19th May 2005 07:03
SABMiller PLC19 May 2005 SABMiller plc PRELIMINARY ANNOUNCEMENT Ref: 11/2005 Outstanding Volume and Earnings Growth London and Johannesburg, 19 May 2005. SABMiller plc today announces itspreliminary (unaudited) results for the year to 31 March 2005. Highlights are: 2005 2004 US$m US$m % change Turnover 14,543 12,645 15 EBITA* 2,409 1,893 27 Profit before tax 2,194 1,391 58 Adjusted profit before tax* 2,242 1,705 31 Adjusted earnings 1,251 925 35 Adjusted earnings per share*- US cents 103.2 77.6 33- UK pence (up 22%) 55.9 45.8- SA cents (up 17%) 641.8 547.6 Adjusted diluted earnings per share* (US cents) 99.8 75.2 33 Basic earnings per share (US cents) 94.1 54.1 74 Dividends per share (US cents) 38.0 30.0 27 Net cash inflow from operating activities 2,792 2,292 22 * EBITA and adjusted profit before tax comprise profit before interest and tax (US$2,361 million) andprofit before tax (US$2,194 million) respectively before goodwill amortisation (US$366 million), andbefore exceptional items (net credit US$318 million - see note 4). The calculation of adjusted earningsis given in note 6. All references to EBITA refer to pre-exceptional EBITA. • Total lager volumes increase 8% to 148 million hls, organic growth of 4% • Miller domestic volume returns to growth - turnaround on track • Excellent volume and EBITA performance in South Africa • Continued strong performances from both Europe and Africa & Asia • Group EBITA margin 16.6%, up from 15.0% • Strong cash flows reduce gearing to 26.4% 2 Reported Organic, constant 2005 growth currency Pre-exceptional EBITA % growth US$m %North America 497 17 17Central America 91 21 26Europe 483 26 15Africa and Asia 384 25 21Beer South Africa 708 36 20Other Beverage Interests 250 34 18Hotels and Gaming 81 51 33Central Administration (85) - -Group 2,409 27 18 Statement from Meyer Kahn, Chairman "This has been the third successive year of remarkable volume, margin andearnings growth from SABMiller and confirms our superior long-term growthprofile. Our South African operations were particularly strong, benefiting from robusteconomic conditions, further improvements in operating performance and a firmlocal currency. Miller has shown domestic volume growth for the first time insix years and the businesses in Europe and Africa & Asia continued theirexcellent momentum. Following the improvement in adjusted diluted earnings per share, the board hasrecommended an increase in the final dividend, giving a total of 38.0 US centsfor the year, an increase of 27% over the prior year." Enquiries: SABMiller plc Tel: +44 20 7659 0100 Sue Clark Director of Corporate Affairs Mob: +44 7850 285471 Gary Leibowitz Vice President, Investor Relations Mob: +44 7717 428540 Nigel Fairbrass Head of Media Relations Mob: +44 7799 894265 Philip Gawith The Maitland Consultancy Ltd Tel: +44 20 7379 5151 A live webcast of the management presentation to analysts will begin at 9.30am (BST) on 19 May 2005. This announcement, a copy of the slide presentation and video interviews with management are available on the SABMiller plc website at www.sabmiller.com . Video interviews with management can also be found at www.cantos.com. High resolution images are available for the media to view and download free of charge from www.vismedia.co.uk Copies of the press release and the detailed Preliminary Announcement are available from the Company Secretary at the Registered Office, or from 2 Jan Smuts Avenue, Johannesburg, South Africa. Registered office: Dukes Court, Duke Street, Woking, Surrey, GU21 5BH Telephone: +44 1483 264000 Telefax: +44 1483 264103 Incorporated in England and Wales (Registration Number 3528416) CHIEF EXECUTIVE'S REVIEW 3 Business review The twelve month period to 31 March 2005 was a third successive year ofoutstanding performance. Our strong local brands and portfolio of businesses,which is well balanced between established and developing markets, enabled us toleverage both value and volume growth. Organic lager volumes grew by 4%, twice the historical global industry averagegrowth rate, and EBITA was up 27% (18% on an organic, constant currency basis)with double-digit growth from every one of our businesses. The group EBITAmargin increased by 160 basis points over the year to 16.6%, while at the sametime we grew market shares in each of our major territories. This strong performance was the result of our programmes to enhance the equityof our brands, to drive positive mix improvements, to continuously improve oursales and distribution execution, and to focus relentlessly upon operationalexcellence. Our efforts were assisted by benign economic conditions andfavourable currency movements. While all our businesses did well, the South African beer and soft drinkbusinesses were particularly strong with EBITA up 20% and 18% respectively on anorganic, constant currency basis. We are pleased with the progress at Millerwhere the turnaround programme remains on track. We continued to pursue our strategy to build our global business, reinforcingour in-country positions through the purchase of minority shareholdings in BirraPeroni and Amalgamated Beverage Industries Ltd (ABI) and the acquisition of SCAurora SA in Romania. Our Chinese associate, China Resources Snow Breweries Ltd(CR Snow), made a number of acquisitions increasing access to markets. Overall, these results demonstrate the fundamental operational strength of thegroup. Total group beverage volumes grew by 5% on an organic basis, and on areported basis at 187.2 million hectolitres (hls) were 8% above last year.Within this total, lager volumes were 148.3 million hls. Turnover, including share of associates, increased by 8% on an organic, constantcurrency basis, and on a reported basis at US$14,543 million was 15% ahead oflast year. Reported EBITA of US$2,409 million was 27% ahead of prior year andreported profit before tax increased by 58% to US$2,194 million. Net cash inflow from operations of US$2,792 million was 22% ahead of prior year,reflecting the overall strength of the trading performance. The group's gearingdecreased at the year-end to 26.4% from last year's 43.3%, reflecting thetrading performance, proceeds from the sale of certain investments and theconversion of the 4.25% US$600 million convertible bond, partly offset by cashspent on acquisitions. Adjusted earnings were up by 35%, to US$1,251 million, 103.2 US cents on a pershare basis, with adjusted diluted earnings per share of 99.8 US cents up 33% onthe prior year. Reported basic earnings per share of 94.1 US cents increased74% on the prior year. The board has proposed a final dividend of 26.0 US cents per share, making atotal of 38.0 US cents per share for the year, an increase of 27% over prioryear. The dividend is covered 2.6 times by adjusted earnings per share on adiluted basis. North America Further progress has been made in North America, and for the first time in manyyears Miller achieved growth in both retail sales and domestic shipments, withMiller Lite, the largest brand in the portfolio, recording strong volume growth.Profitability has improved, with the EBITA margin for the business reaching10.2%, and overall market share has been gained. Increased investment is takingplace in both marketing and sales and distribution to strengthen further thecapabilities of the organisation. These investments, and an increasinglycompetitive industry environment, are likely to result in further profitimprovement being of a modest nature in the coming year. Central America Economic and trading conditions in Central America were difficult, but ourbusiness performed well and delivered EBITA of US$91 million, an increase of 21%over prior year. However, volumes of beer and carbonated soft drinks (CSDs) fellby 1% and 7% respectively in markets that were negatively impacted by high fuelcosts and, in El Salvador, price-based CSD competition and increased excise taxon beer. Europe Our Europe operations delivered another excellent year of earnings growth, withEBITA up 26%, 15% organically in constant currency. This performance isparticularly impressive following five successive years of double-digit EBITAincreases, organically in constant currency. Organic lager volumes grew by 5%,benefiting from generally favourable economic conditions, continued increases inper capita consumption and our improved operational execution. Poland, Russiaand Romania performed particularly well, offsetting declines elsewhere in theportfolio. Organic volumes in Poland grew by 12%, securing market leadership for KompaniaPiwowarska and contributing to increased EBITA. In Russia, total volumesincreased by 30%, with sales of Miller Genuine Draft growing by 43%. Volumesdecreased in the Czech Republic, being impacted by a cooler summer, howeverPlzensky Prazdroj gained market share. In Italy, the domestic beer market wasaffected by a weak consumer environment and declined by an estimated 6%. Despitea decline in volumes the Peroni brand retained its market leadership. Africa and Asia Our African businesses delivered another year of strong earnings growth withEBITA up 25%, 21% organically in constant currency. Favourable economicconditions and exchange rate movements, volume growth, revenue managementinitiatives and productivity enhancements all contributed to this improvement.Tanzania enjoyed an exceptional year, Mozambique excelled, Angola continued itsstrong growth in CSDs, and Botswana performed well. The Castel group, with whichwe have an alliance, continued its strong performance. Our Chinese associate, CR Snow, further consolidated its leading position duringthe year, with a number of acquisitions giving access to new markets in theYangtze River delta as well as bolstering our position in Anhui. Lager volumegrowth for the year was 25%, within which underlying organic growth of 10% wasachieved. Our national brand, Snow, grew by 27% and comprised 33% of totalvolumes Overall, market share gains were recorded in the key markets ofHeilongjiang and Jilin. South Africa Beer South Africa achieved strong growth in volumes, with an increase of 4% on acomparable basis. EBITA grew by 36%, 20% in constant currency, and EBITA marginincreased to 28.1%, benefiting from this volume growth, pricing and miximprovements and ongoing operational productivity. The business capitalisedupon the consumer shift towards premium brands, through developments inpackaging, promotions and merchandising with a particular drive behind ourinternational premium brands, Miller Genuine Draft and Pilsner Urquell. Other Beverage Interests (OBI) grew pre-exceptional EBITA by 34%, 18% inconstant currency, driven by increased CSD volumes at ABI, price management andoverhead productivity. ABI achieved 8% volume growth in the CSD category,through continued flavour and pack innovations, and share gains in nationalaccounts. Tsogo Sun has benefited from a strong gaming market, and has reported improvedtrading performances in both its hotel and gaming operations. Outlook There is underlying momentum in most of our major markets, and we expect furthersteady organic volume growth for the group, supported by significant ongoingmarketplace investments. Following a number of years of exceptional rates of profit growth delivered bythe group, earnings per share for the coming year are expected to continue togrow at a more moderate rate from this higher base. Operational review North America 2005 2004Financial summary US$m US$m % change Turnover 4,892 4,778 2EBITA* 497 424 17EBITA margin (%)* 10.2 8.9 Sales volumes (hls 000s)- Lager - excluding contract brewing 47,380 47,258 - - contract brewing 10,583 10,593 -- Carbonated soft drinks (CSDs) 75 70 8 Lager - domestic sales to retailers (STRs) 44,380 43,997 1 * Before exceptional credits of US$7 million being exceptional profit on thesale of Tumwater brewery of US$4 million, Tumwater brewery closure costsreversal of US$1 million and integration and restructuring cost reversal of US$2million (2004: exceptional charges of US$14 million being integration andrestructuring costs of US$13 million, Tumwater brewery closure costs reversal ofUS$4 million and asset impairment of US$5 million). For the first time since 1998, Miller Brewing Company posted growth in retailsales and domestic shipments. This was achieved in a challenging competitive andeconomic environment. Substantial increases in fuel costs have had a markedimpact on consumers' disposable income and spending patterns, whilst US beerindustry sales were also impacted by more favourable sales trends for thecompeting wine and spirit categories. These two factors, coupled with variableweather conditions, make this performance all the more pleasing. Domestic marketshare grew to 18.5% on a financial year basis. Domestic beer sales to wholesalers increased by 0.7% during the year whilstwholesaler inventories at year end were one day lower than the prior year.Wholesaler sales to retailers (STRs) increased by 0.9% over the prior year. Inthe second half, STRs were unchanged versus the prior year on a comparableselling day basis. Miller Lite has achieved strong growth during the year despite challengingcomparatives in the second half of the prior year, and was the fastest growingbeer brand in US supermarkets for our financial year just ended, as determinedby Nielsen. The decline in Miller Genuine Draft has slowed somewhat comparedwith the previous year, however Miller remain dissatisfied with the brand'sperformance and further investment will be made behind this brand in the comingfinancial year. Increased focus is being applied to the Miller High Life and Milwaukee's Bestbrand franchises by both the company and its distributors, and the decline inthese brands has slowed. During the year, Olde English and Mickey's returned tovolume growth. In the worthmore segment Pilsner Urquell has continued to grow whilst PeroniNastro Azzurro was launched during the fourth quarter. The early signs for thisbrand are promising. Brutal Fruit was trial launched in three areas of thecountry late in the financial year whilst shipments of both SKYY Blue and SKYYSport were discontinued during the year. Internationally volumes experienced varying performance across the territories.During the year Miller's licensing arrangements with its UK partner wererenegotiated. Contract brewing volumes were in line with the prior year. Total turnover for the year increased by 2.4%, and within this, US domesticturnover excluding contract brewing grew by 3.2%. The level of promotionsincreased in the fourth quarter as a result of the intensified competition inthe market place and this pricing activity is expected to continue into thecoming financial year. Strong gains in both operating efficiency and overallwaste reductions have been made in Miller's breweries. However, during thefourth quarter the first impacts of the significant increases in world commodityprices, particularly aluminium and energy costs, were felt. Total marketing expenditure was higher than in the prior year, driven byincreased spending in the second half. The mix of marketing expenditurecontinued to shift away from overhead and fixed costs towards consumer-facingmedia placements and local market activation programmes. Increased resourceswere also deployed in the sales and marketing departments, and in improving thetalent level, training and development programmes as well as depth of cover inall functions of the company. Miller are in the early stages of implementingworld class manufacturing standards in some of its breweries. Progress againstcost leadership goals has been in line with expectations and the resultingproductivity gains have been reinvested in the core strategic focus areas of thebusiness. These include an expanded sales organisation, with the recruitment ofnearly 200 specialised sales force team members, funding of local marketinitiatives in all areas, the expansion of the on-premise taste challenge withmillions of consumer intercepts being achieved, improved brand marketingcapability and an increase in marketing expenditure on Miller's key brands. EBITA for the year grew 17% to US$497 million despite the challengingcompetitive and economic environment. Following this strong performance,Miller's target of achieving a double-digit EBITA margin by the end of its threeyear turnaround programme was met earlier than expected, at 10.2% for the year. Capital expenditure was ahead of the prior year and is expected to grow in theshort and medium term as increased investments are made behind key focus areas. The extremely competitive environment coupled with a difficult economiclandscape and higher world commodity prices make the next financial year adifficult year to forecast. Industry fundamentals, primarily volume and pricing,are expected to be more challenging, and since February the pricing environmenthas become increasingly difficult. However, further growth in Miller Lite salesvolumes, albeit at a slower rate, is expected to be achieved, together with animprovement in the balance of the portfolio. The company intends to continue toinvest strongly behind its brands, its people and its processes in order toensure that it remains a strong and viable competitor over the long term. Central America 2005 2004Financial summary US$m US$m % change Turnover 521 531 (2)EBITA* 91 76 21EBITA margin (%)* 17.5 14.2 Sales volumes (hls 000s)- Lager 1,828 1,839 (1)- Carbonated soft drinks (CSDs) 5,622 6,031 (7)- Other beverages 2,749 2,643 4 * Before exceptional costs of US$Nil million (2004: reorganisation costs of US$6million). The results for the year display the progress made in many areas of the businessnotwithstanding tough trading conditions, particularly in El Salvador.Disposable incomes in both countries continue to be negatively impacted by highfuel costs, and consequent increases in electricity and public transport costs.Economic growth in El Salvador has slowed significantly due to the effects ofdelayed expenditure caused by the uncertainty in the outcome of the presidentialelections and postponement in the approval of the central budget. This situationhas been exacerbated by the introduction in January 2005 of a number of fiscalreforms, including an increase in excess of 50% in the excise tax on beer,against modest increases for competing alcohol products. The excise regime hasalso changed, moving away from ad valorem to a unit of alcohol basis. Thisostensibly allows for more transparency, but the rate imposed on beer penalisesthe category by comparison to spirits. Further progress was made throughout the year in strengthening our brandportfolio and improving execution through customer focused channel marketing.Following our successful launch of a local premium beer, Bahia, in El Salvadorin the previous financial year, the brand was launched in Honduras during theyear and continues to grow share ahead of expectation. Both countriessuccessfully grew share of worthmore brands enhancing beer margins. However,overall beer volumes were marginally lower across the business, with good growthin Honduras being offset by a decline in El Salvador, where domestic volumes inthe last quarter fell following the excise tax increase, and export volumes werereduced in light of their inherent low profitability. Aggregate CSD volumes fell by 7%, reflecting the price-based nature ofcompetition in El Salvador. Whilst our CSD market share is relatively stable inHonduras, market share has been lost in El Salvador. However, through effectivechannel marketing and improved in-trade execution, we have been able to increaseprices in certain segments in both markets to improve the profitability of theCSD business. Whilst we have introduced lower-priced offerings in selectedmarket segments to compete on a price basis, we continue to support our sectorleadership by focusing mainly on brand attributes rather than price. The growthin other beverage volumes reflects the increased sales of bottled water. Turnover for the period declined by 2%, as improved pricing for both beer andCSDs partly offset the impact of the volume decline. Improved revenue managementthrough brand segmentation and portfolio management has yielded benefits, andcontinues to deliver improved margins across the business. These improvedmargins, strong control of operating costs, and the lower cost base in thebusiness following restructuring, has led to a higher EBITA (26% up in constantcurrency) and an improved EBITA margin. The full year benefits of previousreorganisations have also assisted this improvement. Trading conditions are expected to remain tough, and this will lead to increasedmarket investment. However, the business is now appropriately structured with acost base that will allow us to compete aggressively. Accordingly, we are in aposition to strongly defend the competitive entries into our beer markets, andhave the ability to aggressively seek CSD market share, albeit that this may beat the expense of short term margin. Europe 2005 2004Financial summary US$m US$m % change Turnover 2,909 2,420 20EBITA* 483 383 26EBITA margin (%)* 16.6 15.8 Sales volumes (hls 000s)- Lager 33,669 30,925 9- Lager organic 32,420 30,925 5- Other beverages - 97 - * Before exceptional items of US$51 million being Naples brewery closure costsof US$35 million and restructuring costs in the Canary Islands of US$16 million(2004: water plant closure costs of US$6 million). Total lager beer volumes rose 9% (5% on an organic basis), adversely influencedin the first half by much poorer summer weather than in the previous year.Strong volume growth in Poland, Russia and Romania more than offset declineselsewhere. Supporting this good growth was increased marketing investment, up 9%in real terms over the prior year, and expansion of focused on-premisemerchandising. The business again produced excellent profit growth, with EBITAup 26% (15% in organic constant currency terms). EBITA margin growth of 80basis points was derived from improved sales mix, as worthmore segment volumesrose 11% organically, and increased productivity. The Polish beer market grew by some 2%, led by growth in the lower mainstreamsegment. Kompania Piwowarska's organic volume growth of 12%, driven byincreased on-trade investment and key account channel focus (including enhancedcold display), secured market leadership, with share at 37%. Tyskie remainsPoland's leading beer brand, and Zubr is now the second largest brand followingits re-launch in July 2003, with market share of 8% at the end of the year.Re-launched premium brand Lech, complemented by Redds, improved mix in thefourth quarter, halting the negative mix trend witnessed for much of the year.New product innovation has been particularly successful in Poland, and productslaunched since 2000 now contribute over 30% of total revenue. Real pricingdeclines continued for the industry, but our manufacturing and distributionproductivity yielded cost savings, and sales per employee reached 4,000hectolitres. In the Czech Republic, domestic industry volumes declined by 2.5% for the year,with the first half's 5% decline reflecting 22% fewer summer sunshine hourscompared to the prior year. Plzensky Prazdroj's volumes were down 2.1% for theyear, resulting in a small market share gain as our on-premise investment andkey account management initiatives continued to succeed in the market. PilsnerUrquell volumes rose slightly both domestically and globally, driving positivesales mix benefits. Pricing grew ahead of inflation, whilst package and channelmix were stable. These factors, together with cost savings from centralisedregional procurement, helped our Czech operations to once again deliver improvedearnings. In Russia, Transmark's volume increase for the year outpaced both overallsingle-digit industry growth and also premium segment growth, although our rateof growth slowed in the second half as we cycled high prior year comparables.Our successful focus on building complementary Russian and international brandequities within a leading premium portfolio has been amplified by strongmerchandising execution by our specialist distributors and retailers. MillerGenuine Draft volumes grew by 43%, generating positive brand mix benefits. Ourdistributors' network now covers most major Russian cities, with particularstrength in the Moscow region where we have a revenue share of approximately15%. Pricing growth continued in line with food and beverage inflation. Whilstmarketing expenditure rose significantly, substantial cost benefits have beenobtained through local malt and bottle procurement. Recently restrictions havebeen imposed on media use by brewers and on beer consumption, although it is tooearly to quantify what impact these may have on the industry. In Romania, our organic volume growth of 18% (industry up 6%) and ouracquisition of SC Aurora SA in June 2004 have increased our market share to 22%.Ursus, the country's leading brand franchise, has been repositioned,attracting more consumers to Ursus Premium (from Ursus Pils), a local premiumbeer with equity rivalling the international brands in the country. Ursusfranchise volumes grew by 35% and generated positive mix impact, whilstTimisoreana Lux grew 82% in the mainstream segment with rapidly growinggeographic distribution. At year end, we launched two new brands: Peroni NastroAzzurro in the international premium segment and Ciucas, a lower-mainstream PETbrand designed to complement our existing portfolio, leveraging our strongdistribution network in this market segment. Profitability has increasedsignificantly, and our production capacity is being expanded to accommodate ourcontinuing growth. In Italy, the domestic beer market declined by an estimated 6% in a weakconsumer environment and following the prior year's exceptionally good summer.Birra Peroni's organic volumes declined 8%, reflecting an unchanged organicshare performance and the termination of a licensed international brand. ThePeroni brand retained its market leading share of 12% and Nastro Azzurro heldits 4% share. A comprehensive turnaround programme is now underway,encompassing stronger brand marketing, development of an effective salesfunction and direct point of sale merchandising control, restructuring ofdistribution arrangements, aggressive cost containment and deliberateperformance management. Facilities restructuring programmes are on trackfollowing the closure of the Naples plant, whilst manufacturing upgrades areongoing at other facilities, including those enabling production of MillerGenuine Draft for the pan-European market at the Padua brewery. Margins havereduced mainly as a result of negative sales mix associated with consumptionshifts towards the off-premise channel and towards lower-priced market segments.The closure of the Naples plant and associated restructuring initiatives led toan exceptional charge of US$35 million during the year. In February, weincreased our shareholding in Birra Peroni to 99.8% at a cost of US$205 million.In March, beer excise was increased by 24%, the impact of which will be felt bythe industry in the forthcoming year. The Peroni Nastro Azzurro brand was recently re-launched in the UK, with a brandmarketing budget of £5 million. Initial consumer reception is encouraging andthe new brand has achieved high early awareness among target consumers. The Hungarian domestic industry declined some 10% following the ongoingimportation of cheap German cans. Dreher's volume declined in line with this,and profits have decreased as a consequence. The Slovakian industry continued to decline, but at the reduced rate of 7% andour volumes contracted by 3%. In the Canaries, our volumes were level, in linewith the industry. Significant restructuring has been announced in theCanaries, including a 20% workforce reduction, which will generate significantcost savings from 2007. An exceptional charge of US$16 million has been taken. Africa and Asia 2005 2004Financial summary US$m US$m % change Turnover 1,937 1,555 25EBITA* 384 306 25EBITA margin (%)* 19.8 19.7 Sales volumes (hls 000s)**- Lager 39,505 32,521 21- Lager organic # 35,685 32,392 10- Carbonated soft drinks (CSDs) 4,667 3,879 20- Other beverages 11,538 10,137 14 * Before exceptional items being profit on the disposal of the group's interestin Harbin Brewery Group Limited (Harbin) of US$103 million (2004: share ofassociate's profit on disposal of a CSD business and brands in Morocco of US$6million and share of associate's profit on disposal of a brand in Angola of US$1million). ** Castel volumes of 12,771 hls 000s (2004: 12,049 hls 000s) lager, 8,260 hls000s (2004: 9,221 hls 000s) CSDs, and 2,985 hls 000s (2004: 3,326 hls 000s)other beverages are not included. # During 2004, the management responsibility for sales to Angola was transferredfrom Beer South Africa to the Africa division. On a pro forma comparable basis,the organic growth in lager volume in Africa and Asia would have been 9%compared to the prior year. Africa Our African businesses continued the solid momentum described at the half-yearwith full year growth in reported lager volumes of 9%. Volume gains combinedwith improved productivity and selective price increases led to strong EBITAgrowth for the year under review. EBITA margin also increased aided byfavourable country mix, with good growth in our higher margin territories. Within the portfolio, Tanzania enjoyed an exceptional year with lager volumegrowth of 9%, driven by improved market penetration within the context of animproving economy and favourable agricultural conditions. Mozambique alsoexcelled with volume growth of 13% reflecting greater product availability inrural areas and improving economic fundamentals. Angola continued its stronggrowth in CSDs with volumes improving 15% year-on-year as increased capacity andadditional packs were introduced during the year. Botswana recovered from a slowstart to the year following the 8% devaluation of the local pula, to post 1.3%total volume growth, within which the CSD portfolio performed best. Castle brand volumes grew 15% across Africa, with strong performances inTanzania and Zambia where the brand attracts a price premium. Castle Milk Stoutgrew in Ghana, also at a premium price position, and the brand was introduced inCameroon by our strategic alliance partner, Castel, with encouraging initialresults. Miller Genuine Draft was launched in selected African countries in thelast quarter of the year. Lager volumes in Castel grew 6% year-on-year, with solid performances in Angola,Democratic Republic of Congo and Algeria. Castel's CSD volumes reflect anon-organic drop following the sale of their Moroccan and Angolan CSD interestsin the latter part of the prior year. EBITA has shown strong growth over theprior year, reflecting improved productivity and a favourable product mix. Asia Our Chinese associate, CR Snow, expanded further during the year, with sevenbreweries acquired giving access to new markets in the Yangtze River delta aswell as bolstering our position in Anhui. Lager volume growth for the year was25%, within which underlying organic growth of 10% was achieved. Our nationalbrand, Snow, grew by 27% and comprised 33% of total volumes. Overall, ournational market share grew by over one full percentage point to 11.5%. Double-digit organic EBITA growth was delivered in China driven by our volumeperformance as well as modest net pricing and mix improvement which offsethigher raw material and energy costs. Continuing moderate price inflationtrends are encouraging. Additionally, while we are increasing investment infocused brand marketing and distribution initiatives, we are beginning to reapbrand portfolio and operational synergies from our recent acquisitions. ReportedEBITA was, however, also influenced by the negative impact of the newacquisitions, particularly in the case of the breweries in southern Jiangsuprovince, which were acquired in October 2004, ahead of the lower-volume wintermonths. Our Shaw Wallace investment in India recorded double-digit sales volume growth,ahead of the industry. The business continued to rehabilitate individual brewingunits and added one million hls of new capacity while closing down two smallerbreweries during the year. The business is focusing on industry reforms, and ismaking significant investments in upgrading returnable containers. South Africa South Africa Beverages Following the acquisition in December 2004 of all of the shares in ABI which thegroup did not own, a programme of work has begun to establish and leverage thebenefits from the combination of our beverage businesses in South Africa. Futurefinancial announcements will include segmental results and commentaries forSouth Africa Beverages. For the year under review, economic conditions remainedpositive for our South African operations. Lower inflation and interest rates,taken together with lower taxation and benefits from improved social grants, ledto an increase in disposable income. Beer South Africa 2005 2004Financial summary US$m US$m % change Turnover 2,522 1,964 28EBITA 708 522 36EBITA margin (%) 28.1 26.6 Sales volumes (hls 000s)- Lager 25,912 25,261 3 Reported lager volumes achieved strong growth, ending the year 3% above lastyear. As noted at the half year, during 2004 the management responsibility forexports to Angola was transferred to the Africa division, and on a pro formacomparable basis the increase in volume was 4%. A programme of renovation of ourmainstream brands including packaging changes and focussed consumercommunication contributed to this volume growth. This has been achieved throughinnovation, maximising opportunities presented by the marketing mix, pricemanagement in trade and improved availability following a 19% increase incustomers receiving a delivery service. The general consumer shift to more premium offerings continues to gain momentum,with growth of 50% achieved in the premium segment by Beer South Africa.Developments in packaging, promotions and merchandising combined with a highlydifferentiated route to market and focussed consumer engagement helped tomaximise this growth. The deliberate drive behind our international brands,Miller Genuine Draft and Pilsner Urquell, within the South African premiumportfolio has delivered results and contributed to this growth. In addition,Beer South Africa now holds a market leadership position in the fruit alcoholicdrinks category following 36% growth during the year under review. Turnover increased by 13% in local currency, reflecting higher volumes, priceincreases and significant growth in premium brands. This translates to a 10%increase in domestic turnover per hl over last year. Good control of operational costs and improved efficiencies assisted by thestrong performance of the rand which resulted in reductions in raw materialcosts, helped boost the EBITA margin to 28.1% up from 26.6% a year ago. EBITAwas significantly up at US$708 million, an improvement of 36% on last year, anda constant currency increase of 20%. Strong sales growth and changes to both pack and brand mix have resulted in theneed to increase both packaging and brewing capacity as well as flexibilitycapability. Plans are well advanced to bring the first tranche of capacity online before the 2005 summer peak. While capacity upgrades are restricted tocertain breweries, a general enhancement of our packaging capability is plannedfor all breweries. Good progress has been made by the liquor industry on the formulation of a BlackEconomic Empowerment (BEE) Charter for the industry. Internal targets tofinalise the Charter by later in the year are, however, being hampered byGovernment's delay in publishing the full BEE codes of good practice. Progress in licensing the previously unlicensed shebeen trade has continued tobe below expectations, given delays in provincial licensing legislation. In theEastern Cape, however, increased temporary licensing has resulted in a doublingof licensed customers during the year. We have continued to engage with therelevant licensing authorities and assist shebeeners to increase the pace oflicensing across the country and are investing in training to enhance thebusiness skills of taverners. The company has again received a number of awards in South Africa. This year,the company was awarded both the Marketing and Manufacturing organisation of theyear by the respective industry bodies and was first, for a second successiveyear, in the Finance Week survey of the best companies to work for. Other Beverage Interests 2005 2004Financial summary US$m US$m % change Turnover 1,473 1,171 26- ABI 1,151 912 26EBITA* 250 186 34- ABI 213 158 35EBITA margin (%)* 17.0 15.9- ABI 18.5 17.3 Sales volumes (hls 000s)- Soft drinks 14,301 13,227 8- ABI 14,066 12,999 8 * Before exceptional items of US$Nil million (2004: profit on disposal oftrademarks of US$13 million). Amalgamated Beverage Industries (ABI) ABI has benefited from the favourable economic conditions referred to earlier,and a growing black middle class has increased national household spending,supporting increasing demand for ABI's products. Volume was buoyant, and the 8%growth was driven by effective national account promotional spend, the effectsof the two-tiered pricing strategy, and moderate price increases. The finalquarter showed strong growth, aided by the timing of Easter in March. Thebenefits of the two Easters during the year aided growth in volume byapproximately 0.5%. This excellent performance resulted in share gains in theCSD category, especially in the national accounts following repositioning ofsome brands and more effective promotional spending. Continued flavour and packinnovation further drove sales, as did focus on driving winter consumption. CSDvolumes were up 8% for the year and overall, CSDs contributed 94.6% of total ABIvolume. CSD volume increases were driven by the growth in non-returnablebottles, in particular the 2 litre pack. Turnover increased 26% (11% in constant currency) on the back of volume growthand selective price increases. EBITA increased by 35% for the year (19% inconstant currency), driven by higher turnover, productivity improvements andprocurement cost reductions, and delivered an improved EBITA margin of 18.5%. Appletiser Sales in South Africa recorded strong growth, with new packaging receiving anenthusiastic response, and progress was made in several international markets.Good EBITA growth reflected the benefits of higher volumes and operationalefficiencies, partially offset by increased marketing expenditures. Distell Distell's domestic sales volumes increased, with further gains in the spiritscategory contributing to an improved sales mix. International volumes also grew,focused on a core portfolio of brands in selected markets. Customer servicelevels and operational efficiency has improved across the business, and workwith key suppliers has yielded benefits. The improved sales mix, disciplinedcost management and the containment of overhead costs have all contributed toimproved earnings. Hotels and Gaming 2005 2004Financial summary US$m US$m % change Turnover 289 226 28EBITA* 81 53 51EBITA margin (%)* 28.0 23.7 Revpar - US$ ** $51.45 $42.71 20 * Before exceptional credit of US$7 million being share of associate's profit onthe disposal of fixed assets of US$11 million and share of associate'srestructuring costs of US$4 million (2004: US$Nil million). ** Revenue per available room. Since 31 March 2003, SABMiller has been a 49% shareholder in the Tsogo Sun groupfollowing a restructuring of our interests in that group. The business reportedstrong trading results and our share of EBITA for the period was US$81 million,an increase of 51% over the prior year (33% on an organic, constant currencybasis). The gaming market has continued to grow strongly, up 14% in the key GautengProvince, reflecting buoyant consumer spending. In addition the Suncoast casinoin Kwa-Zulu-Natal has performed well. Hotel occupancies were marginally abovethe prior year and the growth in Revpar in local currency of 6% reflects thegrowth in occupancy and price increases in line with inflation. US dollarRevpar reflects the impact of the stronger rand. Overall, the Tsogo Sun groupis well placed to take advantage of continuing positive economic conditions. Financial review Segmental analysis Our operating results are set out in the segmental analysis of operations, andthe disclosures accord with the manner in which the group is managed. SABMillerbelieves that the reported profit measures - before exceptional items andamortisation of goodwill - provide additional and more meaningful information ontrends to shareholders and allow for greater comparability between segments.Segmental performance is reported after the specific apportionment ofattributable head office service costs. Accounting for volumes In the determination and disclosure of reported sales volumes, the groupaggregates the volumes of all consolidated subsidiaries and its equity accountedassociates, other than associates where the group exercises significantinfluence but primary responsibility for day to day management rests with others(such as Castel and Distell). In these latter cases, the financial results ofoperations are equity accounted in terms of UK GAAP but volumes are excluded.Contract brewing volumes are excluded from total volumes, however turnover fromcontract brewing is included within group turnover. Reported volumes excludeintra-group sales volumes. Organic, constant currency comparisons The group has made some disclosures of its results on an organic, constantcurrency basis, to analyse the effects of acquisitions net of disposals andchanges in exchange rates on the group's results. Organic results exclude thefirst twelve months' results of acquisitions and the last twelve months' resultsof disposals. Constant currency results have been determined by translating thelocal currency denominated results for the year ended 31 March 2005 at theexchange rates for the comparable period in the prior year. International Financial Reporting Standards (IFRS) The group is well advanced in its preparation for the adoption of IFRS, whichthe group will adopt for its 2006 financial reporting. We plan to issue 2005financial information, restated for IFRS, ahead of this summer's annual generalmeeting. It is estimated that the adoption of IFRS will have limited negativeimpact on adjusted earnings per share, reflecting increased costs primarilyrelating to employee share options and certain pension and post-retirementbenefits. Central administration expenses The central administration expenses recorded in the year reflect the full-yearrunning costs of the group's enhanced head office departments, which are nowmore appropriately proportioned to the size of the group and the spread ofbusinesses. The increase over the prior year includes the currency impact fromUK-based cost centres. Acquisitions The acquisition of a 94.93% interest in SC Aurora SA in Romania was completed on10 June 2004, with the holding increased to 99.58% subsequently. The acquisition of the remaining 26.5% minority interests in ABI was completedin December 2004. The acquisition of a further 39.8% interest in Birra Peroni SpA (Peroni) wascompleted in February 2005, bringing the total holding to 99.8%. All of the acquisitions were funded in cash from existing resources andfacilities. Exceptional items including sale of investments The group recorded net exceptional costs within operating profit of US$48million, being US$35 million of brewery closure costs in Italy; US$16 million ofrestructuring costs in the Canary Islands; US$4 million share of associate'srestructuring costs in Hotels and Gaming; US$4 million profit on disposal of theTumwater brewery in Miller; US$2 million credit on the reversal of surplusintegration and restructuring provisions in Miller; and US$1 million credit onthe reversal of surplus Tumwater brewery closure costs in Miller. Exceptional profits of US$366 million were recorded after operating profit andcomprised US$103 million profit on the disposal of the group's 29.6% stake inHarbin Brewery Group Limited (Harbin), US$252 million profit on the disposal ofthe group's 21% investment in Edgars Consolidated Stores Ltd (Edcon) and US$11million share of associates' profit on the disposal of fixed assets in Hotelsand Gaming. This compares to prior year net exceptional costs within operating profit ofUS$26 million, comprising Miller restructuring costs of US$13 million; areversal of US$4 million of the Tumwater brewery closure costs at Miller; and aUS$5 million impairment charge in relation to FMB assets at Miller; US$6 millionof reorganisation costs in Central America; and US$6 million costs associatedwith the closure of the water bottling plant in the Canary Islands. Exceptionalprofits of US$67 million were recorded after operating profit and comprisedsurplus on the pension fund of a disposed operation of US$47 million; profit onthe disposal of trademarks in Appletiser of US$13 million; and the group's shareof the profit on disposal of Castel's Moroccan CSD business of US$6 million anda brand in Angola of US$1 million. Treasury Gross borrowings have decreased to US$3,339 million from US$3,707 million at 31March 2004. Net debt has decreased to US$2,196 million from US$3,025 millionreflecting the increase in cash generated from operating activities, theproceeds from the disposal of investments and the conversion of the 4.25% US$600million convertible bond, partially offset by cash expended on acquisitions andthe purchase of minorities in ABI and Peroni. The average loan maturity in respect of the US$ fixed rate debt portfolio issome six years. The average borrowing rate for the total debt portfolio atMarch 2005 was 5.5% (2004: 4.8%). The group's gearing decreased at the year-endto 26.4% from last year's 43.3%. In April 2004 SABMiller plc and SABMiller Finance BV signed a five-year US$1,000million revolving credit bank facility agreement. This replaced the US$720million facility in existence at 31 March 2004. Interest Net interest costs decreased to US$167 million, an 11% decrease on the prioryear's US$188 million. This decrease is primarily due to the conversion of thebond noted above and lower levels of net debt throughout the year. Interestcover, based on pre-exceptional profit before interest and tax, has improved to12.2 times. Profit before tax Profit before tax of US$2,194 million was up 58% on prior year, reflectingperformance improvements in all our businesses, a number of exceptional credits(as described above), the reduction in interest and the impact of favourableexchange rates. Taxation The effective tax rate, before goodwill amortisation, exceptional items andbefore a charge for South African secondary tax on companies (STC) onnon-recurring dividends following a restructuring of the group's holdings inSouth Africa, is 34.8%, which is broadly in line with the prior year. Includingthe non-recurring STC charge, the effective tax rate is 36.5%. Pensions The group has exposures associated with defined benefit pension schemes and postretirement benefits: the Miller defined benefit pension plans and postretirement benefit plans, the ABI Pension Fund, and the South African postretirement medical aid schemes being the most significant. The updatedvaluations as at the year end, required for FRS17 disclosure purposes only,indicate a deficit on the schemes in aggregate, in excess of amounts provided inthe balance sheet, of some US$201 million, after taking account of the relateddeferred taxation. This compares to the prior year deficit of US$140 million.The group has no other significant exposures to pension and post retirementliabilities as measured in accordance with FRS17. Goodwill Intangible assets increased by US$309 million, due primarily to the inclusion ofgoodwill of US$172 million arising on the acquisition of a further 39.8%interest in Peroni and US$419 million on the acquisition of the minorities inABI, partially offset by the amortisation for the year. Goodwill in ABI isconsidered to have an indefinite life (consistent with prior years), all othergoodwill being amortised over 20 years. The attributable amortisation charge forthe year under review rose to US$344 million from last year's US$333 million. Cash flow Net cash inflow from operating activities before working capital movement(EBITDA) rose to US$2,740 million from last year's US$2,185 million. The ratioof EBITDA to group turnover increased in the year to 21.2% (2004: 19.2%). Currency: rand During the financial year, the SA rand showed strength against the US dollar andthe currency ended the financial year at R6.26 to the US dollar. As a result,the weighted average rand/dollar rate improved by 13% to R6.22 compared withR7.06 in the prior year. Dividend The board has proposed a final dividend of 26.0 US cents making a total of 38.0US cents per share for the year. Shareholders will be asked to ratify thisproposal at the annual general meeting, scheduled for 28 July 2005. In the eventthat ratification takes place, the dividend will be payable on 5 August 2005 toshareholders registered on the London and Johannesburg Registers on 8 July 2005.The ex-dividend trading dates, as stipulated by the London Stock Exchange willbe 6 July 2005 on the London Stock Exchange and 4 July 2005 on the JSESecurities Exchange South Africa as stipulated by STRATE. As the group reportsin US dollars, dividends are declared in US dollars. They are payable insterling to shareholders on the UK section of the register and in South Africanrand to shareholders on the RSA section of the register. The rates of exchangeapplicable on 13 May 2005, being the last practical date before the declarationdate, will be used for conversion ($/£ = 1.8556 and R/$ = 6.3100), resulting inan equivalent final dividend of 14.0116 UK pence per share for UK shareholdersand 164.0600 SA cents per share for RSA shareholders. The equivalent totaldividend for the year for UK shareholders is 20.4985 UK pence (2004: 17.2350 UKpence) and for RSA shareholders is 237.4868 SA cents (2004: 202.6501 SA cents). To comply with the requirements of STRATE in South Africa, from the close ofbusiness on 1 July 2005 until the close of business on 8 July 2005, no transfersbetween the UK and South African Registers will be permitted and no shares maybe dematerialised or rematerialised. Annual report and accounts The group's unaudited summarised financial statements and certain significantexplanatory notes follow. The annual report will be mailed to shareholders inearly July 2005 and the annual general meeting of the company will be held at11:00hrs on 28 July 2005. SABMiller plcCONSOLIDATED PROFIT AND LOSS ACCOUNTSfor the years ended 31 March 19 2005 2004 Unaudited Audited Notes US$m US$m Turnover (including share of associates' turnover) 2 14,543 12,645Less: share of associates' turnover (1,642) (1,279) Group turnover 2 12,901 11,366Net operating costs 3 (11,152) (10,043) Group operating profit 2 1,749 1,323 Share of operating profit of associates 2 246 189Profit on disposal of investments 4 355 -Share of associate's profit on disposal of fixed assets 4 11 -Profit on disposal of trademarks 4 - 13Surplus on pension fund of disposed operation 4 - 47Share of associate's profit on disposal of a CSD business and 4 - 7brands in Morocco and a brand in Angola Profit on ordinary activities before interest and taxation 2,361 1,579Related Shares:
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