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Graham Mackay

A strategy for growth

Our 2007 results represent another year of good performance. Total beverage volumes were up 10% on an organic basis, with adjusted earnings per share also growing by 10% to stand at 120 US cents.


This earnings per share figure is particularly pleasing as it means our adjusted EPS have now grown at a compound annual growth rate of over 10% since our London listing in 1999. We believe this is due to our clear strategic focus and the disciplined application of the group's strategic priorities.

Our strategic priorities

We have four such priorities. The first is to create a balanced and attractive global spread of businesses – one that is well distributed geographically with appropriate exposure to both developed and developing markets. Secondly, within each market, we aim to create a full brand portfolio that matches the aspirations and preferences of consumers. Our third and fourth priorities are to keep raising the performance of local operations and to wrest maximum value from our global scale. Our progress against each of these priorities is discussed on the our strategic priorities pages of this report.

Our strategy is designed to take advantage of, and generate value from, the dominant trends in the global beer market. These include the growing importance of emerging markets, the move towards premium brands and greater competition and sophistication within local markets. In many cases, we were ahead of the industry in identifying the trends and were able to gain early advantage. We were one of the first brewers, for example, to see value in emerging markets. While others were reluctant to take the risk, we pioneered the buying of emerging-market businesses and were able to build leading positions.

A balanced and attractive spread of businesses

In today's market context, there are strong competitive advantages in SABMiller's wide global footprint. Thanks to major transactions in North and South America and a host of smaller ones in eastern Europe, Africa and Asia, we believe our geographic mix is one of the best-balanced in the industry. And not only are we well spread, we also have commanding market positions. We're number one in China – the biggest beer market, by volume, in the world – and number two in the USA, the biggest profit pool in the world. We also have leading positions in, for example, South Africa, Colombia, Poland, the Czech Republic, Peru, Tanzania and Botswana.

Significantly, our portfolio is weighted towards emerging markets where favourable demographics and rising per capita consumption are generating the highest rates of 'embedded' growth. While the global beer market is growing at an average of 2 to 3% a year, the aggregate rate of organic volume growth in our own operations was 10% for the year under review.

Superior brand portfolios

Our strategy also takes advantage of the trends as consumers around the world trade upwards from economy to mainstream to premium brands and are more disposed to seek out different brands for different drinking occasions. We identified the changes early on and part of our strategy is to create a full, tailor-made portfolio of brands in each local market to satisfy consumers' different needs and preferences.

In developed economies, the growth is fastest at the top end of the market. Indeed, in a number of mature markets, including the USA, the premium sector is the only source of growth. For this reason, we're working hard to develop a strong portfolio of premium brands, both local and international.

Exceptional operating pefromances

One of the trends we see is growing competition between big international brewers. Hence the third of our strategic priorities: constantly raising the performance of our local operations.

SABMiller has always been good at running efficient businesses and extracting maximum value from its assets. We intend, through constant improvement, to retain and enhance our reputation for superior operating skills. This is not simply about costs. It's also about the quality of our operations at each point along the value chain, from manufacturing and distribution to the point of sale.

We're greatly helped by the quality of our people and our strong culture of performance management. Employees at every level are empowered and accountable, with clearly-defined goals. In stretching our people, we also support them with world-class training and development. Recent initiatives include the launch of our Global Action Learning project to hone the strategic and leadership skills of senior managers around the group.

Sharing our learning

Our fourth strategic priority is to leverage our global scale and ensure that each operation benefits from the resources and experience of SABMiller as a whole. Our scale is enormously valuable, for example, in enabling us to develop and distribute regional and international premium brands. We also have vast expertise across the organisation and we are using our scale to transfer skills, methods and technologies across the group. A case in point is our system of SABMiller 'Ways' – the codification of best practice in key areas of our operations to enable critical knowledge to be spread quickly and efficiently across the group.

Addressing risks

As we implement our strategic priorities, we face the challenge common to all large companies of striking the balance between risk and reward that is most appropriate for our shareholders.

Risk is an accepted part of doing business. As we describe in the Corporate governance section, the group has a well developed risk-management process for identifying and monitoring the principal risks to the business. This process is integrated into the group's strategic and business planning process and is designed to manage, rather than eliminate, the risk of failure in achieving our business objectives. The principal risks facing the group are set out in the panel below.

In addition, the group's activities expose it to a variety of financial risks. These are discussed in note 22 to the consolidated financial statements.

Review of operations

The group's good organic growth during the year demonstrates the strong underlying momentum in the business.

Our Europe region, which principally operates in central and eastern Europe, has continued its remarkable performance. Boosted by favourable weather and the soccer World Cup, volumes grew by 12%, with reported EBITA up 29% – the sixth year of double-digit earnings growth. Our Europe region represents and contains much of what we're trying to achieve worldwide. We're building strong, highly differentiated brand portfolios, consistently rejuvenating our core mainstream brands, growing aggressively in the premium sector and performing well at the point of sale.

We also had an excellent year in Latin America, where the impact of our marketing and sales activities was supported by strong economic growth across the region. Volumes were up by 12% on a pro forma basis with EBITA of US$915 million. Our rapid progress is due, in part, to the way we've integrated these operations into the SABMiller group, rapidly transferring skills, methods and technology. Our actions to transform the beer markets in Latin America are exceeding our initial expectations and we plan to make significant investments to meet the growing demand.

Our Miller business in North America had another challenging year, with lager volumes flat in terms of sales to retailers. Results suffered from higher commodity costs, declining Miller Lite volumes and price competition in the economy segment. Miller's strategy, now, is to strengthen the brand portfolio and move it into areas of higher-margin growth while working more effectively with distributors, continuing to drive down costs and restoring the growth of Miller Lite.

The Africa and Asia business again delivered good growth in volumes, revenue and EBITA. Lager volumes for Africa, excluding Zimbabwe, grew 7% with particularly strong performances from Mozambique, Tanzania and Uganda, offset by a slowdown in Botswana. As elsewhere, we're driving growth by building full brand portfolios, developing distribution and point of sale materials, and driving down costs.

Asia continues to grow strongly. On an organic basis, China volumes are up 30% and we've consolidated our position as the largest brewer by volume. However, profitability remains low with price increases offset by higher distribution costs, and by investments in marketing and in new breweries. In India, we're benefiting from moves to deregulate the beer industry and we are investing in new capacity to meet the growth in demand.

South Africa delivered good EBITA growth, with a 14% increase on a constant currency basis. Lager volumes grew by 2.3% driven by the premium category where volumes were up by 23%.

The termination of the licence to brew Amstel in South Africa at the start of March 2007 did not affect sales volumes in the period and we're responding vigorously to fill the gap in our portfolio. We've upgraded the appearance and packaging of our mainstream brands while also broadening our premium offerings. Peroni Nastro Azzurro has been launched in draught and a new local premium brand, Hanza Marzen Gold, has been introduced. We're also extending our reach into direct distribution and expanding our sales infrastructure.

In summary

The key to our success is the consistent, disciplined application of our strategic priorities and the knowledge, deeply embedded in our culture, that we must constantly improve every element of our business. As we move forward, we'll continue executing our strategy with the same rigour and determination while constantly analysing the global marketplace to ensure that our strategic priorities remain appropriate.

Graham Mackay

Chief Executive


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