SABMiller reveals serious headwinds

SABMiller, the world's second largest brewer, posted full-year earnings that were in line with forecasts, but revealed serious headwinds across most of its main markets.

Revenues for the year fell by 4% to $22.31 billion (£13.22 billion), down from $23.31 billion the previous year. Earnings before interest, taxation and amortisation (EBITA) rose 1.2% to $6.45 billion in the year. However, there was surprisingly strong organic EBITA growth which was up 7% overall.

Much of the company's growth is still being driven by South Africa, where the economy is now slowing and the brewer controls over 90% of the beer market.

Europe declined, with EBITA down by 10%, reflecting volume-led declines in Poland and the Anadolu Efes beer business, offset by soft drinks volume growth in Anadolu Efes and lager volume improvements in Romania, Slovakia, the Netherlands and the UK, which underperformed badly.

The US is also proving a tough market, but EBITA lifted by 8% as a result of increased profitability in MillerCoors, and new higher margin products such as the Redd's franchise, and growth in the Tenth and Blake division.

Adverse currency movements are also damaging earnings, slashing reported EBITA by about $400 million, while the company expects raw-material costs to rise in low single-digits in constant currency terms. For example, in another of its key markets, Latin America, EBITA grew by 4% (10% on an organic, constant currency basis), adversely impacted by the depreciation of the Colombian peso and Peruvian nuevo sol against the dollar, but buoyed by cost efficiencies and asset disposals..

Other brewers such as Diageo have recently cited difficult conditions in developed countries such as China. However SABMiller said that price rises and growth in its premium brand portfolios were well supported in China.

The maker of Grolsch and Peroni has responded to these difficult conditions with a standardisation programme that could deliver savings of about $500 million a year by March 2018, but which will consume $350 million in restructuring costs.

In April the company said it was reviewing options for its $1.04 billion stake in African hotel and casino operator Tsogo Sun Holdings, but on Thursday warned that the decision may mean no action being taken.

Total beverage volumes for the full-year to March 31, rose 2% on an organic basis, with lager volumes up 1% and soft drinks volumes up 5%, with the trend moving away from lager consumption, the opposite direction to the one brewers prefer.

Investors nonetheless liked the organic growth and the shares rose 3.5% to 3,373.5p by 11.30am on Thursday.