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Operations review

Latin America

EBITA for the region was US$915 million. Organic constant currency growth of US$117 million represents growth of 27% on the prior year. The results in Latin America reflect robust market performances and successful business initiatives in each country underpinned by strong economic growth in the region. In South America, the strong momentum reported at the half year continued into the second half with pro forma lager volumes increasing by 12% for the year, while in Central America both beer and CSDs showed commendable performances, with growth of 8% and 6% respectively. The integration of operations in South America into the SABMiller group has been successfully completed during the year.

In Colombia, lager volumes for the year grew by 11% on a pro forma basis driven by solid economic growth, successful brand and packaging renovations, increased marketing investment and improved retail price discipline, which drove lower retail prices. Brand renovations during the second half of the year included the local premium brand Club Colombia and Pilsen in the mainstream segment, while in the premium segment our Peroni Nastro Azzurro brand was successfully launched. Trade marketing capabilities have been upgraded and include the appointment of brand developers to focus on quality of point of sale and enhancement of drinking occasions, while order taking has been supplemented with a telesales operation. Improvements have also been made in the distribution system, notably the introduction of a deposit system for returnable containers in October 2006, while national pricing was introduced from December 2006. Strong growth has necessitated investment in production capacity and a new 3.5 million hectolitre brewery in western Colombia is scheduled to come on stream in October 2007. Corporate restructuring proceeded during the year, including an offer to minority shareholders which resulted in an increase in SABMiller´s effective interest in Bavaria S.A. to 98.5%. The sale of Productura de Jugos S.A., our fruit juice and fruit pulp manufacturer, received the necessary regulatory approvals, and was completed in May 2007.

A good performance was reported by our Peru operations with pro forma lager volume growth of 16% for the year, which was assisted by strong GDP growth of 8%, as well as the impact of competitive pricing in the earlier part of the year. Our flagship mainstream brand, Cristal, was relaunched with a new and innovative packaging design and clear positioning as the beer of the Peruvians, resulting in annual growth of 27% and a significant improvement in market share. This, together with further investment in marketing, brand renovations and new brand launches in the second half of the year, particularly in the premium category, resulted in the company increasing its market share year on year to 92%. In the premium segment, our Peroni Nastro Azzurro brand was launched in February 2007 following the launch of our regional brand, Barena, in October 2006 and Cusqueña was relaunched in new packaging during March 2007. Pack mix has improved in favour of returnable packaging, influenced by the introduction of a deposit system in November 2006, while our route to market will benefit from the organisational change focusing on channel marketing based on consumption occasions. Corporate restructuring continued, including the purchase of further minority shareholdings, with SABMiller's effective interest in Backus & Johnston increasing to 93.3%.

In Ecuador, pro forma lager volume growth of over 12% was driven by the flagship mainstream brand Pilsener, capitalising on favourable economic conditions and buoyant consumer demand, underpinned by the brand's mid-year packaging upgrade. Market share gains in the fourth quarter confirmed the strength of this brand as the leading brand in Ecuador. Total beer market share increased by nearly one percentage point to 95.3% at the end of March 2007. The favourable volume performance together with a 7% price increase earlier in the year boosted profitability.

In Panama, we increased our share of the beer market by 2.5% on a year-on-year basis to reach 84%, with the market growing by an estimated 4%, fuelled by strong GDP growth. Our mainstream brands Atlas and Balboa have performed well, contributing to total pro forma volume growth of 7%, despite a significant price increase introduced in July 2006. The relaunch of SABMiller's international premium brand, Miller Genuine Draft, in October 2006 has strengthened our performance in the premium segment. In the non-beer segment, the unit performed well ahead of the prior year with sales volumes increasing by 11% on a pro forma basis, mainly driven by CSDs.

In Honduras, lager sales volumes grew by 3%, while CSDs reported growth of 9%. The volume growth of our Barena brand in the lager premium segment has improved the mix, and together with the full-year effect of price increases in February 2006, has enhanced profitability. Innovation continued with Port Royal Gold Grand Reserve launched in a 12oz aluminium bottle at a premium price. CSD volume growth was impacted by competitive pricing and discounting in the market, with a shift in mix to family packs tempering price gains.

The trading environment in El Salvador showed signs of improvement compared with the prior year. However the country continues to attract high levels of competition in both lager and CSDs. Our operations performed strongly, with lager volume growth of 14% assisted by good economic growth, and market share increased. Mix improved with our local premium brand, Golden Light, reporting growth of 36%. Soft drinks volumes grew by 5% with robust market share gains on the back of above inflation price increases in April 2006. The benefit of better pricing in CSDs was somewhat reduced by adverse pack mix.

Towards the end of the year, SABMiller entered the Puerto Rico market with the launch of Peroni Nastro Azzurro in March 2007. The sale of our Costa Rica Pepsi soft drink bottler was completed in April 2007.

In line with the strategic initiatives and plans for the region, a significant amount of restructuring and integration has been completed with one-time integration costs of US$64 million recorded during the year, mostly related to packaging upgrades and organisational restructuring. Capital investment levels will increase in the next year as we continue to implement our restructuring plans.

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Financial summary Latin
America
2007
Latin
America
2006
Group revenue1 (US$m) 4,392 2,165
EBITA2 (US$m) 915 436
EBITA margin (%) 20.9 20.1
Sales volumes (hl 000):    
- Lager 34,948 16,163
- Carbonated soft drinks (CSDs) 9,058 7,335
- Other beverages 10,416 6,049

1 Including share of associates revenue

2 In 2007 before exceptional items of US$64 million (2006: US$11 million) being integration and restructuring costs.

 

Key focus areas

  • Develop a brand led and consumer facing organisation through disciplined execution of brand marketing, renovation of existing mainstream brands and development of the premium segment
  • Win at the point of sale by investing in enhanced drinking environments, implementing segmented channel marketing and improved distribution channels
  • Reduce operating costs and improve capabilities
  • Increase performance by continuous improvement through performance management, strategic people resourcing and skills development
  • Ensure effective integration of Central and South America into the one Latin America region