The results for the year display the progress made in many areas of the business notwithstanding tough trading conditions, particularly in El Salvador.
|EBITA margin (%)*
|Sales volumes (hls 000s)
|– Carbonated soft drinks (CSDs)
|– Other beverages
Disposable incomes in both countries continue to be negatively impacted by high fuel costs, and consequent increases in electricity and public transport costs. Economic growth in El Salvador has slowed significantly due to the effects of delayed expenditure caused by the uncertainty in the outcome of the presidential elections and postponement in the approval of the central budget. This situation has been exacerbated by the introduction in January 2005 of a number of fiscal reforms, including an increase in excess of 50% in the excise tax on beer, against modest increases for competing alcohol products. The excise regime has also changed, moving away from ad valorem to a unit of alcohol basis. This ostensibly allows for more transparency, but the rate imposed on beer penalises the category by comparison to spirits.
Further progress was made throughout the year in strengthening our brand portfolio and improving execution through customer focused channel marketing. Following our successful launch of a local premium beer, Bahia, in El Salvador in the previous financial year, the brand was launched in Honduras during the year and continues to grow share ahead of expectation. Both countries successfully grew share of worthmore brands enhancing beer margins. However, overall beer volumes were marginally lower across the business, with good growth in Honduras being offset by a decline in El Salvador, where domestic volumes in the last quarter fell following the excise tax increase, and export volumes were reduced in light of their inherent low profitability.
Aggregate CSD volumes fell by 7%, reflecting the price-based nature of competition in El Salvador. Whilst our CSD market share is relatively stable in Honduras, market share has been lost in El Salvador. However, through effective channel marketing and improved in-trade execution, we have been able to increase prices in certain segments in both markets to improve the profitability of the CSD business. Whilst we have introduced lower-priced offerings in selected market segments to compete on a price basis, we continue to support our sector leadership by focusing mainly on brand attributes rather than price. The growth in other beverage volumes reflects the increased sales of bottled water.
Turnover for the period declined by 2%, as improved pricing for both beer and CSDs partly offset the impact of the volume decline. Improved revenue management through brand segmentation and portfolio management has yielded benefits, and continues to deliver improved margins across the business. These improved margins, strong control of operating costs, and the lower cost base in the business following restructuring, has led to a higher EBITA (26% up in constant currency) and an improved EBITA margin. The full year benefits of previous reorganisations have also assisted this improvement.
Trading conditions are expected to remain tough, and this will lead to increased market investment. However, the business is now appropriately structured with a cost base that will allow us to compete aggressively. Accordingly, we are in a position to strongly defend the competitive entries into our beer markets, and have the ability to aggressively seek CSD market share, albeit that this may be at the expense of short-term margin.
|Alcohol content by volume
|As El Salvador’s leading beer brand for almost 100 years, Pilsener is a national icon, holding a 50% market share.|
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