SABMiller CEO Graham McKay last week threatened to take the government to the country’s highest court if it “ignored reality” and pressed ahead with the controversial Liquor Bill.
McKay also used the presentation of its annual results on Thursday to reassure investors that its growth through acquisition strategy is on track.
Speaking from London, McKay called aspects of the legislation “impractical and constitutionally challengeable”. McKay pointed in particular to the three-tier wholesaler system as “ignoring the realities of the liquor industry”.
McKay stated emphatically : “We will take them to the Constitutional Court.”
The Department of Trade and Industry withdrew the Bill this week “for further consultations”.
McKay was speaking against the backdrop of impressive results, which saw the world’s second-largest brewer by volume grow earnings per share by 9%, from 472,50c to 513c a share.
Criticising the Liquor Bill, Tony van Kralingen, the South African MD of SABMiller, complained that the government “is not articulate about its concerns”.
Its first step should be to “fix the retail segment”. Estimating that 60% of beer in South Africa was consumed on illegal premises, he said more of such outlets should be licensed “to improve efficiency in deliveries and give access to credit, to normalise the market”.
Last year the Gauteng provincial government issued 570 liquor licences, of which 70 went to shebeens and taverns and the rest to traditional establishments such as restaurants.
Van Kralingen also had reservations about trying to use the Liquor Bill to “control [market] domination”, suggesting this was the proper domain of competition authorities. He believes the legislation should not be used to address empowerment, which should rather be tackled “through continuous engagements and by other means”.
Analysts said the company’s results were better than expected in some areas, but disappointing in the most keenly watched aspect — the integration of American brewer Miller. Last May SAB purchased United States-based Miller Breweries for R54-billion.
McKay restated the group’s rationale for the transaction, as giving it access to the world’s most important beer market.
Turnover without Miller grew 29% to $5,64-billion, while with Miller — which accounted for only nine months of the financial year — it grew 109% to $9,11-billion.
The acquisition means North America contributes 19% of SABMiller’s earnings, while South Africa’s share declines from 51% to 38%, and that of the rest of the Africa and Asia from 21% to 18%.Europe has yielded 4% of its 25% share, while Central America has grown its contribution to earnings from 3% to 4%.
Grant Swanepoel, an analyst at Citigroup Smith Barney, expressed disappointment that problems identified at the time of the Miller acquisition have been found to be deeper-seated and might take longer than expected to address.
The group identified as the major problem Miller’s brand portfolio, currently consisting of 57 brands and found to have “complexity and poor health”.
It said it would reshape the port- folio, focusing on the top four brands, which account for 80% of volume —Miller Lite, High Life, Miller Genuine Draft and Milwaukee’s Best.
Europe delivered exceptional performance for the group, growing ahead of the market in seven countries. Earnings grew by 39% to $275-million.
In Russia, where SABMiller is engaged in ongoing capacity expansion, volume grew by 27%, ahead of the market’s 9% growth. The company’s market share stands at 2,4%.
In Poland, where SABMiller enjoys a 30% market share, growth was 10%, twice that of the market.
On Thursday the group’s Indian subsidiary, Mysore Breweries, announced a joint venture with Shaw Wallace and Co to form Shaw Wallace Breweries. The group also recently acquired a controlling interest in Birra Peroni for $279-million, which gives it access to the Peroni brand.
Analysts suggested the company might have overpaid. However, Swanepoel pointed out that the Czech brewery initially looked overpriced, but three years later “looks like a steal”.
Much would depend on exploiting the Peroni brands by, for instance, launching them into the US through the Miller distribution platform to target 28-million Italian Americans.
South Africans will see the death of the Lion brand, following an unsuccessful repositioning attempt. “Consumers did not vote for Lion, and we have no right selling it,” Van Kralingen said.
The group’s share currently stands at about R528 on the JSE Securities Exchange and £410 in London, where it has delivered 18,6% since moving there in 1999. Swanepoel rates the stock highly: “On a three-year view, I like it a lot.”