Group operating performance
All of our businesses performed well over the year, and the overall portfolio delivered excellent results. Total lager beer volumes increased 18.9% to 137.8 million hectolitres (hls), and organic lager volumes grew by 3.7%, with growth in all the businesses. Miller’s performance is noteworthy in that the decline in the early part of the year was replaced by growth in the second half, leading to year on year organic volume growth. Europe and Central America recorded organic lager growth of 7.5% and 5.3% respectively and Beer South Africa recorded a third consecutive year of growth, with volumes up 3.4% to 25.3 million hls. Total group beverage volumes of 173.9 million hls were 15% above last year’s 151.4 million hls (organic growth 3.3%).Turnover, including share of associates, increased by 41% (organic growth 20%, and organic, constant currency growth was 8%).
Earnings before interest, taxation, amortisation of goodwill and exceptional items (EBITA) increased 49% to US$1,893 million, and organic, constant currency EBITA increased by 22%, with double digit increases in all of our businesses. EBITA comprises profit before interest and tax (US$1,579 million) before goodwill amortisation (US$355 million) and before exceptional items (net credit US$41 million). Information on our operating results by region is set out in the segmental analysis of operations, and the disclosures accord with the manner in which the group is managed. SABMiller believes that the reported profit measures – before exceptional items and amortisation of goodwill – provide additional and more meaningful information on trends to shareholders and allow for greater comparability between segments.
The group’s aggregate pre-exceptional EBITA margin improved to 15.0% from the prior year’s 14.1%, with margin enhancement in most businesses as volumes increased and productivity was improved. Beer South Africa retained its EBITA margin at 26.6%, having absorbed launch costs and higher ongoing marketing costs of the new premium brands introduced during the year, and while Europe increased organic EBITA margin, the reported margin was impacted by the lower current margins of Peroni and Dojlidy. Margins improved in North America as our turnaround programme started to deliver results, and in Central America, reflecting management action to improve our brand portfolios and increase operating efficiencies. Margins at OBI and Africa & Asia improved, continuing the trend of recent years.
The reported turnover for the year ended 31 March 2003 has been restated following the adoption of FRS 5 Reporting the substance of transactions, application note G – revenue recognition. The change reduced each of turnover and net operating costs by US$128 million for the year ended 31 March 2003 in respect of the following segments – US$65 million in North America and US$63 million in Europe. The reclassifications related to freight costs and distribution costs, respectively. Had the 2004 financial results been prepared on the previous basis, the impact would have been to increase turnover by US$178 million (US$100 million in North America and US$78 million in Europe). There was no impact on EBITA in either year, however the adjustment does increase the group’s reported EBITA margin by approximately 20 basis points.
The group recorded net exceptional costs within operating profit of US$26 million, comprising Miller restructuring costs of US$13 million; a US$5 million impairment charge in relation to FMB assets at Miller; US$6 million of reorganisation costs in Central America; and US$6 million costs associated with the closure of the water bottling plant in the Canary Islands, partially offset by a reversal of US$4 million of the Tumwater brewery closure costs at Miller. Exceptional profits of US$67 million were recorded after operating profit and comprised surplus on the pension fund of a disposed operation of US$47 million; profit on the disposal of trademarks in Appletiser of US$13 million, and the group’s share of the profit on disposal of Castel’s CSD business and brands in Morocco of US$6 million and a brand in Angola of US$1 million. This compares to prior year exceptional costs within operating profit of US$70 million, comprised within Miller of Tumwater brewery closure and impairment costs of US$35 million and integration costs of US$23 million and Central America reorganisation costs of US$12 million. A profit of US$4 million on partial disposal of the group’s holdings in the Hotels and Gaming group was recorded after operating profit.
Net interest costs increased to US$188 million, a 15% increase on the prior year’s US$163 million. This increase is due primarily to the increase in borrowings incurred regarding the acquisitions undertaken in the last two years, together with the effects of the higher interest rates payable on the fixed debt issued during the year. Interest cover, based on pre-exceptional profit before interest and tax, has improved to 8.2 times. The group’s profit before tax increased 81% to US$1,391 million, reflecting the constituent changes referred to above.
The effective tax rate, before goodwill amortisation and exceptional items, is 34.3%, broadly in line with the prior year excluding the 2003 exceptional deferred tax credit. While there is virtually no change in the rate compared to the prior year, the tax charge has increased as a result of higher profits earned, partly offset by impacts of various tax-saving measures introduced during the year.
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