Shareholder value
The value which a company returns to its owners is best measured by total shareholder return (TSR) – the combination of share price appreciation and dividends returned over the medium to long term. Recent measures of shareholder return are impacted by the significant decline in equity indices over the past five years. Since SABMiller moved its primary listing to the London Stock Exchange in March 1999 the group has produced a TSR of positive 74% as at the market’s close on the date of our preliminary 2004 results announcement while the FTSE 100 has produced a TSR of negative 17%.
In focusing on shareholder value added, the group uses EVA™ as a key indicator of annual performance. As noted previously, SABMiller is continually investing in new brewing operations and most new investments impact negatively on EVA™ in the short term. The group’s EVA™ calculation is summarised below. Key factors to be borne in mind are: EVA™ is calculated using operating profit after tax, adjusted for exceptional and non-recurring items; the capital charge is calculated on opening economic capital – adjusted for acquisitions, any impairments of assets of continuing business units, and goodwill previously eliminated against reserves. The group’s weighted average cost of capital (WACC) is applied against the resulting investment; and WACC, at 8.75% (2003: 9%), takes account of relevant individual country risk profiles and the group’s overall debt profile. This reduction in WACC is the result of the impact of lower market yields on comparable corporate bonds and a lower group risk profile from the increased geographic spread of our businesses.
| Calculation of EVA™ |
|
2004
US$m |
2003
Restated
US$m |
| Economic profit statements |
|
|
| Profit on ordinary activities |
|
|
| before interest and taxation |
1,579 |
933 |
| Taxation on profit on |
|
|
| ordinary activities |
(579) |
(349) |
| Tax deduction on |
|
|
| financing costs |
(65) |
(56) |
| Adjustment for non-recurring |
|
|
| items |
308 |
309 |
| Net operating profit after tax |
1,243 |
837 |
| Capital charge |
(1,002) |
(773) |
| Economic profit (EVA™) |
241 |
64 |
| |
| Economic balance sheets |
|
|
| Fixed assets |
11,483 |
10,431 |
| Working capital |
(203) |
(70) |
| Accumulated adjustment for |
|
|
| non-recurring items |
894 |
586 |
| Economic capital |
12,174 |
10,947 |
| |
| Non-interest bearing funding |
(405) |
(306) |
| Provisions |
(866) |
(743) |
| Net operating assets |
10,903 |
9,898 |
SABMiller returned EVA™ of US$241 million in the year under review (2003: US$64 million). This increase is the result of the improved business performance outlined earlier, partially offset by a higher capital charge that reflects the Peroni and Dojlidy acquisitions and the impact of holding the Miller assets for a full 12 months in the year, compared with nine months in the prior year.
Malcolm Wyman
Chief financial officer
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