SABMiller Sees Commodity Costs Restricting Africa Margin Growth

SABMiller Plc (SAB), the world’s second- biggest brewer, said the cost of expansion and higher commodity prices will restrict margin growth in Africa.

Earnings before interest, taxes and amortization as a percentage of sales will increase by 0.5 to 0.8 percentage point in the “medium term,” regional managing director Mark Bowman said today at a conference in London. The brewer predicted last year that profitability on that basis would rise 0.8 to 1 percentage point a year over the next three to four years.

SABMiller, based in London, will maintain investment in the region at an average of about $300 million to $500 million per year, building more breweries and bottling facilities amid growing demand, Bowman said. The brewer didn’t anticipate “relatively high input costs” in Africa this year, he said, as prices for products including malting barley increase.

“On balance we do expect over the next two to three years to improve our margins,” Bowman said, citing actions to increase the efficiency of distribution at SABMiller, which sells beers including Castle and Impala in the region.

Brewers are seeking to build or buy breweries across Africa as the region’s consumers become more prosperous. SABMiller, which said today it has capacity shortages in Zambia and Uganda, anticipates volume growth in “high single-digits” each year.

“We’re now putting in quite a lot of capacity in some markets,” Bowman said. The brewer may build three to four new breweries in the next few years, as well as expand capacity at existing breweries, he said.

Castel Venture

SABMiller reorganized its African joint venture with Groupe Castel in January, taking management control of operations in Nigeria and agreeing to a “more precise methodology” for the rights to each company’s beverage operations. The relationship with Castel “was very strong and has got stronger,” Bowman said. SABMiller swapped a 38 percent stake in the African unit, which excludes South Africa, for 20 percent of Castel in 2001.

Brewers are looking to emerging markets to drive sales as growth stagnates in Europe. SABMiller’s first-quarter lager sales in Africa grew 9 percent, excluding the effects of acquisitions and disposals, making it the brewer’s fastest- growing region, the company said July 26. It represented 11 percent of SABMiller’s sales and revenue last year.

To contact the reporter on this story: Clementine Fletcher in London at cfletcher5@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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