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SAB Ltd interim performance in line with expectations

19 November 2009

Johannesburg, 19 November 2009 - Following the release of SABMiller plc's interim results for the period to end September 2009, the South African Breweries Limited (SAB Ltd) has announced a solid performance with a volume trend in line with expectations.

In an economic environment marked by generally weak consumer spending despite a drop in headline inflation, SAB's revenue grew by 2% (6% on a constant currency basis) as it continued to benefit from price increases implemented in the prior year in both the beer and soft drinks businesses.

EBITA on an organic, constant currency basis grew 4% although EBITA was level with the prior year at reported exchange rates. Margins reduced slightly as price increases were not sufficient to offset the decline in volumes, continued pressure from significantly higher input costs and additional market-facing investments.

Lager volumes declined by 3%, impacted by reduced consumer spending.  Mainstream volumes, down 2%, performed relatively better supported by strong growth in Castle Lager and Hansa Pilsener.  Carling Black Label continued to be affected by its prevalence in the challenging Western Cape liquor market.  Within local premium, Castle Lite returned to growth.  Soft drinks volumes were down 2%, in line with the market.  During the period, SAB grew its share of the sparkling soft drinks segment through effective market execution, particularly in the top-end grocer channel.

The South African economy weakened during the period with real gross domestic product declining by 3% during the second quarter of 2009. Headline inflation fell considerably from 13% to 6% compared to the same period a year ago, but retail sales remained under pressure falling by 5% year on year in September.

Input costs remained under pressure as medium term contractual arrangements with key brewing raw material suppliers limited the business' ability to benefit from the downturn in brewing commodity prices.  Higher packaging materials and sugar prices also contributed to increased input costs in the first six months.  In addition, our dollar based input costs were higher than the prior year due to adverse foreign exchange rates.  Distribution costs declined in line with relatively lower crude oil prices, aided by distribution efficiencies.

SAB Ltd Managing Director Norman Adami said: "Sales and marketing investment in South Africa increased, focused on our key brands.  Investment in customer facing route to market capability intensified, with investment in direct distribution and improved service levels to customers.  These additional market facing investments were partly financed through an intensified productivity and cost reduction programme.

"Efforts to enhance and grow the core of the lager brand portfolio saw new marketing campaigns for Carling Black Label, Castle Lager and Hansa Pilsener, reinforcing key characteristics of the brands. Castle Lite saw growth returning towards the end of the period supported by its "Extra cold" media campaign and sub-zero fridge placement in targeted outlets.  At the same time, we are in the process of establishing our international premium lager portfolio with brand building efforts focused on Peroni Nastro Azzurro and Grolsch.

"In July this year, we announced our truly innovative broad-based black economic empowerment transaction, which will benefit employees, soft drinks and liquor retailers and the wider South African community by enabling them to participate in the equity of SAB. The full terms of this transaction will be released shortly.

"In September, we also released details of an innovative multi-faceted effort to combat alcohol abuse and its negative effects on society, which will see SAB taking the lead in tackling alcohol abuse in South Africa and which is a continuation of decades of work to address irresponsible consumption. The new high profile programmes will tackle drinking and driving, Foetal Alcohol Syndrome (FAS) and underage drinking."

In reviewing the past six months and looking ahead, Adami said that SAB was operating in a significantly different environment today than it was a few years ago.

"The sharp slowdown in economic growth, which started in 2008, has continued, with real GDP declining and retail sales under pressure. There have been major shifts in retail dynamics, and there is more complexity in the market today with the ongoing fragmentation of consumer demand. In addition, there has been a step-change in dollar based input costs.

"Critically, we are now entering into a period where competition is moving to a new level. We believe that competition is good for SAB as it will allow us to up our game and stimulate us to become quicker and more nimble. It will also create more focus and excitement within the industry. We like to believe that we will be the one to win. And in order to win, we will ensure that we give our customers better value, and our retailers better service packages.

"There are still big growth opportunities in SA's beer market, where a strong beer culture has already been established and where alcohol consumption levels are below the international average. We are in this business for the long run, and we believe there is sufficient growth potential in the market to allow both ourselves and our new competitor to grow for many years to come.

"We have also made good progress on the five thrusts of our strategy, announced in March this year. In particular, we have eliminated out-of-stocks, and efficiencies and cost savings have helped us to increase market facing investment by approximately R700-million. 

"Attention has also been paid to creating superior routes to market. We have been able to adapt and grow in a time of change. We are confident we have the correct strategy in place and we are now executing it. "

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