SABMiller's strong strategic brew

Across its operations on six continents SABMiller leveraged a modest 2,9% rise in beer volumes in the financial year to March into a 12% improvement in sales to US31,4bn and a 12% rise in EPS in US dollar terms. For investors in SA this was boosted to a 17% rise in EPS by a weaker rand.

Analysts share Mackay's view on the results. "SABMiller delivered a strong set of numbers, in line with expectations," says Trevor Stirling of Sanford C Bernstein "In a world that is not a happy place it is a good set of results," says Dirk Kotzé of Coronation Asset Management

"Latin America and Africa were the stars," says Mackay. Latin America, the brewer's largest profit generator, upped earnings before interest, tax and amortisation (Ebitda) 15% to $1,87bn on an 8% higher volume. Africa, excluding SA, lifted Ebitda 15% to $743m on a 13% rise in volume.

Mackay says SABMiller delivered on its four profit drivers: volume, productivity, pricing and a shift in product mix towards premium brands. These drivers were strongly evident in SA, where SA Breweries (SAB) increased beer volume by 2% and Ebitda by 9% (14% in rand terms) to $1,17bn.

"Over the past three years R1,6bn has been saved through cost reductions," says SAB chairman and MD Norman Adami These savings and a further R400m have been ploughed into brand development in a battle with brandhouse in which SAB has emerged the victor.

The battle began in 2007, when Heineken, a brandhouse shareholder, terminated SAB's licence to brew Amstel, which SAB had over 42 years grown into SA's top premium beer. Amstel went into the brandhouse fold and with it a market share of about 9%, a loss SAB went on the offensive to recoup using Castle Lite as its new premium brand weapon.

"Amstel's market share is now less than half of what it was when we lost it and still falling," says Adami. Spearheaded by Castle Lite, which has grown 68% over the past three years, and gains by Black Label, Hansa and other Castle brands, SAB's market share is again approaching 90%.

SABMiller's branding ability is also paying off elsewhere in Africa, where Castle is now the leading premium brand. "SABMiller has been so successful in Africa that it has run into supply constraints," says Kotzé. This will be addressed with three new breweries.

In China SABMiller's 10 years of work building Snow into the country's and the world's top-selling beer are also starting to pay off with the first signs that it is gaining pricing power in a very fragmented beer market. Snow's revenue per hectolitre increased 14%, says Mackay. Together with a 5% rise in volume to over 100mhl and a solid showing by SABMiller's far smaller Indian unit, this boosted Ebitda in Asia by 30%, excluding the recently acquired Fosters in Australia.

SABMiller's strategy will continue to deliver solid growth despite global economic pressure, believes Kotzé. "It is capable of growing EPS in dollar terms by 12%-15% annually," he says. Stirling predicts EPS will rise at an average of 15,4%/year in UK pence over the next five financial years. His target share price for SABMiller 12 months hence is £27,75, 16% above its current £24.

What SA investors can expect by way of EPS growth is subject to the vagaries of the rand. Looking beyond this ever-present uncertainty, SABMiller's defensive and growth stock characteristics make it a stand-out investment in an uncertain world.

Source: Financial Mail