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Group operating performance

The year’s results demonstrate the fundamental operating strength of the group. Total group beverage volumes grew by 8% to 187.2 million hectolitres (hls), above last year’s reported 173.9 million hls which represents 5% growth on an organic basis. Within this total, lager volumes at 148.3 million hls grew by 8% on a reported basis (5% growth on an organic basis), reflecting volume growth and share gains in our most important markets. In North America, for the first time in many years Miller recorded growth in both retail sales and domestic shipments, whilst our Europe business recorded organic volume growth of 5%, and Beer South Africa increased volumes by 4% on a pro forma basis. ABI recorded an 8% increase in sales volumes of carbonated soft drinks (CSDs).

EBITA contribution by segment before central administration costs, North America 20% - Central America 4% - Europe 19% - Africa & Asia 15% - Beer South Africa 29% - Other Beverage Interests 10% - Hotel and Gaming 3%

Turnover, including share of associates, increased by 8% on an organic, constant currency basis. Currency added a further 6% to turnover growth, a more moderate increase than in prior years, whilst acquisitions, including Peroni, added another 1% to turnover, giving a reported turnover of US$14,543 million, 15% ahead of last year. Growth was recorded across all of our businesses, as a result of the volume growth mentioned above and also price increases and mix benefits.

Pre-exceptional earnings before interest, taxation, and amortisation of goodwill (EBITA) grew 18% on an organic, constant currency basis and it is remarkable that 2005 was the third successive year in which double-digit increases were achieved in all of our businesses, reflecting turnover growth and improved productivity across the group. The reported US$2,409 million was 27% ahead of prior year, inclusive of the positive effects of exchange rate movements. EBITA comprises profit before interest and tax (US$ 2,361 million) before goodwill amortisation (US$366 million) and before exceptional items (net credit US$318 million).

Performance information on our operating results 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. In addition, given the impact of currency fluctuations, we have included constant currency measures.

EBITA margin by segment

A key strength of the group is our ability to drive continued margin enhancement, and it is pleasing to record that the group’s EBITA margin as reported increased once again, from 15.0% to 16.6%. Miller achieved strong margin growth of 130bps to 10.2%, evidencing progress in the turnaround programme with strong price and mix gains combined with further progress on cost efficiencies. Notwithstanding volume pressures, Central America benefited from some pricing gains and growth in premium beer brands, and the further restructuring of the cost base, with margin up 330bps to 17.5%. The Europe margin showed 80 bps improvement to 16.6%, whilst in Africa and Asia further gains were achieved, with margin up 10bps to 19.8%. Beer South Africa once again delivered an impressive performance with an improvement in margins of 150bps to 28.1% achieved through pricing, mix and continued focus on driving efficiencies. ABI’s focus on productivity enhancement contributed to a 120bps improvement to 18.5%. The strong rand also helped reduce raw material costs in the South African businesses.

The group recorded net exceptional costs within operating profit of US$48 million, comprising brewery closure costs of US$35 million in Italy and restructuring costs of US$16 million in the Canary Islands, relating primarily to severance, partially offset by a net profit of US$3 million resulting from a number of smaller items.

The group recorded exceptional profits of US$366 million after operating profit, comprising a profit of US$103 million net of costs on the sale of its investment in Harbin, a profit of US$252 million on the sale of its interest in Edgar’s Consolidated Stores Ltd (Edcon), and its share of the profit on disposal of two hotels and land of US$11 million within Tsogo Sun. This compares to prior year exceptional costs of US$26 million within operating profit related to restructurings, and exceptional profits of US$67 million recorded after operating profit, which comprised a surplus on the pension fund of a disposed operation of US$47 million and profit on the disposal of various assets of US$20 million.

EBITA components of performance

Net interest costs fell to US$167 million, an 11% reduction on the prior year’s US$188 million. This decrease reflects lower levels of net debt throughout the year, driven by strong cash flow and the conversion of the 4.25% US$600 million convertible bond. Interest cover, based on pre-exceptional profit before interest and tax, has improved to 12.2 times from a multiple of 8.2.

The group’s profit before tax increased 58% to US$2,194 million, reflecting the constituent changes referred to above.

The effective tax rate, before goodwill amortisation and exceptional items, and before a charge for South African secondary tax on companies (STC) on non-recurring dividends following a restructuring of the group’s holdings in South Africa, was 34.8%, which is broadly in line with prior year. Including the one-off STC charge following the restructuring, the effective tax rate was 36.5%.

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