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Chief Financial Officer’s review

Malcolm Wyman

Performing against our strategic priorities


Key performance indicators (KPIs)

SABMiller has a clear strategic focus, with four strategic priorities, as noted in the Chief Executive's review. Management uses a range of KPIs to monitor progress against these priorities. Some of the most important measures used are:

  • Volume growth on an organic basis;
  • Growth in revenue on a reported and organic constant currency basis;
  • Growth in volumes of premium brands (also called worthmore brand volumes in North America);
  • Volume growth of selected international and regional premium brands outside their home markets;
  • Organic constant currency EBITA growth and EBITA margin progression; and
  • Various non-financial metrics attributable to functional areas.


Certain KPIs are discussed in further detail below within the review of the current year's financial performance. Other non-financial KPIs are included in the Chief Executive's review or in the Operations review.

Selected disclosures of results on an organic, constant currency basis are made in order to exclude the effects of acquisitions and investments, net of disposals and changes in exchange rates on the group's results. Organic results exclude the first 12 months' results in the case of acquisitions and investments and the last 12 months' results from disposals. Constant currency results have been determined by translating the local currency denominated results for the year ended 31 March 2007 at the exchange rates for the comparable period in the prior year.


The chart below shows the group's organic growth in lager volumes for each of the last three years. The group's growth in each year is significantly ahead of the growth rate of the global beer industry.

This year's results demonstrate the operating strength of our business and our recent volume increases reflect access to growth markets by the group's businesses. Total beverage volumes, including carbonated soft drink (CSD) volumes, grew by 10% on an organic basis and 23% on a reported basis to 272 million hectolitres (hl). Within this total, lager volumes at 216 million hl were up by 10% on an organic basis and 23% on a reported basis. Particularly strong growth in lager volumes was recorded in Latin America, Europe and Africa and Asia.

Bar chart depicting percentage organic lager volume growth between 2005 and 2007.


Our revenue growth reflects the group's success in expanding its volumes while also achieving judicious price increases and improving the mix of products sold. The chart below illustrates the organic growth in group revenue for each of the last three years with each year's performance shown in constant currency.

Group revenue, including share of associates, was US$20,645 million. This represents an increase of 11% on an organic, constant currency basis and mirrors the growth in volumes. Real price/mix gains were achieved, principally in Europe and South Africa, but were offset by the inclusion in group revenue of the fast growing Asia operations where prices per hectolitre and mix impacts are generally at lower levels than the group average.

Currency movements during the year reduced reported revenue marginally as, against the US dollar, the South African rand weakened and offset favourable impacts from the Polish zloty and Czech crown. Transactions completed in the financial year in India as well as in South America in the prior year had the effect of increasing reported revenue by 11.5%.

In the five years since the Miller transaction, the group has grown revenue strongly, both on an organic basis and by acquisition. The compound annual organic growth rate in volumes has been 5%. The group has leveraged volume growth through price and mix benefits to generate compound annual group revenue growth of 9% over that period.

Bar chart depicting percentage group revenue growth in organic constant currency – basis between 2005 and 2007.


EBITA is defined as operating profit before exceptional items and amortisation of intangible assets (excluding software). It includes the group's share of associates' operating profit on a similar basis. We choose to report EBITA in our results in order to accord with the manner in which the group is managed. SABMiller believes that the reported EBITA profit measures give shareholders additional information on trends and make it easier to compare different segments. Segmental performance is reported after the specific apportionment of attributable head office service costs.

The chart below shows the organic increase in EBITA for each of the last three years with each year's performance shown in constant currency. EBITA grew 12% on an organic, constant currency basis. Reported EBITA, which includes the impact of currency movements and acquisitions, grew by 22% to US$3,591 million. Growth in EBITA reflects the benefits of volume and revenue increases as well as productivity. The group has a record of improving its productivity over time, notwithstanding increases in capital investment and in sales and marketing expenses.

Double digit organic constant currency growth in EBITA was achieved by Europe, Latin America, Africa and Asia, and SA Beverages, which enabled the group to absorb the EBITA decline in North America and still achieve a good overall performance for the year.

Bar chart depicting percentage EBITA growth in organic constant currency – basis between 2005 and 2007.

EBITA margin

A key strength of the group is its ability to constantly raise the performance of local businesses, as seen in continued improvements in EBITA margin in the chart below, as a group and in most of the divisions. Revenue growth and further production efficiencies enabled the group to continue to meet its objective of ongoing margin enhancement with a further improvement of 20 basis points to 17.4%. This is dampened somewhat from previous years' improvements as we were impacted by commodity price pressures, particularly in the North America business.

The group's reported EBITA margin has been enhanced by the full-year inclusion of South America which has an aggregate EBITA margin of 21.4% which is higher than the average for the rest of the group.

However the overall country EBITA margin improvements are less obvious in the group EBITA margin improvement because the growth in the lower-margin Asian countries and the mix of profits in our African countries affect the margin of Africa and Asia and the margin of the group as a whole.

Bar chart depicting percentage EBITA margin performance in organic constant currency – basis by operating region in 2006 and 2007.

Exceptional items

Items that are material either by size or incidence are classified as exceptional items. Further details on the treatment of these items can be found in note 4 of the consolidated financial statements.

Exceptional charges of US$93 million were reported during the year. Of these, $69 million relates to integration and restructuring costs incurred in Latin America of which US$64 million (2006: US$11 million) was incurred in the region and US$5 million (2006: US$4 million) in the corporate centre.

Europe has also reported a net exceptional cost of US$24 million. This comprises a profit on the disposal of land in Naples of US$14 million less integration costs of US$7 million, principally incurred in Slovakia, and an adjustment to goodwill at Birra Peroni. As required under IFRS, to the extent that a business is able to utilise, after an acquisition, previously unrecognised deferred tax assets, an adjustment to goodwill is required with a compensating adjustment to tax. During the year we have recorded such an adjustment for US$31 million and this has been included within exceptional items.

Finance costs and tax

Net finance costs increased to US$428 million, a rise of 43% on prior year finance costs of US$299 million. This follows an increase in net debt in the second half of last year following the Bavaria Group transaction and the refinancing which was undertaken in the current year to enter into further fixed interest rate bonds. Interest cover, based on pre-exceptional profit before interest and tax, fell from 9.2 times in the prior year to 7.8 times.

The effective tax rate of 34.5%, before amortisation of intangible assets (excluding software) and exceptional items, increased above that of the prior year, principally reflecting a different mix of profits across the group, including South America for a full year, and adjustments in respect of prior years partially offset by improved tax efficiencies and some rate reductions in certain jurisdictions.


The South African rand declined against the US dollar during the year and ended the financial year at R7.29 to the US dollar, whilst the weighted average rand/dollar rate worsened by 10% to R7.06 compared with R6.41 in the prior year. The weighted average Colombian peso (COP) rate declined by almost 2% against the US dollar compared to the post-acquisition period of the prior year, whilst the actual financial year rate ended at COP2,190 to the US dollar, against a rate of COP2,292 at 31 March 2006. Currencies in Central and Eastern Europe strengthened against the US dollar.


On a statutory basis, the group's profit before tax increased by 14% to US$2,804 million, reflecting the changes to the constituent factors and the exceptional items noted above.

The group presents adjusted basic earnings per share to exclude the impact of amortisation of intangible assets (excluding software) and other non-recurring items, which include post-tax exceptional items, in order to present a more meaningful comparison for the years shown in the consolidated financial statements. Adjusted earnings increased by 20% to US$1,796 million and the weighted average number of shares in issue for the year was 1,496 million, up from last year's 1,372 million. This mainly reflects the issue of shares in October 2005 as partial consideration for the transaction in South America.

Adjusted earnings per share increased by 10%. The group's adjusted earnings per share also showed double-digit increases when measured in South African rand and 4% growth in sterling. A reconciliation of basic earnings per share to adjusted earnings per share is shown in note 8 to the financial statements.


The board has proposed a final dividend of 36 US cents to make a total of 50 US cents per share for the year – an increase of 14% on the prior year. This represents a dividend cover of 2.4 times based on adjusted earnings per share, as described above (2006: 2.5 times, based on adjusted earnings per share). The group's target is to achieve dividend cover of between 2.0 and 2.5 times, relative to adjusted earnings per share. Details of payment dates and related matters are disclosed in the Directors' report.

Line graph showing Adjusted EPS and Dividend growth in US cents between 2003 and 2007.


In the first half of the year the group purchased the Sparks and Steel Reserve brands for a cash consideration of US$215 million. The group also acquired a 100% interest in the Foster's operation and brand in India at a cost of US$127 million.

During the year we formed Pacific Beverages, a joint venture with Coca-Cola Amatil in Australia, to import, market and distribute three of the group's international premium brands. In Vietnam the group's joint venture with Vinamilk made significant progress as its brewery near Ho Chi Minh City moved into production, establishing a platform in this fast growing market.

In China, our associate CR Snow, has continued to consolidate its position as the country's largest brewer with the purchase of further breweries as well as the remaining 38% minority shareholding in the Blue Sword group which CR Snow did not already own, consolidating its interests in the south west of the country. During the year the group has also purchased further minority shareholdings in our operating companies in Colombia, Peru and Ecuador.

Cash flow and investment highlights

The group has an excellent record of generating cash, as shown in the chart below. Increases in cash generation reflect growth in profitability and improvements in working capital efficiency before interest, tax payments and investment activities.

Cash generated from operations increased by 22% over the prior year to reach US$4,018 million. Net cash inflow from operating activities before working capital movement (EBITDA) rose to US$4,031 million from last year's US$3,348 million. The group's cash flow generation was again strong with the ratio of EBITDA to revenue (both metrics excluding results of associates) at 22% (2006: 22%).

The group maintained its net liability position in working capital with only a marginal cash outflow from working capital during the year.

Free cash flow conversion remains strong, despite capital expenditure increasing by US$212 million to US$1,244 million and US$801 million in tax payments – both measures including the full-year impact of our businesses in South America. Overall, the group achieved operating free cash flow of US$1,485 million (2006: US$1,069 million). This represents net cash inflow from operating activities less interest paid, taxation paid and cash paid for capital expenditure on property, plant and equipment and intangible assets. Operating free cash flow excludes dividends received from associates and other investments along with cash received from the sale of property, plant and equipment, intangible assets and investments.

Capital expenditure has risen by 21%, resulting from higher spending over the prior year in most of our businesses which in turn reflects capacity increases and spending on containers. In addition, total capital expenditure for the current year includes a full year for South America where container upgrades and capacity expansions required significant capital expenditure.

Tax paid has fallen from US$869 million to US$801 million, despite the full-year inclusion of South America in the current year, reflecting the movements in foreign exchange, together with certain timing differences in tax payments relating to dividends from South Africa.

Bar chart showing net cash from operations in US$m between 2005 and 2007.

Financial structure and liquidity

The group finances its operations through cash generated by the business and a mixture of short and medium-term bank credit facilities, bank loans, corporate bonds and commercial paper. In this way, the group avoids over-reliance on any particular liquidity source. The group seeks to mitigate the effect of structural currency exposures by borrowing, where cost effective, in the same currency as the functional currency of its main units. The group borrows principally in US dollars, SA rand, euros, Polish zloty and Colombian pesos at both fixed and floating rates of interest.


Funding structure

Overdraft (187) (324)
Borrowings (7,029) (7,251)
Derivatives (127) (173)
Finance leases (15) (27)
Gross debt (7,358) (7,775)
Cash and cash equivalents 481 472
Loan participation deposit 196
Net debt (6,877) (7,107)
Maturity of borrowings:    
Within one year (1,711) (1,950)
Between one and two years (414) (247)
Between two and five years (2,984) (3,045)
Over five years (2,277) (2,535)

Source: SABMiller plc 2007


The group also enters into derivative transactions to manage the currency, commodities and interest rate risk arising from its operations and financing activities. The group can also purchase call options where these provide a cost effective hedging alternative and where forming part of an option collar strategy. The group can also sell put options to reduce or eliminate the cost of purchased options. It is group policy that no trading in financial instruments is undertaken.

Exposure to movements in interest rates on group borrowings is managed through a combination of fixed rate bonds, interest rate swaps, cross currency swaps and forward rate agreements. It is the group's policy to limit the impact of movements in interest rates on floating rate debt to 1% of group operating profit, excluding exceptional items, for each 1% change in interest rates. As at 31 March 2007, 34% (2006: 25%) of the group's borrowings were at fixed rates after taking into account interest rate swaps and forward rate agreements.

The tables above summarise the group's funding structure at 31 March 2007.

Gross debt, comprising borrowings of the group together with the fair value of derivative assets or liabilities held to manage interest rate and foreign currency risk of borrowings, has decreased to US$7,358 million from US$7,775 million at 31 March 2006 (as restated for the finalisation of the South America acquisition balance sheet). Net debt comprising gross debt net of cash and cash equivalents and the loan participation deposit has decreased to US$6,877 million from US$7,107 million at 31 March 2006 (as restated) reflecting the cash generated by the group less capital investments and dividends paid. The group's gearing (presented as a ratio of debt/equity) has decreased to 45.8% from 52.3% at 31 March 2006 (as restated).

On 27 June 2006 the group raised US$1,750 million of new debt through the issue of US$300 million of three-year Floating Rate Notes at US LIBOR plus 30 basis points, along with a US$600 million 6.2% five-year bond and a US$850 million 6.5% ten-year bond. The proceeds of these issues were used to refinance amounts drawn down under committed facilities related to the Bavaria Group transaction, including subsequent purchases of minority interests and the restructuring of priority debt.

Further progress has been made in the restructuring of debt in the Bavaria Group, with US$500 million 144A bonds and US$150 million (equivalent Colombian pesos) related to a securitisation programme repaid in May 2006 and in October 2006 respectively.

The group has further diversified its sources of financing by launching, on 12 October 2006, a US$1,000 million commercial paper programme. This programme provides the group with a new flexible and cost effective source of US dollar funding.

The average loan maturity in respect of the fixed rate debt portfolio is 4.7 years (2006: 4.8 years). The weighted average interest rate for the total debt portfolio at 31 March 2007 was 7.6% (2006: 6.9%) reflecting the currency profile of the debt and movements in rates in the year.

In the prior year, the group had US dollar and sterling private placement notes in issue with final maturity in 2008. As part of the refinancing for the Bavaria transaction, notice was given to repay all of these notes. These amounts included an early redemption penalty of US$13 million, included in interest payable but treated as an adjusting item for adjusted earnings purposes in the prior year.

The group uses cash in hand, cash from operations and short-term borrowings to manage its liquidity. As at 31 March 2007, the group had cash and cash equivalent investments of US$481 million (2006: US$472 million).

Our strong financial structure gives us adequate resources to fund ongoing business along with medium-term flexibility to invest in appropriate growth opportunities and manage the balance sheet. The group has US$3,426 million in undrawn committed borrowing facilities (2006: US$4,030 million).

Balance sheet profile

As outlined above, the group has continued to enter new markets to strengthen its positions through additional acquisitions and investments. These transactions have altered the balance sheet profile of the group and details are given in note 27 to the consolidated financial statements.

Total assets increased to US$28,736 million from the prior year's US$27,115 million. There was also a marginal increase of US$53 million in equity earnings attributable to minorities less balances acquired as part of minority interest acquisitions.

Goodwill increased by US$436 million, as a result of foreign exchange on goodwill denominated in currencies other than the US dollar and on the acquisition of the Foster's India business and the various minority interests acquired. The finalisation of the South America acquisition balance sheet has been reflected as a restatement to the 2006 position and is detailed in note 28 and increased provisional goodwill, previously recognised, by US$275 million.

Intangible assets increased by US$305 million primarily due to the acquisition of brands including the Sparks and Steel Reserve brands in North America and Fosters in India.

Shareholder value

The value that a company returns to its owners is best measured by total shareholder return (TSR) – a combination of share price appreciation and dividends returned over the medium to long term. Recent measures of shareholder return have been affected by the volatility of equity indices. Nevertheless, since SABMiller moved its primary listing to the London Stock Exchange in March 1999, the FTSE 100 has produced a TSR of 31% to 31 March 2007 while the group has delivered a TSR of 217% in sterling terms over the same period.

Accounting policies and definitions

The principal accounting policies used by the group are shown as note 1 to the financial statements. Note 1 also includes recent accounting developments, none of which is expected to have a material impact on the group.

In addition, note 1 details the areas where a high degree of judgement has been applied in the selection of a policy, an assumption or estimates used. These relate to the assumptions used in impairment tests of carrying values for goodwill and intangible assets; estimates of useful economic lives and residual values for intangible assets and property, plant and equipment; assumptions required for the calculation of post-retirement benefit obligations; and judgements in relation to provision for taxes where the tax treatment cannot be fully determined until a formal resolution has been reached with the relevant tax authority.

In the determination and disclosure of reported sales volumes, the group aggregates the volumes of all consolidated subsidiaries and its equity-accounted associates, other than associates where primary responsibility for day-to-day management rests with others such as Castel and Distell. In these latter cases, the financial results of operations are equity accounted in terms of IFRS but volumes are excluded. Although contract brewing volumes are excluded from total volumes, turnover from contract brewing is included within group turnover.

Translation differences on non-dollar assets and liabilities are recognised in the statement of total recognised gains and losses. It is not the group's policy to hedge foreign currency earnings and their translation is made at weighted (by monthly revenue) average rates.

Malcolm Wyman

Chief Financial Officer


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