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SABMiller plc Annual Report 2007

Chairman’s statement

Meyer Kahn, Chairman

The fact that we’ve been able to deliver such a good performance is testament to the strength of our brands and the group’s operational capability.

Dear Shareholder:

This strong out-turn to the year is particularly pleasing given the scale of the challenge we faced at its outset, with exceptional prior-year comparatives, rising input costs and an increasingly competitive environment in many of our markets. It is a clear testament to the strength of our brands and the group's operational capability that we have been able to deliver such a good performance.

In the event, total beverage volumes grew 6% to 288 million hectolitres and earnings before interest, tax and amortisation (EBITA) increased by 15% to US$4.1 billion, translating into profit before tax of US$3.3 billion. This reflects the benefits of price increases, higher sales of premium brands, gains in productivity and the strength of a number of currencies. Adjusted earnings per share benefited also from a lower tax rate, growing 19% to 143.1 US cents.

In the light of this strong performance, the board has recommended a final dividend of 42 US cents per share, bringing the total for the year to 58 US cents per share - an increase of 16%.

Net cash generated from our operations, at US$4.3 billion, was 6% above the prior year. Our gearing increased, as expected, to 49.7%, mainly as a result of higher borrowings to fund acquisitions and the substantial US$2.0 billion capital investment programme discussed below.

Market overview

There has been increasing uncertainty over the last 12 months about the health of the global economy and this has translated into substantial falls in financial markets. Against this background, SABMiller’s share price has outperformed the FTSE100 by 9.4% and our position in the ranking of the top 100 companies by market capitalisation has improved one place to stand at number 25, as calculated on 31 March 2008.

We have benefited from our bias towards developing markets where we have well established and advantageous positions. We are number one in China, through our associate CR Snow, and in the Andean region of Latin America, and the second biggest brewer in India. We supply six out of every ten beers drunk in Africa, if you include our Castel Alliance. Growth in our key markets still outstrips the global average and is predicted to remain strong over the medium term.

The question is how well the developing world will survive the slowdown in the global economy. In most of these markets, the economic fundamentals are sounder than those in developed markets. Commentators generally believe that Asia will remain economically dynamic. Africa’s ability to continue growing is less predictable, but its strong momentum, falling debt levels and improving balances of trade suggest that the continent’s economies will prove resilient. Despite high interest rates in the short term in countries such as Colombia, we also see robust economic growth continuing in Latin America.

One effect of the recent rapid growth in developing markets is that national infrastructures have sometimes failed to keep pace – witness the recent power shortages in South Africa. A period of slower growth will allow infrastructure investment to catch up, as is now happening in South Africa where business and government are working together to address the issues.

Although rising demand for commodities has helped to create strong demand for our beers in commodity-producing countries, the same trend has added to our costs as a brewer with sharp increases in the price of barley and hops. At the same time, rising oil prices have put up the cost of transport, glass and aluminium. Despite higher input costs, we’ve been able to maintain our group margin this year at 17.4%, which is quite an achievement as the Chief Financial Officer explains in his review.

Given the medium-term growth momentum in our business we continue to make substantial investments. In recent months we’ve been upgrading our breweries, building new facilities in countries such as Colombia, Russia and China and investing in sales and distribution in the form of new bottles and fridges. As a result, our overall investment has almost doubled from just over US$1.2 billion to US$2.0 billion over the past 12 months and will remain high in the current year.

Also essential to our future growth is our ability to address the social and environmental issues that affect the health and prosperity of the communities in which we operate. As we describe more fully in our Sustainable development section, we’re guided in this respect by 10 social and environmental priorities. Two years on from introducing these priorities, we’re at the point where every SABMiller business has either reached the minimum level of compliance with all ten or has a plan to do so.

Operational highlights

In October 2007, we announced our intention to combine Miller with the US and Puerto Rico operations of another great US brewing company, Coors. The proposed joint venture will create a stronger, brand-led US brewer with the scale, resources and distribution capabilities to operate more effectively in the increasingly competitive US marketplace. We hope to complete the transaction in mid-2008.

The other main highlight of the year was our acquisition of the Dutch company, Royal Grolsch N.V. With its rich northern European heritage, the Grolsch brand is not only a powerful addition to SABMiller’s portfolio but also we hope it will open new doors in premium markets around the world.

In Latin America we continued our programme of investment and raising the perception of the beer category. While the full benefits are yet to be realised, progress has been in line with our expectations with lager volumes up 5% against an exceptional prior-year performance, and EBITA rising 17%.

Europe delivered another excellent result with organic lager volume growth of 8% and reported EBITA up by 30%. Volumes were particularly strong in Poland, Romania and Russia while stronger pricing and improved productivity more than offset higher input costs.

In North America, Miller Brewing Company made good progress in reshaping its portfolio to address higher-margin, higher-growth segments of the market while also achieving price gains and a segment-leading 1.1% growth in sales for its flagship brand, Miller Lite. Reported EBITA grew by 27%, mainly as a result of strong pricing, higher volumes and productivity and a one-off reduction in canning costs.

The strong growth in Africa and Asia continued with lager volumes growing organically by 15%. Our African operations benefited from robust economic conditions and a major investment programme is under way to meet growing demand. In China, the Snow brand enjoyed exceptional growth of 63%, cementing its position among the top three beer brands in the world. EBITA for the region increased by 22% to US$568 million.

Finally, in South Africa, SAB Ltd posted a satisfactory result, maintaining sales volumes despite losing a major premium beer brand before the start of the year. However, reported EBITA declined by 7%, reflecting lower premium volumes and significant cost increases in brewing materials and distribution, and a weakening of the local currency.

Share price in pounds sterling from 1 April 2003 to 31 March 2008

Board and executive

It is now nine years since the company listed on the London Stock Exchange. We have been fortunate to retain the services of several distinguished non-executive directors for the whole of that period, benefiting considerably from their insight and experience. The board does not consider it to be in the interests of the company to require all four of the directors who have served for nine years to retire at the same time, favouring continuity and stability through orderly succession. Accordingly, we have announced, at his own request, the retirement of Robin Renwick and the appointment of two new independent directors.

Robin Renwick has made a unique and important contribution to your company’s success, both pre- and post-listing. He has been a diligent and committed director, chairing almost all the board committees at various times during his tenure. I thank him most warmly for his efforts.

Our two new directors joined the board on 15 May. Rob Pieterse is Chairman of the supervisory boards of Mercurius Groep B.V. and Royal Grolsch N.V. and was formerly Chairman of Wolters Kluwer N.V. Maria Ramos is Group Chief Executive of South Africa’s largest transport, infrastructure and logistics firm, Transnet Limited, having previously been Director-General of the South African National Treasury.

During the year both André Parker, Managing Director of SABMiller Africa and Asia, and Norman Adami, President and CEO of SABMiller Americas, retired. As long serving executives they have both made significant and enduring contributions to the business and will be greatly missed. The group has been fortunate in having a number of long-serving executives who have shown their dedication and commitment to the company over many decades. In this regard I congratulate the Chief Executive, Graham Mackay, on completing 30 years service, 11 years leading the company, and wish him continued success.

I am grateful to all my board colleagues for their guidance and advice – not to mention their invaluable contribution in upholding the highest standards of corporate governance. The recent board changes will enhance the balance of independence on the board, while continuing the process of progressive renewal.

Finally, I would like to welcome to the SABMiller family our new colleagues from Grolsch and to thank all our executives, managers and staff who have worked extremely hard to produce the current set of results. I am also indebted to our many business partners and to you, our shareholders, for your support.


This has been another year of strong growth for the group. In the current year, volume growth in the first half will be affected by high comparative growth rates, and pressure on input costs will continue to increase although pricing and mix benefits are again expected to compensate for these cost increases. The economic outlook across our global footprint, which is biased towards growth markets in developing countries, remains positive, and we will continue to benefit from the strength of our brands, operational capability and investment for growth.

Meyer Kahn



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