United Kingdom: SABMiller posted the third successive year of outstanding performance

SABMiller Plc posted on May 19 its preliminary (unaudited) results for the year to 31 March 2005. The brewing giant recorded an expected 33 % rise in annual earnings per share. However SABMiller warned of modest growth in 2005 after two strong years as competition intensifies in the United States.

Organic lager volumes grew by 4%, twice the historical global industry average growth rate, and reported EBITA of US$2,409 million was up 27% (18% on an organic, constant currency basis) with double-digit growth from every one of the businesses. The group EBITA margin increased by 160 basis points over the year to 16.6%, while at the same time the company grew market shares in each of its major territories. The company reported 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 gearing decreased at the year-end to 26.4% from last year's 43.3%, reflecting the trading performance, proceeds from the sale of certain investments and the conversion of the 4.25% US$600 million convertible bond, partly offset by cash spent on acquisitions.

Adjusted earnings were up by 35%, to US$1,251 million, 103.2 US cents on a per share basis, with adjusted diluted earnings per share of 99.8 US cents up 33% on the prior year. Reported basic earnings per share of 94.1 US cents increased 74% on the prior year.

The board has proposed a final dividend of 26.0 US cents per share, making a total of 38.0 US cents per share for the year, an increase of 27% over prior year. The dividend is covered 2.6 times by adjusted earnings per share on a diluted basis.

The world's third-largest brewer and maker of Miller Lite, Castle and Peroni beers reported steady underlying growth, but some analysts were concerned about a slowdown in the U.S. and South Africa and less benefit from the strong rand, according to Reuters.

Meyer Kahn, SABMiller’s Chairman said: “This has been the third successive year of remarkable volume, margin and earnings growth from SABMiller and confirms our superior long-term growth profile.

Our South African operations were particularly strong, benefiting from robust economic conditions, further improvements in operating performance and a firm local currency. Miller has shown domestic volume growth for the first time in six years and the businesses in Europe and Africa & Asia continued their excellent momentum.

Following the improvement in adjusted diluted earnings per share, the board has recommended an increase in the final dividend, giving a total of 38.0 US cents for the year, an increase of 27% over the prior year.”

Chief Executive Graham Mackay cautioned the U.S. market is getting tougher as leader and Budweiser-brewer Anheuser-Busch limited price increases, forcing Miller to follow, although he insisted the Miller turnaround was on track.

"The U.S. beer market is always competitive, but it is resorting more to price. Pricing is controlled by Anheuser-Busch and they are creating and leading this pricing activity," Mackay said in a conference call after results.

Anheuser-Busch has indicated price increases of 1 percent to 2 percent this year, says Mackay, below historic levels of 2 percent to 3 percent and has stepped up the pressure on number two U.S. brewer Miller by launching Budweiser Select to support its top-selling Bud Light.

The London-based group, third in the world after Belgium's InBev and Anheuser-Busch, posted adjusted earnings per share of 103.2 U.S. cents a share for the year to the end of March, in line with analysts' forecasts of 100.4-104.0 cents.

ABN AMRO analyst James Williamson said he expects a material slowdown in some of SABMiller's markets such as the U.S. and South Africa while the company will benefit less in the future from the rand's strength. He expects this year's earnings to grow at 10 percent or just below after 33 percent last year.

SABMiller broker Cazenove forecasts underlying earnings will grow 6.9 percent this year to 110.3 cents, and fully diluted earnings by 10.2 percent to 110.0 cents.

SABMiller shares slipped 0.9 percent to 824 pence by 1300 GMT to be the FTSE 100's seventh-biggest faller.

Miller's 12-month sales to retailers rose 0.7 percent. But while first-half sales grew 2.3 percent, the second half sales were flat and Mackay said he was cautious on the U.S. market due to higher fuel prices and inroads made by wines and spirits.

Miller, which makes a fifth of group profits, saw its first volume growth for six years as its market share rose to 18.5 percent. Although Mackay saw further growth from Miller Lite he was dissatisfied with international brand Miller Genuine Draft.

SABMiller shares have eased from a record high of 905p in December on fears about its interest in the auction of South America's second-largest brewer, Bogota-based Bavaria, U.S. beer market concerns and an Altria stock overhang.

Many analysts see SABMiller as the favorite to buy Colombia's biggest brewer, which also operates in Ecuador, Peru and Panama. Bavaria, controlled by the Santo Domingo family, is valued at around $6.5 billion, including $1.7 billion of debt.

The company said its global beer volumes rose 4 percent, twice that of the long-run industry average after reporting growth of just over 4 percent in the 11-months to end-February.

South Africa, which accounts for over 40 percent of group profit, saw beer volumes up 4 percent and profits ahead 36 percent helped by a booming consumer economy, Mackay said.

"This is a strong set of numbers and SABMiller is better equipped than most to ride through any consumer slowdown," said analyst David Liston at Barclays Private Clients.

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