SABMiller plc: Interim results to 30 September 2014

LONDON, Nov. 13, 2014 (GLOBE NEWSWIRE) -- SABMiller plc, the world's second largest brewing company and one of the largest bottlers of Coca-Cola drinks, reports its interim (unaudited) results for the six months to 30 September 2014.

Highlights

• Resilient top line growth powered by our Africa and Latin America businesses, but impacted by weaker second quarter trading conditions in China and Australia
• Organic, constant currency group net producer revenue (NPR) growth of 5%, with group NPR per hectolitre (hl) up 3% driven by pricing and premiumisation initiatives.  Reported NPR growth was 2%
• Total beverage volumes grew by 1% on an organic basis, with lager volumes down 1%.  Organic soft drinks growth of 9% driven by Africa, Latin America and Europe
• Organic, constant currency EBITA growth of 3% and constant currency adjusted earnings per share  growth of 5% were impacted by the depreciation of key currencies against the US dollar such that reported EBITA is in line with the prior period
• Reported EBITA is in line with the prior period, impacted by the depreciation of key currencies against the US dollar. Adverse translational foreign exchange impact on EBITA in the period of US$71 million
• EBITA margin¹ declined 30 bps to 23.4% on both reported and organic, constant currency bases reflecting an EBITA decline in Asia Pacific
• Strong cash flow performance with free cash flow up 6% on an underlying basis. Free cash flow excludes the receipt of the proceeds from the sale of the group's hotel and gaming investment

¹ Expressed as a percentage of group NPR.

Alan Clark, Chief Executive of SABMiller, said:

"We continued to grow earnings in the first half with challenging trading conditions mitigated by ongoing efficiencies. Group net producer revenue was driven by lager growth in Africa and Latin America and strong performance in our soft drinks businesses in Africa, Latin America and Europe. Lower lager sales in parts of Europe and Asia Pacific resulted in a small group EBITA margin decline during the half year.  We are well-placed to capture future top line growth opportunities in both emerging and developed markets and are making good initial progress on our plan to realise US$500 million from operational efficiencies and cost savings."

¹ As restated. Further details of the restatement are provided in note 1.

² Disposal activity reflects the removal of the results between 31 July 2013 and 30 September 2013 (as the effective date of disposal was 31 July 2014), so that the base is restated for comparability purposes.

³ Expressed as a percentage of group NPR.

Business review

The group delivered constant currency group NPR, EBITA and adjusted earnings growth in the half year, despite trading challenges in a number of markets. The depreciation of key currencies against the US dollar continues to have a negative impact on the translation of financial results in South Africa, Australia and Latin America, resulting in growth of 2% in reported group NPR and reported EBITA level with the prior half year.

Group NPR growth of 5% on an organic, constant currency basis for the first half of the year was driven by our developing market operations in Latin America and Africa through a combination of total beverage volume growth, selective pricing and improved brand mix. Lager volumes declined by 1% on an organic basis reflecting robust growth in Latin America and Africa that only partially offset declines in Asia Pacific and North America, with Europe level with the prior period, outperforming the market. Soft drinks volumes increased by 9%, driven by Africa, Latin America and Europe.

On an organic, constant currency basis EBITA grew by 3%, while organic, constant currency EBITA margin declined by 30 bps reflecting reinvestment into key customer trading terms in Australia, together with the significant negative impact on profitability resulting from a decline in lager volumes in China and parts of Europe. Input cost increases were mitigated by procurement savings, resulting in a low single digit increase in raw material input costs compared with the prior half year (on a constant currency per hl basis), in line with guidance. Marketing investment increased to support category development such as capturing new occasions, the continuing renovation of our core brands and expansion of our brand portfolios through innovation such as flavoured beer offerings and cider. On a reported basis, EBITA margin also decreased by 30 bps, reflecting the inclusion of the acquisition of the Kingway brewery business in our Chinese associate's results.

On a constant currency basis, adjusted EPS grew by 5% compared with the prior period, and by 3% on a reported basis reflecting the continuing impact of the depreciation of key currencies against the US dollar, principally the South African rand, Australian dollar, Peruvian nuevo sol, Czech koruna and Turkish lira. Net finance costs were lower than in the prior period, reflecting the repayment of some higher interest bonds which matured in the second half of the prior year.  The effective tax rate of 26.0% is in line with that for the prior year but below the 26.8% in the prior half year.  The reduction in rate primarily results from the resolution during the period of a number of uncertain tax positions.

Free cash flow for the half year was higher by US$591 million at US$1,485 million, positively impacted by some one-off items in the prior half year, such as funding for the Kingway acquisition and the phasing of payments to the Australian Tax Office.  On an underlying basis, free cash flow increased by 6% compared with the prior half year. Adjusted EBITDA was adversely impacted by the depreciation of key currencies against the US dollar in the half year but still grew by 3%.  Working capital registered a cash outflow in the period of US$82 million (compared with an outflow of US$67 million in the prior period). Capital expenditure at US$696 million was slightly ahead of the prior period, with continued investment in brewing capacity and capability, most notably in Africa and Latin America. Net interest paid was lower than in the prior period in line with the reduction in the net finance charge.  Tax paid was lower than the prior period reflecting the tax prepayment to the Australian Tax Office in the prior half year.

The group's gearing ratio as at 30 September 2014 decreased to 46.5% from 52.0% at 31 March 2014. Net debt has reduced by US$1,621 million since 31 March 2014, ending at US$12,682 million, driven by the receipt of the proceeds from the sale of the group's interest in its hotel and gaming associate in South Africa as well as strong operating cash flow. An interim dividend of 26.0 US cents per share is proposed, to be paid to shareholders on 5 December 2014, an increase of 4% over the prior year.

• In Latin America, EBITA grew by 7% (8% on an organic, constant currency basis). Group NPR on an organic, constant currency basis grew by 7% driven by selective price increases and favourable brand mix, supported by our continued focus on market-facing activities and effective trade execution, and a return to lager volume growth in the second quarter, with strong soft drinks volume growth continuing. Reported EBITA margin improved by 70 bps through a combination of group NPR growth, softer commodity prices, cost efficiencies and asset disposals.
   
• In Africa, now including the South Africa beverages business, EBITA grew by 3% (9% on an organic, constant currency basis) as a result of volume growth, pricing and a focus on cost productivity.  The group NPR growth of 3% (10% on an organic, constant currency basis) was driven by share gains, growth in the premium lager segment, strong soft drinks volume growth and pricing. Castle Lite led the robust premium performance and we also grew strongly in the affordable segment. Focus on production efficiencies helped contain variable cost increases as a result of currency weakness and deliver reported EBITA margin growth of 10 bps. 
   
• In Asia Pacific, EBITA declined by 17% and group NPR was level with the prior half year on a reported basis as the inclusion of the Kingway results in China offset the depreciation of currencies against the US dollar at the top line.  On an organic, constant currency basis EBITA declined by 15% driven by Australia and China, with the organic volume decline having a significant impact on profitability. In Australia, NPR on a constant currency basis was 4% below the prior period as a result of increased trade investment activity and competitive price pressure. The integration programme is on track in terms of both synergy delivery and capability build. In China, organic, constant currency group NPR growth of 1% was impacted by a 3% lager volume decline driven by poor weather during the summer peak months in the central provinces offset by favourable mix from the continued focus on premiumisation. Reported EBITA in China declined as a result, diluted by investment in market-facing activities and the inclusion of Kingway. As a result, reported EBITA margin for the region decreased by 410 bps.
   
• In Europe, EBITA was down by 2% and group NPR was up by 1%, both on a reported basis. On a constant currency basis, group NPR was 3% higher than the prior half year, reflecting soft drinks volume growth in Anadolu Efes and lager volumes level with the prior period, with a challenging second quarter affected by poor weather across much of the region during the summer months.  Lager volume growth in Poland, the combined Czech Republic and Slovakia business and the UK was offset by declines in Romania, Italy and Anadolu Efes. Organic, constant currency EBITA was level with the prior period and reported EBITA margin declined by 60 bps, driven by lower volume in Italy and Romania, along with restructuring activities in Anadolu Efes.
   
• In North America, EBITA increased by 7% as a result of increased profitability in MillerCoors. Group NPR was 2% higher than the prior period, with a decline in lager volumes offset by higher group NPR per hl, driven by firm pricing and positive sales mix resulting from the introduction and success of new higher margin products such as the Redd's franchise, Miller Fortune and Smith & Forge Hard Cider. The growth in sales of higher margin products, along with continued cost saving initiatives and maintained marketing spend, helped drive a 100 bps improvement in EBITA margin.
   
• The group completed the sale of its investment in Tsogo Sun Holdings Limited (Tsogo Sun), its hotels and gaming associate listed on the Johannesburg Stock Exchange, in August 2014 through an institutional placing and share buyback. The group received net proceeds of US$971 million, and realised a post-tax profit of US$232 million which has been treated as an exceptional item.  Since August, the disposal of Tsogo Sun has reduced adjusted earnings by around US$10 million in the final two months of the first half of the year. Following the receipt of the net proceeds of this disposal, the group has recently announced that it is exercising its issuer call option to redeem in full its US$850 million 6.5% notes, due 2016.
   
• The new business efficiency programme is on schedule and is expected to deliver operational efficiencies and savings of approximately US$500 million per annum by the financial year ending 31 March 2018. During the first half of this year we continued to expand the scope of our supply chain activities, including expanding the reach of our procurement organisation. Our global business services organisation, which will deliver standardised finance, HR, procurement and data analytics services to the group's operations, enabled by the global template, from central locations and restructuring of the in-country back office teams, is at an early stage of development. The new programme incurred exceptional costs of US$39 million in the half year (excluding any costs relating to the further deployment of the global template and the running costs of the new global business services organisation, which are now embedded into business as usual costs).

Outlook

We anticipate that trading conditions will remain challenging but we expect to continue to grow volume and NPR. As part of our strategy we will continue to drive efficiency across our business and invest in the front line so we can win in local markets. Raw material unit input costs are expected to increase by low single digits in constant currency terms with some markets continuing to be impacted by foreign exchange movements on imported raw materials.

SABMiller Interim Results to 30 September 2014 http://hugin.info/159125/R/1871018/658166.pdf

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