Meanwhile, its European business delivered organic lager growth of 8%, and EBITA growth of 15% in organic constant currency terms.
Stronger economic conditions in Africa helped lager volumes grow by 6%, though the news from South Africa was not so cheering. The company lost the rights to the Amstel brand, which contributed 9% of the brewer's volumes in the previous year, to a competitor in March 2007. In view of that reversal alone, keeping volumes level with last year represents a considerable achievement, but EBITA fell by 6%.
Nevertheless, SABMiller was justifiably upbeat about its overall results, which were above most expectations. But while it appears to be enjoying better fortunes than many consumer goods companies at the moment, things are likely to get tougher for the brewer. Having already put up prices, the company said it will be raising prices further in response to increasing fuel and raw material costs.
It may still continue to do better than many of its peers, but it still faces some daunting challenges, not least in South Africa where rising oil prices, the depreciating rand and disruption caused by the South African power crunch are all set to continue to impact on results. Analysts expect that passing on higher input costs through price rises will be difficult as the country's economy slows.
SABMiller also faces problems in the US, and once again price rises are likely to be the main challenge. Having increased prices at twice the rate of chief competitor Anheuser-Busch over the past 12 months, SABMiller may find consumers reluctant to accept further increases. Moreover, the high proportion of price-sensitive economy brands in its portfolio makes passing on further cost increases even more problematic. Approval for the company's link-up with Molson Coors cannot come quickly enough.
While there will be challenges in South Africa and the US, developing markets are expected to continue to bolster SABMiller's performance in the current fiscal year. SABMiller is generally better placed in the emerging markets of Latin America, Eastern Europe, Asia and Africa than competitors such as A-B and Heineken. Developing markets not only offer all-important growth potential but analysts also believe that in general it will be easier to pass on necessary cost increases in developing markets where consumers are accustomed to high inflation.
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