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SABMiller Increases Savings Program After FY Earnings Climb

Published on May 22 2014 2:21 PM in Drinks

SABMiller Increases Savings Program After FY Earnings Climb

The maker of Peroni and Grolsch lager is cutting excess flab from its business.

SABMiller Plc said today it plans to save about $500 million a year by 2018 as the world’s second-biggest brewer brings more purchasing under one roof and functions such as finance and human resources are also centralised.

The shares rose as much as 4.8% in London after the announcement and the release of earnings that met analyst estimates.

“Overall, we regard today’s announcement as reassuring,” Jonathan Fyfe, an analyst at Mirabaud, said in a note, citing “nice surprises” around earnings growth and the savings plan.

SABMiller has been offsetting declines in Europe and a tough US market by cost-cutting and targeting developing economies across Latin America and Africa. It’s also creating new brews and packaging to attract drinkers globally and improve sales and profitability.

The stock rose 3.7% to 3,378.5 pence at 10:23 am., valuing the company at £54.3 billion ($92 billion) and making it the biggest gainer on London’s FTSE 100 index.

The company said it sees little change in business conditions this year, with growth driven by developing markets and adverse currency movements remaining a difficulty. The savings program will cost $350 million, including $59 million last year.

Latin America

On an organic basis, profit increased in areas including Latin America, the company’s largest region, and Africa, offsetting falls in Europe driven by a drop in sales in Poland.

There are “extensive and comprehensive plans” for the Polish and Czech Republic businesses, and economies in Europe are starting to improve, Chief Executive Officer Alan Clark said on a call today.

“We will continue to innovate and rejuvenate our products, build on our position in growth markets, and increase the efficiency of our operations,” Clark said in a statement.

Earnings before interest, taxation and amortization rose 1.2% to $6.45 billion in the year ended March 31, compared with the $6.44 billion median estimate of 10 analysts surveyed by Bloomberg News. On an organic basis, which excludes acquisitions and currency swings, Ebita rose 7%.

SABMiller had already reported an increase in so-called organic revenue of 3% as lager sales rose 1%.

Currency Effect

SABMiller gets more revenue from developing regions than other major brewers. Diageo Plc (DGE) and Remy Cointreau SA (RCO) are among drinks companies that have recently pointed to weakening growth in countries such as China and Russia. The economy is also cooling in South Africa, where SABMiller controls more than 90% of the beer market.

Currency swings against the US dollar cut reported Ebita by about $400 million, and currency movements will continue to weigh on the business this year, the company said. It expects raw-material costs to increase in “low single-digits” in constant-currency terms.

SABMiller said in April it was considering options for its $1.04 billion stake in African hotel and casino operator Tsogo Sun Holdings Ltd., which is “not considered to be core” to the company’s beverage operations. It said today there is no certainty that the review will result in any action being taken. The review process will take “several months,” Chief Financial Officer Jamie Wilson said on a call with reporters.


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