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SABMiller tops up profit, will offset rising costs

By David Jones
/ Source: Reuters

By David Jones

LONDON (Reuters) - SABMiller , the world's biggest brewer, beat forecasts with a 19 percent rise in annual earnings on Thursday and said it expects to raise beer prices to offset soaring commodity costs, sending its shares higher.

The London-based maker of Miller Lite, Peroni and Pilsner Urquell beers was positive for its outlook, saying most of its worldwide operations were in the high-growth developing economy markets of Latin America, Asia and Africa.

Chief Executive Graham Mackay said the group had held its operating profit margins despite sharp rises in barley, hops, packaging and energy, and was confident it will do so again.

"We are seeking to recover the absolute cost increases with beer price rises in the current year," Mackay told a conference call following annual results.

SABMiller shares rose 5.2 percent to 12.66 pounds by 0830 GMT in a lower London stock market, as the group held its annual EBITA (earnings before interest, tax and amortization) margin level with the prior year at 17.4 percent.

The group, which bought Dutch brewer Grolsch in February and is waiting for approval to combine its U.S. operations with Molson Coors posted adjusted earnings per share of 143.1 U.S. cents for the year to March 31, against analyst forecasts of 134.1 to 142.1 cents and a consensus of 137.8 cents.

"We see the outlook statement as reassuring. The key point is SABMiller's continuing confidence that it can fully offset these cost increases through price and mix improvements," said Cazenove analyst Matthew Webb.

He raised his provisional earnings forecast for the year to March 2009 by 5 percent to 162 cents.

The positive tone came despite Mackay warning the group's costs were set to rise sharply in the current year with malting barley prices doubling.

He said the group's cost of goods rose 6 percent in the year to March 2008 and would rise in the high single digits in the current year, while raw material prices which increased 9 percent in the year would see a low double-digit rise.

The brewer is seeing beer volume growth slow as it pushes through price rises to offset the higher cost of commodities.

It said beer volume growth in the first half will be hit by the effect of higher prices and high comparative figures.

Underlying beer volumes in its financial year grew 7 percent but analysts say this slowed to 1 percent in its fourth quarter to end-March.


For the first time, group profits from Latin America overtook those from its South African beer operations to be the biggest profits earner, and Mackay said that was unlikely to reverse given the higher growth seen in markets such as Colombia and Peru.

The full-year dividend rose 16 percent to 58 U.S. cents.

This month, the world's No 2 brewer InBev reported lower-than-expected first-quarter earnings as costs jumped nearly 10 percent and as it suffered from weak beer markets in Brazil and Russia, two of its key growth regions.

SABMiller shares trade at 15.3 times March 2009 forecast earnings, largely in line with rivals InBev on 15.4 and Heineken's on 15.8, according to Reuters Estimates.

Analysts say SABMiller's faster growth is offset by concern about South Africa and other emerging markets and currencies.

SABMiller shares have recovered from a low of 995p in March follow a sell-off in January due to rising costs and currency concerns, but still underperformed the DJ Stoxx European food and beverage index by 7 percent over the past 12 months.

(Editing by Louise Ireland and David Hulmes)