E-Malt.com News article: 3415

SABMiller Plc, the world's fourth- largest beermaker, may step up acquisitions in Russia, India and China as it seeks to beat Anheuser-Busch Cos. as the brewer with the highest shareholder returns, CEO Graham Mackay said. “Local regional acquisitions are generally pretty attractive,'' Mackay, 55, said in an interview at the company's London headquarters, Bloomberg revealed on October 8. “At any time we have a couple of mergers and acquisitions teams who do nothing but evaluate'' potential targets, he said.

SABMiller is expanding in Eastern Europe and Asia, where beer consumption is growing at least twice as fast as in the West. Mackay, who doubled the size of the company more than two years ago by buying Miller Brewing Co. of the U.S. for $5.6 billion, says he needs to focus on profit margins, not size. “I don't think being No. 1 by volume is a particularly meaningful goal,'' he said. The aim is “to have the highest returns, the highest embedded growth rate. Once you're of a size that you can access all the meaningful scale economies, it's not necessary to be the biggest.''

SABMiller's margins lag those of Anheuser-Busch, the industry leader in profits and margins. Mackay produced an operating margin, or operating income as a percentage of net sales, of 16.5 percent in the year ended March, compared with 22.6 percent for the maker of Budweiser, according to Bloomberg data.

Besides acquisitions, Mackay plans to exploit emerging market demand for American beers, which he can sell at premium prices. SABMiller will start selling Miller Genuine Draft in China, the largest and fastest-growing beer market, in about a year, he said. While SABMiller lags Anheuser-Busch in returns, its shares have outperformed those of its bigger rivals, rising 54 percent in the past year. Budweiser has declined less than 1 percent. InBev is up 33 percent, while Heineken is little changed.

To catch St. Louis, Missouri-based Anheuser-Busch in terms of operating margins would take ``structural changes in some big markets,'' Mackay said. “What we need is more rational, better-supported brand portfolios, better pricing and better control over distribution. Acquiring more breweries is a means to that end,'' he said.

SABMiller lost its position as the world's No. 2 brewer by sales to InBev in August, when the Belgian company bought Brazil's Cia. de Bebidas das Americas for $11.2 billion.

Mackay failed at his attempt to buy Harbin Brewery Group, China's No. 4 brewer, in August after Anheuser-Busch bid 30 percent more. Since then, SABMiller's Chinese venture has agreed to buy three breweries and build a plant in the southeastern province of Guangdong.

“Brewing was one of the last dominions of domestic industry and we've suddenly seen massive globalization,'' said Hilary Cook, the director of investment strategy at Barclays Private Clients in London, which manages the equivalent of about $45 billion, including SABMiller shares. “I'm sure SABMiller won't want to get left behind.''

Beer sales in China rose 6.3 percent by volume in 2002, according to Canadean Ltd., a beverage research firm in Basingstoke, England. Consumption fell 0.1 percent in Western Europe and 0.3 percent in the U.S., the first drop in seven years.

SABMiller owns, is building, or has interests in 36 Chinese breweries through its 49 percent stake in China Resources Breweries Ltd.

Mackay is also considering acquisitions in India, where consumption increased 10 percent in 2002, and in Russia, where the market grew 12 percent. In India, the company No. 2 and shares a joint venture with Shaw Wallace & Co. In Russia, SABMiller focuses on selling Miller Genuine Draft, which grew 90 percent in volume terms in the year through March.

China and Russia will together contribute 51 percent to global beer sales in the next five years, according to a July report by Merrill Lynch & Co. Global consumption will probably rise 2 percent a year over that period as economies expand in Eastern Europe, Asia and Latin America, Merrill Lynch said.

SABMiller, founded in South Africa in 1895, is increasing sales of Miller Lite in the $70 billion U.S. market by taking on Anheuser-Busch's Bud Light. The brewers are locked in a marketing battle aimed at winning over consumers on diets, including Atkins, that recommend reducing carbohydrate intake. SABMiller is touting Miller Lite as having half the carbohydrates of Bud Light.

Shipments of Miller Lite climbed more than 10 percent in the six months through March. SABMiller said last month that U.S. domestic sales of all Miller beers to retailers rose 2 percent from April 1 through mid-September, as demand for Miller Lite more than offset declines in volumes of Miller Genuine Draft and other brands. North America accounts for 22 percent of the company's earnings before interest, taxes, depreciation and amortization.

While SABMiller said last month it expects growth in Miller Lite to slow to less than 10 percent in the second half, Mackay said he hopes earnings by all measures for the entire company will continue to rise by ``very solid double digits'' in the next three to nine months. Net income more than doubled to $337 million in the six months ended March 31.

Mackay declined to comment on last month's reports in Canada's Globe and Mail and the Wall Street Journal that SABMiller has held preliminary talks with Ian Molson, a cousin of Molson Inc. Chairman Eric Molson, about participating in a bid for Canada's No. 1 brewer. Molson is planning a $3.4 billion merger with Adolph Coors Co. “We have a reasonably high profile in a consolidating industry, and our name always comes up whenever there's a transaction,'' he said.


10 October, 2004