just On Call: Caution reigns at two-speed SABMiller
SABMiller cautious on outlook
SABMiller is preparing for higher raw materials costs and more weak beer sales in Europe and North America in the second half of its fiscal year, but emerging markets continue to be strong.
SABMiller reported solid rises in net sales and profits today (17 November), but narrowly missed analysts' forecasts due to a worse-than-expected performance in Europe and North America. Organic EBITA fell by 6% in both regions, which continue to suffer the effects of a debt crisis and high unemployment.
The brewer's share price fell slightly faster than the FTSE100 on the London Stock Exchange. While emerging markets in Latin America, Africa and Asia provided strong momentum for the overall business, investors and analysts were underwhelmed by the Peroni brewer's cautious guidance.
On a briefing with journalists this morning, SABMiller's CEO, Graham Mackay, talked of a two-speed business. With Europe and North America showing little sign of recovery, there appear to be limits on the amount of further cost savings to be had in those markets, particularly in Europe.
Speaking to just-drinks, Mackay said: "We think that there are more savings to come over time." He added, though: "It's going to be a large number of small things rather than showpiece programmes." In the US, MillerCoors is nearing the end of a $750m synergies programme set up following SABMiller and Molson Coors' decision to merge operations there in 2008. It is on-track to achieve the target one year ahead of schedule.
Of Europe, Mackay said: "Europe has done a sterling job of taking costs out and continues to do so. But, looking at the volatility of demand in Europe, I think it's difficult to make dramatic moves from there." It follows from this that the company expects consumer demand to return at some point. Mackay said on the media call that he does not expect Europe and North America to remain "in the doldrums" forever.
SABMiller has already moved to cut its exposure to Russia by agreeing to hand its operations there to Anadolu Efes, in return for a 24% stake in the Turkey-based drinks firm. This deal is expected to complete before the end of SABMiller's fiscal year. Meanwhile, the deal to acquire Foster's Group is set to close on 16 December.
In its outlook today, SABMiller said: "We expect trading conditions experienced in the first half to continue through the remainder of the year."
This prompted Investec Securities to comment: "The outlook statement reads cautiously to us, and with ongoing cost, consumer and currency pressures requiring a strategicpricing offset in H2." Sanford Bernstein's Trevor Stirling added: "As we expected, the outlook is rather on the cautious side."
SABMiller's net profits for the six months to the end of September increased by 27% on the same period of last year, to $1.48bn, with operating profits up by 22% to $1.61bn. Net sales rose by 11.5% to $10.54bn, and by 6% on an organic basis. Lager volume sales increased by 3%.
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