Chief Executive's Review
"Our widespread portfolio of businesses delivered an impressive financial performance over the year. Adjusted earnings were up 66%, to US$581 million, with adjusted earnings per share of 54 US cents, up 11% on the prior year."  

Graham Mackay
Chief executive

During the past year we have clearly positioned SABMiller as a leader in the global beer market. The acquisition of Miller Brewing Company and, more recently, transactions with Birra Peroni and Shaw Wallace demonstrate the considerable financial strength of the group as it continues to expand. We have achieved organic sales growth and productivity improvements across many of our markets, and added to our established positions with a number of smaller acquisitions in Europe and Africa & Asia.

Total group beverage volumes of 151.4 million hectolitres (hls) were 52% above last year's 99.4 million hls (organic growth 3%). Lager volumes were up 65% to 115.8 million hls, with organic growth of 4.2%. Beer South Africa recorded a second consecutive year of growth, with volumes up 0.8% to 24.4 million hls.
Other beverages totalled 35.6 million hls.

Our widespread portfolio of businesses delivered an impressive financial performance over the year. Turnover, including share of associates, more than doubled to US$9,112 million (organic growth 17.8%). EBITA grew 66% to US$1,270 million, driven by continued focus on volume growth, productivity and cost containment. EBITA margins have continued to improve in most of our businesses, reaching 18.1% for the group excluding Miller. The lower EBITA margin at Miller has diluted the group's margin in comparison with the prior year. Adjusted earnings were up by 66%, to US$581 million, with adjusted earnings per share of 54.0 US cents, up 11% on the prior year.

The board has proposed a final dividend of 18.5 US cents per share, making an unchanged total of 25.0 US cents per share for the year. The dividend is covered 2.2 times by adjusted earnings and is in line with our declared aim of achieving dividend cover of 2.2 to 2.5 times. Shareholders will be asked to ratify this proposal at the annual general meeting, scheduled for 30 July 2003.  

North America
We acquired Miller Brewing Company in July 2002. In the nine month reporting period, after adjusting for a distributor stock reduction programme implemented
in March, total Miller volume was down 3.7% with domestic volume falling by 4.5% (6.2% before adjustment). Contract brewing volumes grew 3.6% and international volumes grew by 6.6%.

EBITA for the nine month period was US$250 million, before exceptional items, reflecting volume decline, as well as the negative impact of brand, pack and geographic mix, increased cost of raw materials and greater energy costs, offset partly by higher selling prices. EBITA for the period was determined after providing for a number of significant one-time charges associated with the Flavoured Malt Beverage (FMB) brands, Sauza Diablo and Stolichnaya Citrona, and the reduction of four and one-half days of inventory held in distributor warehouses.

Since acquiring the business we have commenced the integration of Miller into the group and strengthened the management team, whilst developing our longer term strategy and action plans to deliver value. We expand on these issues in the Review of Operations.
Central America
Our Central America business delivered a first full year EBITA contribution of US$56 million, before exceptional items, which was below our expectations. This was largely due to aggressive, and in our view unsustainable, price-based competition in the carbonated soft drinks (CSD) market in El Salvador. Since acquisition we have undertaken a major restructuring of the business, reducing costs and rationalising headcount and have brought in management with extensive CSD experience. We are confident that the CSD profit pool in El Salvador will be re-established over time and that the changes we have made in the business, combined with positive forecasts for economic growth, will deliver improved earnings performance in the year ahead.


Our Europe operations delivered another excellent year of profit growth. EBITA was up 39% to US$275 million with almost every country improving volumes, market share and margins. Poland, our largest contributing business, grew EBITA strongly on the back of 9% volume growth. Volumes in our Russian business grew 27% following the introduction of new brands and packaging. The Pilsner Urquell brand grew volumes by 12% in the Czech Republic, and volumes outside the country increased by 17% to 653,000 hls.

On 14 May 2003, the group announced it had reached an unconditional agreement to acquire a majority interest in Birra Peroni, the number two brewer in Italy, with rights to increase the holding in the future. The transaction was completed on
4 June 2003 and SABMiller has an initial stake of 60%. The acquisition was funded
in cash, from existing resources.
Africa & Asia
Africa & Asia performed exceptionally well, with EBITA up 36% to US$233 million. Africa benefited from strong volume growth in key markets, market share gains and the results of successful acquisition activity. Our equity accounted associate, Castel, also delivered strong results. In China, the Wuhan and Blue Sword acquisitions have been successfully integrated and EBITA has more than doubled. In India we achieved our target of break-even at the operating profit level in our first full year incorporating four operating units.

On 21 May 2003 we announced that SABMiller's subsidiary, Mysore Breweries, had become a strong number two brewer in India through a joint venture with the Shaw Wallace group of companies. This positions us well in the high growth Indian beer market.  

South Africa
Beer South Africa EBITA grew by 18% to US$338 million, with volumes up 0.8%. Operating performance in this business is at an alltime high, with operating margin
up 80 basis points. Improved productivity was offset by significant increases in raw material prices,higher marketing spend on new product development and introductions into the marketplace.

ABI succeeded in delivering good results through volume growth and overhead productivity gains, and EBITA increased by 24%.

Southern Sun achieved strong earnings growth this year with positive operational contributions coming from both the hotel and gaming divisions.
Group strategy
Our strategy to grow shareholder value remains focused upon four key elements.

The first is to drive volume and productivity. We were pleased that last year we saw volume growth in our South African beer business, which once again delivered operating margin improvement. In Europe, our businesses in virtually all of the seven countries in which we operate have grown volumes by more than the market increase and have achieved year-on-year market share gains. In Africa, we continue to see excellent volume and market share performances in key countries.

The second element of the strategy is to optimise and expand our existing positions through acquisitions. We continue to seek opportunities to achieve growth within individual countries or geographic regions, where we can build strong positions, leverage synergies and achieve economies of scale. The acquisition by our Polish subsidiary Kompania Piwowarska, of the Browar Dojlidy brewery, announced during the year, is a good example of this type of transaction.

The third area of our strategy is to seek value-adding opportunities to enhance our position as a global brewer. We continue to believe that economic development, converging customer taste and lowering of trade barriers will drive further consolidation of the beer market. Currently, the four leading brewers account for around only 33% of the global market compared to between 50% and 80% for other consumer sectors. Companies with a global footprint will benefit from the economies of scale that consolidation will bring and will, we believe, deliver greater shareholder value in the medium to longer term.

Growing our brands in the international premium beer segment is the fourth, and so far, the least developed element of the strategy. Our portfolio of premium brands now contains Pilsner Urquell, Miller Genuine Draft, Peroni and Castle. We believe that there are real opportunities to increase sales in this growing segment through leveraging our distribution platforms around the world.
By pursuing this strategy we have built a business that delivered adjusted earnings per share growth of 11% for the financial year ended March 2003. But we cannot be complacent. We will continue to focus relentlessly upon operational efficiency and work hard on strengthening our regional brands and market positions, pursuing acquisitive growth only where we can see the potential to add real value for shareholders.
Focusing on marketing
SABMiller has portfolios of strong national and regional brands principally based on the mainstream segments of the market. Our challenge is to support these regional brands to ensure that we retain or, in the case of Miller restore, their brand health. We are also looking to build our positions in the premium or"worth more" segments that are driving what volume growth there is in developed markets. Crucialto this is our international brand portfolio described earlier.

To strengthen marketing focus and co-ordinate the drive behind our international premium brands, we have created a new role of group marketing director.

In addition, we are focusing on innovation and have had some notable successes in South Africa with Brutal Fruit and Sterling Light (see case study), and with Redd's in Poland and East Africa.

The difference is clear
The people of SABMiller are what makes us different. We have many talented, creative and driven individuals who are dedicated to the business. We have recently created a new role of group human resources director to ensure that we maximise the potential of our existing team, inculcate our performance culture across the group and widen our pool of talent, while continuing to recruit individuals of the highest calibre.

I recognise that our growth has been rapid and this has placed huge demands on our employees. I thank each and every one of them for their hard work and commitment. There are still many challenges and milestones ahead of us and I am sure that we will continue to meet and exceed these,as we have done so well in the past.  

The global economic and socio-political outlook remains uncertain. However, SABMiller is a business which has geographic reach and balance, a quality brand portfolio, a widespread distribution network and financial strength. It remains well placed to continue to deliver value for shareholders.

We have commenced our restructuring of the Miller organisation, but major benefits will only be evident over time. There are some positive signs in Central America, although competitive pressures remain. Our other businesses have all performed extremely well, and it is expected that this momentum will continue into the current year.
Graham Mackay
Chief executive