Annual Report - SABMiller India

Operations reviewLatin AmericaLatin LatinAmerica AmericaFinancial summary 2008 2007 %Group revenue 1(US$m) 5,251 4,392 20EBITA 2 (US$m) 1,071 915 17EBITA margin (%) 20.4 20.9Sales volumes(hl 000):– Lager 36,846 34,948 5– Soft drinks 18,484 19,474 (5)– Soft drinks –organic 18,484 18,564 (0)1Including share of associates, US$12 million(2007: US$19 million).2In 2008 before exceptional items of US$61 million (2007:US$64 million) being restructuring costs in Latin America,partially offset by the net profit on the sale of soft drink andjuice businesses in Costa Rica and Colombia respectively.Key focus areas■ Continue to raise the appealof the beer category■ Build well differentiated brandportfolios with national identities■ Optimise and extend distributionnetwork and sales reach■ Embed organisation changesand performance management■ Continue the developmentof regional operatingsupport platformsIn Latin America, execution of ourstrategy to renovate the beer categoryhas continued and has delivered underlyingperformance in line with our expectationswhile laying a sound foundation for futuregrowth. In the year, lager volumes ended5% up on the prior year despite highcomparative volume growth, particularlyin the second half. Reported EBITAperformance benefited from strong localcurrencies, particularly the Colombian pesowhich strengthened by 15% against theUS dollar (on a full year average basis).There have been significant fixed costproductivity improvements across thebusiness. Reported EBITA margin wasdown on prior year due to rising rawmaterial input costs and a 40 basis pointnegative impact as a result of changes tothe basis of recovering distribution costs.On an organic constant currency basis,EBITA growth was 6%, while revenue perhectolitre increased by 4% on a like for likebasis. Significant capital investment wasincurred to increase capacity, moderniseproduction and logistics assets, upgradereturnable containers and improveproduct quality.In Colombia, the brand portfolio upgradecontinued with the launch of Redd’s in thepremium segment and the relaunches ofAguila and Aguila Light in the mainstreamsegment. Our Pony Malta brand wasalso relaunched with a new design anda new 350ml PET container. Premiumlager volumes grew by over 60% in theyear, largely due to the continued strongperformance of Club Colombia. The new500ml returnable bottle for Aguila andvarious PET packs for Pony Malta furtherhelped to modernise and widen the appealof the product range.Trading conditions softened in thesecond half, as consumer credit interestrates continued to rise and inflationarycost pressures resulted in retail priceincreases. Nevertheless revenue perhectolitre improved by 4% on a constantcurrency basis with revenue managementand a focus on price compliance assistingprice and mix improvements.Lager growth rates slowed in the secondhalf of the year, ending up 4% for the fullyear. However, our share of the alcoholmarket increased by 190 basis pointsto 64.7%, gaining share mostly fromlocal spirits.Further gains were made in operatingefficiencies and reducing overhead costs,in order to assist in offsetting rising inputcosts. The majority of the structuralchanges to the route-to-market and theproduct quality investments have nowbeen implemented, while trade marketingcapability has been enhanced, establishinga solid platform for future growth.+6%EBITA growth on an organicconstant currency basisThe new Valle brewery was commissionedin March 2008, with an initial annual capacityof 3.2 million hl, which will bring supply anddemand into better balance in the westernregion. Further capacity investment will berequired at the Barranquilla brewery and atmaltings plants in the coming year. Duringthe year the juice business in Colombiawas sold.In Peru economic conditions have beenfavourable with annual GDP growth ofnearly 9%. Lager volumes were up 8% onthe prior year despite major disruptions todistribution due to mudslides and a severeearthquake. The market has becomeincreasingly competitive with the entryof a second competitor in the economysegment. Our Pilsen Trujillo brand hasbeen successfully repositioned nationallyto combat low priced competition.Premium volumes and share haveimproved with the relaunch of Cusqueñain the premium segment, which endedthe year at 8% market share, partiallyoffsetting the mix impact of the growthof the economy segment includingPilsen Trujillo. Revenue per hectolitrehas improved 1% on a constant currencybasis. Our overall market share endedthe fourth quarter at 84% and the beermarket has gained share of alcohol andnow stands at 51%. The operationcontinues to enhance its brand portfolioand invest for future demand with capacityand quality upgrades. The renovationof containers and the distribution fleet isnow largely complete and the programmeof trade marketing enhancements isbeing rolled out.Our Ecuador operations delivered acommendable performance despite lowereconomic growth, political uncertaintyand torrential rains in the fourth quarter.The operation has focused on securingchannel advocacy by the installation ofover 5,000 coolers and our marketmapping to identify further opportunitiesfor growth is complete. The change inour route-to-market has commencedwith positive reception in the areasaffected. Lager volume growth of over5% was driven by our flagship brandPilsner, following its relaunch in October2007, and the implementation of nationalpricing in the same month. The premiumportfolio performed well led by therenovation of the Club brand, which hasbeen successfully repositioned in thepremium segment, whilst maintainingprevious volumes. Beer’s share of alcoholremained in line with the prior year at 41%and our lager market share improved by80 basis points on a full year basis to 96%,despite aggressive pricing campaigns fromour main competitor. Positive brand andpack mix and increased prices haveboosted revenue.In Honduras lager volume growth of 4%was fuelled by 10% growth in premiumsegment volumes, led by our brands Barenaand Port Royal. Price compliance initiativesand our beer outlet and cooler expansionprogrammes contributed positively tovolume growth. Revenue management wassupported by premium volumes growing toover 50% of the portfolio. Renewed focusis now being placed on affordability and theattractiveness of our mainstream brands.Soft drinks reported growth of 9%, withour Tropical brand achieving growthof 23%, following a renewed imagingcampaign. Our market share of softdrinks improved by 4% to 55% throughimproved sales execution activities, despitecontinuing competition in the soft drinkmarket and the shift in mix to family oneway packs.24 Operations reviewSABMiller plc Annual Report 2008