just On Call - SABMiller innovations will fill Europe's profits hole - COO
SABMiller is expecting a turnaround in its European results
SABMiller is using innovation to drive Europe volumes in the hope that higher margin products can reverse declining profits from the region, the company has revealed.
In a conference call with investors after first-half results today (22 November), SABMiller COO Alan Clark said innovations are becoming more important as consumers change behaviour. New products in Europe have found the greatest success, with 60% of the region's volumes growth coming from brand and packaging innovation, Clark said.
Europe saw operating profits drop by 10% in today's results, however beer volumes in the same period grew by 9%.
“In the medium term, we are looking towards five to 10% of revenues coming from innovation,” Clark said. “In the short term, in some markets such as Europe, the revenue contribution has been much higher.”
Innovations will play a larger role across all of SABMiller's markets, Clark added. “That’s partly a result of the competition between the major brewers around the world and partly the way consumers are shifting their behaviour,” he said. “And there is an ongoing effort to present the category as more interesting compared to other alcohol types.”
Clark said innovations inevitably cost money, but because most are focused on the premium end they help drive margin growth.
SABMiller also said it retains faith in the Australian economy despite its Foster's unit seeing sales drop 8% in the six months to September, below the country's overall beer market decline.
“There has been adverse sentiment but we don't see it continuing because the underlying factors in Australia are very solid,” SABMiller chairman Graham Mackay said.
The company has upgraded its Australian brand portfolio and worked on customer relationships to help improve the Foster's unit's performance, Mackay said. He also said the relaunch of the Victoria Bitter brand, which recently returned to its 4.9% abv, “has been extremely well received and there are promising early signs”.
“Overall, Australian beer volumes have decreased and that will be the case for a while, but there are bright spots in the industry,” he said.
In an earlier call with journalists, Mackay said SABMiller faced tough trading conditions in a number of countries. Columbia battles uncertain consumers and high interest rates exacerbated by security concerns hindering distribution, he said.
Meanwhile, East Europe is struggling, particularly the Czech Republic. But Mackay added that most of the company's emerging markets saw growth “continuing unabated”.
The US, meanwhile, boasted “robust pricing”, with net revenue per hectolitre up by 4%, Mackay said.
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