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SABMiller plc Annual Report 2011 39 Carling Black Label A full-flavoured lager with low bitterness and a distinctive, fruity aroma, Carling Black Label is refreshing and highly rewarding to drink. It’s what makes it a ‘champion beer’ preferred by consumers and international experts alike. Origin: South Africa First brewed: 1966 Profit and earnings Adjusted profit before tax of US$4,491 million increased by 18% over the prior year due to the increased EBITA and lower finance costs. On a statutory basis, profit before tax of US$3,626 million was 24% higher than the prior year. The table below reconciles EBITA to adjusted profit before tax and to the statutory profit before tax. 2011 US$m 2010 US$m % change EBITA 5,044 4,381 15 Adjusted finance costs (518) (538) 4 Share of associates’ and joint ventures’ finance costs (35) (40) 12 Adjusted profit before tax 4,491 3,803 18 Exceptional items (excluding finance cost exceptionals) (467) (490) 5 Adjustments to finance costs (7) (25) 72 Amortisation (209) (199) (5) Share of associates’ and joint ventures’ tax and noncontrolling interests (182) (160) (14) Profit before tax 3,626 2,929 24 Adjusted earnings increased by 20% to US$3,018 million. With the weighted average number of basic shares in issue for the year of 1,576 million, up slightly from last year’s 1,558 million, we achieved strong adjusted earnings per share growth in both our reporting currency of US dollars and also in the currencies in which our shares are quoted, as demonstrated in the table below. 2011 2010 % change US cents 191.5 161.1 19 UK pence 123.4 100.6 23 South African cents 1,369.6 1,253.8 9 A reconciliation of the statutory measure of profit attributable to equity shareholders with adjusted earnings is shown in note 8 to the consolidated financial statements. On a statutory basis, basic earnings per share were 25% up on the prior year primarily as a result of higher profit before tax, lower profit attributable to non-controlling interests and only a minimal increase in the weighted average number of shares in issue in the year. Dividends The board has proposed a final dividend of 61.5 US cents to make a total of 81 US cents per share for the year – an increase of 19% over the prior year. This represents dividend cover of 2.4 times based on adjusted earnings per share (2010: 2.4 times). Our guideline is to achieve dividend cover of between 2.0 and 2.5 times adjusted earnings. The relationship between the growth in dividends per share and adjusted earnings per share is demonstrated in chart (h). Details of payments and related matters are disclosed in the directors’ report. Business combinations and similar transactions On 24 November 2010 we acquired a 100% interest in Cerveceria Argentina SA Isenbeck for cash. The acquisition has increased our exposure to the beer market in Argentina and also provides a platform for exports into neighbouring countries. On 30 November 2010 we completed the cash acquisition of an 80% effective interest in Crown Foods Limited, a mineral water and juice business in Kenya, consistent with the group’s full beverage portfolio strategy in Africa. This was made in partnership with Castel, with the effective interest stated after taking account of Castel’s share. On 24 February 2011 the merger of our South African hotels and gaming associate, Tsogo Sun Group (Tsogo Sun) with Gold Reef Resorts Ltd, a JSE listed gaming business, was completed. We exchanged our 49% interest in Tsogo Sun for a 39.7% interest in the enlarged Tsogo Sun/Gold Reef Resorts business, in an all share transaction. In China, our associate, CR Snow, has continued to consolidate its position as the country’s largest brewer with the purchase of a further three breweries in the year. Cash flow and investment highlights Net cash generated from operations before working capital movements (EBITDA) of US$4,502 million was 13% higher than the prior year. EBITDA excludes cash contributions from joint ventures and includes the effects of cash flows from exceptional items. To consider cash generation on an underlying basis, we use an adjusted EBITDA measure which excludes the cash flow impact of exceptional items and includes the dividends received from MillerCoors (which is a proxy for our share of MillerCoors’ EBITDA). Adjusted EBITDA of US$5,617 million grew by 12% compared with the prior year. Adjusted EBITDA margin, including the group’s share of MillerCoors’ revenue, improved 120 bps in the year to 22.9%. 2011 US$m 2010 US$m EBITDA (see note 28a) 4,502 3,974 Plus cash outflows from exceptional items 293 339 Plus MillerCoors’ dividend 822 707 Adjusted EBITDA 5,617 5,020 Revenue 19,408 18,020 Plus share of MillerCoors’ revenue 5,106 5,121 24,514 23,141 Adjusted EBITDA margin 22.9% 21.7% We achieved a cash inflow from working capital of US$66 million, principally as a result of business capability initiatives. While positive, the amount of working capital inflow was, as expected, lower than the exceptionally strong inflow in the prior year. (h) Adjusted earnings per share (EPS) and dividend per share US cents 200 180 160 140 120 100 80 60 40 20 07 08 09 10 Adjusted EPS Dividend per share 11 Overview Business review Governance Financial statements Shareholder information
SABMiller plc Annual Report 2011 40 Chief Financial Officer’s review Continued Cash generated from operations increased by 1% over the prior year, to US$4,568 million. Tax paid in the year increased by 43% to US$885 million from US$620 million in the prior year. The increase arose from a combination of items, including: • tax payable on higher profits; • additional withholding taxes payable in Africa and Latin America; • payments made on resolution of various tax disputes; and • a tax refund received in the prior year, which arose following the establishment of the MillerCoors joint venture. Net interest paid has remained level with the prior year at US$640 million reflecting the reduction in net interest expense offset by the timing of payments and the settlement at maturity of a number of derivative financial liabilities. Capital expenditure for the year was US$1,189 million (2010: US$1,436 million), or US$1,315 million (2010: US$1,528 million) including the purchase of intangible assets, and investments in a number of major capacity projects including new breweries in Angola, Mozambique, Southern Sudan and Tanzania, together with brewery capacity expansions in Peru and Uganda. Capital expenditure of approximately US$1,500 million is expected in the next financial year. Free cash flow improved by US$460 million to US$2,488 million, benefiting from improved EBITDA, lower capital expenditure, lower investments in associates and joint ventures, higher dividends from MillerCoors and a reduction in dividends paid to non-controlling interests following the acquisition of the non-controlling interests in our Polish business in May 2009. Free cash flow over the last five years is shown in chart (i). Business capability programme In addition to the exceptional costs of the business capability programme noted above under Exceptional items, the programme incurred capital expenditure in the year of US$87 million (2010: US$95 million). While the programme is still in its relatively early phase, it has already led to accumulated improvements in working capital of US$461 million, and to net operating benefits in the year of US$67 million (2010: US$17 million). These include benefits generated from the global procurement programme and the implementation of a regional manufacturing operation in Europe. Including cost avoidance benefits and the net operating benefits of the prior year, the accumulated benefits from the programme now amount to US$620 million. The rate of working capital cash inflow from the business capability programme will continue to decrease in the next year but cumulative benefits in working capital already exceed our original expectations. Balance sheet A significant proportion of the non-current assets on our balance sheet reflect acquisitions since our listing on the London Stock Exchange in March 1999. No goodwill or intangible assets are recognised on the balance sheet in relation to businesses or brands that have been developed organically or were acquired prior to 1998. The same policy applies for our investments in associates and joint ventures, including MillerCoors. Acquisitions post 1 April 1998 and prior to the IFRS transition in 2005 were accounted for in accordance with UK GAAP, with intangible assets, such as brands, not separately recognised but instead forming part of the goodwill on the acquisition, which was amortised over 20 years in most instances. On transition to IFRS in 2005, we changed our policy and have recognised acquired intangible assets, primarily brands, separately from goodwill on acquisitions, with intangible assets subject to amortisation and with no amortisation of goodwill. The goodwill and intangible assets relating to investments in associates and joint ventures including MillerCoors are subsumed within the investment total and not separately identified on our balance sheet. Total assets increased to US$39,108 million from the prior year’s US$37,499 million (restated – business combinations. See note 29 to the consolidated financial statements), primarily as a result of the strengthening of the currencies of our major operating businesses against the US dollar. Goodwill increased by US$373 million, compared to the restated prior year amount, as a result of the impact of foreign exchange rate changes on goodwill denominated in currencies other than the US dollar and by goodwill arising on the business combinations in Latin America and Africa. Intangible assets increased by US$7 million primarily reflecting foreign exchange movements and additions primarily related to the business capability programme, mainly offset by amortisation. Gross debt at 31 March 2011 decreased to US$8,162 million from US$9,177 million at 31 March 2010. Gross debt comprises borrowings together with the fair value of derivative assets or liabilities held to manage interest rate and foreign currency risk of borrowings. Net debt (comprising gross debt net of cash and cash equivalents) decreased to US$7,091 million from US$8,398 million at 31 March 2010. The reduced level of net debt resulted from the strong free cash flow, and was achieved despite the marginal strengthening of certain currencies in which some of our debt is denominated. As at 31 March 2011, we held cash and cash equivalent investments of US$1,071 million (2010: US$779 million). An analysis of net debt is provided in note 28c to the consolidated financial statements. Our gearing (presented as a ratio of net debt to equity) has decreased significantly to 31.2% from 40.8% (restated) at 31 March 2010. (i) Free cash flow US$m 2,500 2,000 1,500 1,000 500 0 07 08 09 10 11 Overview Business review Governance Financial statements Shareholder information
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