UK: 2005 was one of the most significant years in the history of SABMiller

The year 2005 will certainly remain as one of the more important in the history of world’s brewing force, SABMiller, Sunday Times posted on January 4. This is because SABMiller have beaten keen competition in its US$7.8 billion purchase of Colombia-based brewer Bavaria SA, while also adding a number of smaller businesses to its portfolio during the year.

And as for 2006, although lacking such a large target as Bavaria, SABMiller's acquisition spree is set to continue in such countries as China and Russia, where there remain some smaller independent breweries, according to Sunday Times.

SABMiller, which is listed in London and Johannesburg, is ending 2005 with the status of the world's second largest brewer by volume, with the addition of Bavaria expected to lift its annual lager volumes to around 175 million hectoliters from 148 million hectoliters for the year to end-March 2005. Earnings before interest, tax and amortisation (EBITA) should also rise to an estimated $3.5 billion from $2.4 billion.

The purchase of South America's second-largest brewer also rounds out the SABMiller portfolio in geographic terms, adding sizeable beer sales volumes and dominant market positions in Colombia, Peru, Ecuador, and Panama.

The company's strong position in fast-growing beer markets such as Eastern Europe, Africa and Asia (notably China) has given it an edge over its peers, having posted organic volume growth of 6.3% for the six months to end-September 2005 and a real embedded volume growth rate of 2.5%, versus the world growth rate of 2.2%.

Its earnings base is also very diversified - although SA remains its largest earnings contributor with 29% of total annual earnings before interest, tax and amortisation (EBITA) of US$2.4 billion, its Miller Brewing operations in the US contribute 20%, Europe 19%, Africa and Asia 15% and Central America 4% (prior to the Bavaria acquisition).

Apart from Bavaria, SABMiller was acquisitive in other regions in 2005. In March the company acquired the 39.8% stake in Italy's Birra Peroni that it did not already own for US$212.6 million.

In April, its joint venture company China Resources Snow Breweries spent $15 million to acquire the Fuyang City Snowland Brewery Company, bringing to 38 the number of breweries in China owned by the group. The new brewery is its third in Anhui province.

In May its India-based subsidiary MBL Investments (Mysore) bought out its joint venture partner in India, the Shaw Wallace group, acquiring its 50% stake in the operation. In June it unveiled a $125 million five-year expansion plan for the Indian business.

SABMiller is now India's second-largest brewer with brands such as Haywards 5000, Royal Challenge Premium and Knock Out. The funds will be used for brand development and to upgrade and expand its 10 Indian breweries.

Also in May SABMiller acquired Topvar Brewery in Slovakia, with assets of approximately $15.2 million including a quality brewery, a strong local brand and a distribution platform in western Slovakia.

In July, subsidiary Pilsner Urquell Investments bought out the remaining 3.1% interest held by minorities in its Czech operating company.

On the potential sales side, in August the brewer turned down an offer by gaming group Gold Reef (GCR) for its 49% stake in Tsogo Sun Holdings, the South African gaming and hotel group, despite acknowledging that it considered the business to be non-core.

Management said the offer was too low, while it considered its Tsogo Sun interest to be more of a medium-term holding given its good recent performance and strong prospects going forward, offering good value to shareholders.

Tsogo Sun, which owns the Southern Sun hotel chain and gaming resort Montecasino in Johannesburg, is still the subject of a takeover battle between Gold Reef and Johnnic Holdings (JNC).

The South African market was good to SABMiller again in 2005, with beer volumes rising 3% and the market segment for premium beer brands posting double-digit growth on the back of rising incomes. These conditions are set to continue in 2006, although a slight easing from the brisk growth pace is expected.

In the US, 2005 was a difficult year for the beer market as a whole, with the trend away from beer and toward wine and spirits continuing. The brewer managed to weather the pricing wars in the local market that saw Anheuser-Busch aggressively cutting prices of its Budweiser and other brands. However, this came at the cost of margins and some market share.

The good news for SABMiller is that the war is now over, boding well for Miller Brewing Company's prospects going forward. The November 29 statement by Anheuser-Busch management that it plans to raise the prices of most of its beer brands in 2006, while also cutting discounts, must have been like music to the ears of its competitors.

2006 will mark the final phase of the company's turnaround strategy for Miller in the US, with a major focus to be a re-launch of Miller Genuine Draft, which has recorded a somewhat disappointing performance and has a patchy market presence. The year will also see the continuation of its strong marketing drive for Miller Lite, which has met with good success.

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