Miller Brewing Company made progress against all its strategic objectives, and delivered strong earnings growth for the fiscal year from increased volumes, an industry-leading increase in revenue per barrel of 4.0%, and effective cost reduction despite higher fuel and raw material input costs.
Miller continued to migrate its brand portfolio to higher margin, higher growth segments of the market while enhancing value for distributors and retailers, and its flagship Miller Lite brand posted volume gains with segment leading pricing. Increased spending on core brand marketing and innovation was funded in part from disciplined cost reduction and efficiency savings. Notably for the first time, Miller was recognised as the number one by distributors for overall supplier performance in the US industry-wide Tamarron survey.
Total US domestic beer industry shipments to wholesalers (STWs) increased 1.1%, while total import shipments were down 2.5% for the year. Craft beers continued their strong growth, up 12% over prior year. Against this backdrop, Miller’s US domestic shipments to retailers (STRs) were up 3.1% when adjusted for one additional trading day against the prior year (up 3.5% unadjusted) and grew 0.7% on an adjusted organic basis (excluding Sparks and Steel Reserve). Miller’s US domestic sales to wholesalers (STWs) grew 3.9% on an unadjusted basis, and were up 1.5% on an organic basis. International shipments fell slightly.
Miller Lite STRs increased by 1.1% (1.5% unadjusted) following a return to its intrinsic brand marketing platform. Miller High Life sales increased 1.1% (1.5% unadjusted) on the strength of its successful ‘Take Back the High Life’ campaign, which helped reverse a three-year decline in the franchise. Miller Genuine Draft declined by 10.6% adjusted (10.2% unadjusted) for the year in a declining segment. Milwaukee’s Best continued to experience declines in the economy sector, while Icehouse and Mickey’s volumes grew, helping to offset partially the declines of both MGD and Milwaukee’s Best.
increase in domestic revenue per barrel
The national launch of Miller Chill exceeded expectations with the brand selling approximately 500,000 barrels during the year, and Miller’s worthmore portfolio overall grew by nearly 50%. Sparks, Peroni and Leinenkugel’s delivered strong full year double digit growth. To capture the continuing growth and consumer shift towards light beers, Miller test-marketed new light beer brands Miller Genuine Draft 64 (MGD 64) and Miller Lite Brewers Collection, which, following a positive reaction, will be rolled out nationally in the next year.
Miller strengthened its chain sales capabilities and enjoyed a 4.6% increase in chain sales volume. The success of its “model market” operations, a semi-autonomous management framework, in Texas and Florida/Georgia contributed to share growth in Texas and share stabilisation in the Southeast.
Total revenue grew 4.8% to US$5,120 million, while domestic revenue was up 7.4% to US$4,578 million. Contract brewing revenue declined 15.8% due in part to the purchase of Sparks and Steel Reserve (which were previously brewed under contract) from McKenzie River in 2006. Domestic revenue per barrel increased 4.0% due to price increases of 2.4% for the year complemented by the mix benefits from the successful growth of the worthmore portfolio, including Miller Chill.
Through continued brewing efficiencies and cost savings derived from successful projects, the company was able largely to offset commodity cost increases, resulting in an increase in domestic cost of goods sold per barrel of low single digits. Marketing spending increased upper single digits.
EBITA for the period increased 27% to US$477 million driven primarily by the strong pricing, increased volume, effective management of fixed costs, and including a non-recurring gain of US$33 million from the October 2007 settlement of a dispute with the Ball Metal Beverage Container Corporation. This resulted in a one-time payment to Miller of some US$70 million, a portion of which is attributable to our contract brewing partners. The gain includes an amount of US$16 million relating to materials supplied to Miller during the prior year and US$17 million for other non-recurring contractual matters.
In preparation for the proposed joint venture with Coors Brewing Company, which remains subject to regulatory clearance, a charge of US$51 million has been recorded by Miller for staff retention arrangements and certain integration costs, and this has been treated as an exceptional item. The group expects to record further charges up to completion of the transaction which is not anticipated to occur before the middle of calendar year 2008. These amounts were included in the previously announced estimates of costs associated with the proposed joint venture.
|Group revenue (US$m)||5,120||4,887||5|
|EBITA margin (%)||9.3||7.7|
|Sales volumes (hl 000):|
|– Lager excluding contract brewing||48,211||46,591||3|
|– Lager contract brewing||7,489||8,907||(16)|
|– Soft drinks||87||84||4|
|– Lager domestic sales to retailers (STRs)||45,434||43,897||4|
1 Before exceptional costs of US$51 million in relation to retention arrangements entered into following the announcement of the proposed joint venture with Coors Brewing Company and other integration costs (2007: nil).
Key focus areas
- Grow Miller Lite share of the light category
- Strengthen the worthmore brand portfolio
- Maximise value of the heritage and legacy brands
- Improve influence with key distributors
- Reduce operating costs
- Empower the organisation to pursue opportunities with a challenger mindset