SAB Saratoga Investment Corp

SABMiller plc, one of the world's leading brewers with operations and distribution agreements across six continents, reports its interim (unaudited) results for the six months to 30 September 2013.

Highlights

• Continued growth in our developing markets, driven by increased capacity, consumer reach and investment in brand portfolios
• Lager volume growth of 1% on an organic basis, with good growth in Africa partially offset by declines in Europe and North America
• Organic, constant currency group net producer revenue (NPR) growth of 4%, with group NPR per hectolitre (hl) up 2% driven by pricing and premiumisation initiatives 
• The depreciation of key currencies against the US dollar has adversely impacted reported performance, with organic, constant currency EBITA growth of 7% 
• Reported EBITA margin¹ increase of 60 bps to 23.7%, with an improvement of 80 basis points (bps) on an organic, constant currency basis  

¹ Expressed as a percentage of group NPR.

	6 months to Sept 2013 US$m	6 months to Sept 2012² US$m	% change	12 months to March 2013² US$m
Group revenuea	17,559	17,476	--	34,487
Revenueb	11,103	11,370	(2)	23,213
Group net producer revenuec	13,793	13,669	1	26,932
EBITAd	3,268	3,153	4	6,379
Adjusted profit before taxe	2,869	2,743	5	5,597
Profit before taxf	2,429	2,263	7	4,679
Profit attributable to owners of the parent	1,714	1,579	9	3,250
Adjusted earningsg	1,920	1,864	3	3,772
Adjusted earnings per share
- US cents	120.4	117.3	3	237.2
- UK pence	77.7	74.2	5	150.2
- SA cents	1,170.9	961.3	22	2,018.9
Basic earnings per share (US cents)	107.4	99.4	8	204.3
Interim dividend per share (US cents)	25.0	24.0	4
Free cash flow	894	1,684	(47)	3,230
² As restated. Further details of the restatement are provided in the financial review and in note 12.
a) Group revenue includes the group's share of associates' and joint ventures' revenue of US$6,456 million (2012: US$6,106 million).
b) Revenue excludes the group's share of associates' and joint ventures' revenue.
c) Group net producer revenue (NPR) comprises group revenue less excise and similar taxes, including the group's share of associates' and joint ventures' excise and similar taxes.
d) Note 2 provides a reconciliation of operating profit to EBITA which is defined as operating profit before exceptional items and amortisation of intangible assets (excluding computer software) and includes the group's share of associates' and joint ventures' operating profit, on a similar basis. EBITA is used throughout this interim announcement
e) Adjusted profit before tax comprises EBITA less adjusted net finance costs of US$345 million (2012: US$387 million, restated) and the group's share of associates' and joint ventures' net finance costs of US$54 million (2012: US$23 million).
f) Profit before tax includes exceptional charges of US$52 million (2012: US$127 million). Exceptional items are explained in note 3.
g) A reconciliation of adjusted earnings to the statutory measure of profit attributable to owners of the parent is provided in note 5.

CHIEF EXECUTIVE'S REVIEW

Alan Clark, Chief Executive of SABMiller, said:

"We have continued to deliver on the potential of our businesses in both developed and developing markets, with revenue and margin improvements amid mixed trading conditions.  We have improved the reach of our mainstream brands across most regions, and through initiatives such as the launch of Redd's Apple Ale in the USA, the momentum behind Castle Lite across Africa, and the increasing appeal of Peroni Nastro Azzurro from Europe to Australia, we are strengthening our premium propositions across the group and evolving our high-end brand portfolios to appeal to an ever wider range of consumers and drinking occasions."

Group net producer revenue	Reported Sept 2012 US$m	Net acquisition and disposals US$m	Currency translation US$m	Organic growth US$m	Reported Sept 2013 US$m	Organic, constant currency growth %	Reported growth %
Latin America	2,740	(18)	(105)	137	2,754	5	1
Europe	2,454	217	31	(18)	2,684	(1)	9
North America	2,518	--	--	(4)	2,514	--	--
Africa	1,523	2	(31)	163	1,657	11	9
Asia Pacific	2,202	(19)	(71)	47	2,159	2	(2)
South Africa:	2,232	8	(377)	162	2,025	7	(9)
- Beverages	2,031	6	(343)	145	1,839	7	(9)
- Hotels and Gaming	201	2	(34)	17	186	8	(8)
Total	13,669	190	(553)	487	13,793	4	1

Group volumes	Reported Sept 2012 hl m	Net acquisitions and disposals hl m	Organic growth hl m	Reported Sept 2013 hl m	Organic growth %	Reported growth %
Lager	132	--	1	133	1	1
Soft drinks	27	5	1	33	5	23
Other alcoholic beverages	4	--	--	4	(1)	1
Total	163	5	2	170	2	4

EBITA	Restated Sept 2012 US$m	Net acquisitions and disposals US$m	Currency translation US$m	Organic growth US$m	Reported Sept 2013 US$m	Organic, constant currency growth %	Reported growth %
Latin America	920	(5)	(36)	93	972	10	6
Europe	516	32	7	(43)	512	(8)	(1)
North America	464	--	--	14	478	3	3
Africa	355	--	(5)	58	408	16	15
Asia Pacific	506	(1)	(25)	60	540	12	7
South Africa:	486	1	(81)	37	443	8	(9)
- Beverages	421	1	(70)	34	386	8	(8)
- Hotels and Gaming	65	--	(11)	3	57	4	(12)
Corporate	(94)	--	1	8	(85)
Total	3,153	27	(139)	227	3,268	7	4
EBITA margin¹ (%)	23.1				23.7
1 Expressed as a percentage of group NPR.

Business review

The group delivered NPR and earnings growth in the first half of the year despite trading challenges in a number of territories. Group NPR and volume growth remained strong in Africa, with the benefit of increased capacity and operational capability, while performance was robust in South Africa despite economic headwinds associated with the depreciation of the South African rand. Performance in Latin America was impacted by an excise increase in Peru and national strikes and social unrest in Colombia, but favourable pricing and a good performance from some premium brands continued to drive group NPR growth. Double digit NPR growth in China along with good progress in Australia on brand restoration and the establishment of premium growth platforms resulted in group NPR growth for the Asia Pacific region. Conditions in North America and Europe remained challenging. EBITA and EBITA margin growth was delivered through higher group NPR and a focus on operational efficiencies.    

Group NPR growth of 4% on an organic, constant currency basis for the first half of the year was driven equally by an increase in total beverage volumes and higher group NPR per hl. Lager volume growth of 1% on an organic basis reflected strong growth in Africa and South Africa, partially offset by declines in Europe and North America, although growth in sales of higher margin products helped to drive an improved EBITA margin in North America. Soft drinks volumes increased by 23% in the period, benefiting from the full consolidation of Coca-Cola Icecek in our associate Anadolu Efes in the period, while on an organic basis soft drinks volumes grew by 5% reflecting growth in both Africa and Latin America. The growth in group NPR per hl was driven by the benefits of pricing and improved brand mix.

EBITA grew by 4% on a reported basis as adverse foreign currency movements had a significant negative impact on the translation of financial results in South Africa, Latin America and Australia. On an organic, constant currency basis EBITA grew by 7% as a result of higher NPR and cost efficiencies across most divisions, resulting in an 80 bps increase in our organic, constant currency EBITA margin. Procurement savings helped limit growth in input costs, resulting in a low single digit increase in raw material input costs (on a constant currency, per hl basis) at the lower end of expectations. Increased production efficiencies also benefited the cost of goods sold. Fixed cost reductions were achieved through a continued focus on increased productivity. Investment in marketing increased in some developing markets to support category development and the expansion of our brand portfolios. Reported EBITA margin increased by 60 bps, reflecting currency impacts and the inclusion of Coca-Cola Icecek in Anadolu Efes' results.

Adjusted earnings grew by 3% compared with the prior period, significantly impacted by the depreciation of key currencies against the US dollar, principally the South African rand, Australian dollar, Colombian peso and Peruvian Nuevo sol. Net finance costs were lower than in the prior period as the group benefited from lower interest rates and the refinancing of higher cost debt in the current and prior period.

Underlying free cash flow for the period was at the same level as the prior year. Due to the phasing of anticipated payments to the Australian Tax Office, free cash flow for the current half year was lower by US$790 million. Adjusted EBITDA was adversely impacted by the depreciation of key currencies against the US dollar in the period but still grew by 1%. Working capital registered a cash outflow in the period of US$67 million, with working capital cash inflows in most divisions offset by a cash outflow in Asia Pacific and a reduction in provisions. Capital expenditure at US$670 million was in line with 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.

The group's gearing ratio as at 30 September 2013 was 59.2%. Net debt increased by US$41 million, ending the period at US$15,641 million. An interim dividend of 25.0 US cents per share will be paid to shareholders on 13 December 2013.

• In Latin America, EBITA grew by 6% (10% on an organic, constant currency basis), adversely impacted by the depreciation of the Colombian peso and Peruvian sol against the US dollar. Group NPR on an organic, constant currency basis grew by 5%, with a 4% increase in group NPR per hectolitre driven by selective price increases and some favourable brand mix, with the Miller brand family continuing to perform well in the premium segment across the region. Lager volumes, which were up 1% compared with the prior period, were adversely impact by national strikes and social unrest in Colombia and an excise increase in Peru in the period. Effective development and extension of our brand portfolios, however, continued to drive an increased share of total alcohol consumption across the region. Growth in soft drinks was driven by pack innovations in Peru and Ecuador. A positive 170 bps improvement in reported EBITA margin was achieved through a combination of NPR growth, cost reductions and the phasing of marketing spend.    
• In Europe, EBITA declined by 1%, including the benefit of the full consolidation of Coca-Cola Icecek in the Anadolu Efes' results (an 8% decline on an organic, constant currency basis). Group NPR grew by 9%, driven by the addition of Coca-Cola Icecek soft drinks volumes, while organic, constant currency group NPR declined by 1%. The group NPR decline on an organic, constant currency basis reflected volume led declines in Poland and the Czech Republic, partially offset by volume led growth in Romania, the UK and Slovakia. Reported EBITA margin declined by 190 bps due to the impact of adverse channel and brand mix in Poland.    
• In North America, EBITA increased by 3% as a result of increased profitability in MillerCoors. Group NPR was level with the prior period, as a decline in lager volumes was offset by higher group NPR per hl due to pricing and favourable brand mix. The growth in sales of higher margin products also helped drive a 60 bps improvement in EBITA margin, along with lower fixed costs.    
• In Africa, EBITA grew by 15% (16% on an organic, constant currency basis) as a result of the increase in volumes, with good growth in Tanzania, Zambia, Nigeria and Ghana. The group NPR growth of 9% (11% on an organic, constant currency basis) was driven by good lager volume growth across our portfolios, as mainstream brands performed well while Castle Lite continued to expand in the premium segment. Focus on production efficiencies and increased local sourcing of commodities helped contain variable cost increases and deliver reported EBITA margin growth of 130 bps despite increased investment in capacity and sales and distribution reach.     
• In Asia Pacific, EBITA grew 7% (12% on an organic, constant currency basis) and EBITA margin by 200 bps driven by profit growth in both Australia and China. Reported group NPR for the region declined by 2%, due to adverse currency translation impacts (organic, constant currency group NPR grew by 2%). In Australia, pricing and a focus on premium growth platforms drove a 2% growth in continuing domestic NPR on a constant currency basis. Continuing domestic lager volumes were down 1%, reflecting the absence of an Easter peak period and subdued consumer confidence, but core brands in the portfolio performed well. The integration programme continued to progress ahead of schedule in synergy delivery and capability build. In China, organic, constant currency NPR grew by 14% with the benefit of higher volumes and favourable product mix, as sales of premium Snow brand variants increased, and beneficial geographic mix reflecting increased sales in higher value provinces. EBITA in China benefited from increased focus on efficiencies and fixed cost containment along with higher group NPR.     
• South Africa: Beverages was adversely impacted by the significant depreciation of the South African rand against the US dollar in the period, resulting in reported EBITA and group NPR decreases of 8% and 9% respectively. On an organic, constant currency basis EBITA grew by 8% driven by the increase in organic, constant currency group NPR of 7%. Lager volumes grew by 3% despite the challenging consumer environment, with both Castle Lite and Castle Milk Stout performing well in the premium segment and helping to deliver, along with pricing, a 5% increase in group NPR per hl. Soft drinks volume growth of 1% was driven by the two litre PET pack in the sparkling portfolio, while water brands and the Play brand performed well in still drinks. EBITA margins were under pressure due to the deteriorating exchange rate and the higher cost of diesel but the impact was contained and more than offset through continued focus on increased productivity, resulting in reported EBITA margin growth of 30 bps. 

The business capability programme progressed in line with expectations, with cumulative net operating benefits of US$225 million in the six months driven by global procurement initiatives. The exceptional costs of the programme were US$79 million during the half year (2012: US$70 million).

Outlook

Trading conditions are expected to remain broadly unchanged, with growth continuing to be driven by our developing markets. The depreciation of key currencies against the US dollar will adversely impact reported results in the current financial year. Development of our brand and pack portfolios will continue, as we seek opportunities to reach new consumers and enhance the beer category. Price increases will be taken selectively and focus will remain on premiumisation. Raw material unit input costs are expected to rise in low to mid single digits in constant currency terms. Investment in production capacity and capability will continue to drive growth along with strong commercial execution of existing and new consumer offerings.    

Enquiries:
	SABMiller plc	Tel: +44 20 7659 0100
Catherine May	Director of Corporate Affairs	Tel: +44 20 7927 4709
Gary Leibowitz	Senior Vice President, Investor Relations	Tel: +44 20 7659 0119
Richard Farnsworth	Business Media Relations Manager	Tel: +44 20 7659 0188
A live audio webcast of a presentation by Chief Executive, Alan Clark, and Chief Financial Officer, Jamie Wilson to the investment community will begin at 9.30am (GMT) on 21 November 2013.  To register for the webcast, download the slide presentation, view management video interviews and download photography and b-roll, visit our online Results Centre at www.sabmiller.com/resultscentre.
To monitor Twitter bulletins throughout the day follow www.twitter.com/sabmiller or #sabmillerresults.   Copies of the press release and detailed Interim Announcement are available from the Company Secretary at the Registered Office or from our website at www.sabmiller.com.

SABMiller interim results to 30 September 2013: http://hugin.info/159125/R/1744784/587156.pdf