SABMiller Reports Strong Start

25/09/07 As a group, SABMiller has continued its strong start to the year, with organic growth in lager volumes of over 11% for the five months to the end of August 2007, driven by Africa & Asia, Latin America and Central and Eastern Europe. At an investor presentation held in New York, SABMiller’s senior management team reiterated its confidence in the group’s future growth prospects in a series of presentations focused on the strategic drivers in the company’s main markets.

In North America, Miller’s domestic sales to retailers (STRs) have increased by 1.3% on an organic basis after an adjustment for one less trading day in the five month period, with Miller Lite STRs up by 1.7%. Miller’s strategy to grow Miller Lite in the mainstream light category and to migrate its brand portfolio to higher margin segments has contributed to an increase of 4.0% in domestic net revenue per barrel. Miller Chill, the company’s new ‘chelada style’ light beer, sold almost 300,000 barrels in the period and is well on its way to exceeding its target of 400,000 barrels for the year, whilst volumes of the group’s international worthmore brand Peroni Nastro Azzurro, and craft beer Leinenkugel’s, are up by strong double digit percentages. As a result of this volume performance, the improving sales mix and further cost efficiencies, Miller expects to see margin improvement significantly in excess of 50 basis points in the current year.

In Europe, where the group has grown organic constant currency EBITA by almost 20% in each of the past 6 years, the group continues to drive strong volume growth and to take market share despite intense international competition. As these mainly Central and Eastern European markets develop, SABMiller is exploiting its ownership of the most valuable brand portfolios in these countries, improving mix through the development of innovative worthmore products and leading mainstream brand propositions.

SABMiller’s operations in Latin America offer significant potential for future growth given historical under-investment in the beer category. The group is now putting substantial expenditure behind improvements to the image of its products and in developing strong portfolios of differentiated brands that appeal to a wider range of consumers and drinking occasions. Further investment in the group’s production capacity, route to market and retail points of sale, through initiatives such as fleet upgrades, telesales operations and the enhancement of merchandising, will further support top-line growth. These investments are also expected to enhance margins in the medium term, although the effect will be to constrain them in the near term. Whilst the business has recently enjoyed a period of unexpectedly high volume growth during the initial implementation of the group’s plans, this growth is expected to moderate over the remainder of the year.

The favourable economic landscape in South Africa will continue to underpin future volume and revenue drivers in both lager and soft drinks as the group invests to rejuvenate the mainstream beer category and to enhance its competitive position in the worthmore product segment. Building on the success of Peroni Nastro Azzurro and the recently launched Hansa Marzen Gold, the group will consider further new product launches in addition to improving market penetration through the expansion of trade licensing and direct delivery. The reintroduction of the Amstel brand following the contract termination earlier this year appears to have been delayed, limiting the anticipated financial impact to US$40-50 million in the current year.

SABMiller’s Africa & Asia operations are also growing rapidly. In China, the group’s joint venture has become the country’s leading brewer and its main brand, SNOW, is also the country’s largest lager brand with a 10% share of the market. In India, where the group’s market share is approaching 35%, the recent acquisition of the Foster’s brand is driving excellent growth in its mild beer portfolio. Elsewhere in Asia, SABMiller has recently commenced operations in Vietnam and it continues to seek further opportunities in the region. The development of African economies is creating opportunities to cater to a range of consumers with increasingly full brand portfolios. The group is investing in significant additional capacity and extending distribution to further extend its growth and leadership across the African continent.