When an economic crisis hits consumers are expected to continue with their vices — drinking, smoking and gambling their way through the downturn.
It is for this reason that vice stocks are considered a safe bet in economically tough times.
But SABMiller’s interim results, released last week, show the brewery giant is feeling the strain like everyone else.
A look at SABMiller’s share price in London and Jo’burg shows that it has shed significant value this year.
On the London Stock Exchange the share price has fallen 32%, from £14,34 on January 1 to an opening price on Wednesday of £9,76. In comparison the FTSE 100 has fallen 35% in the corresponding period.
On the JSE SABMiller’s share price has fallen 28% from this time last year to an opening price on Wednesday of R150,50.
The JSE is down 30% year on year and the JSE’s top 40 is down 35%.
SABMiller’s interim results for the six months ending September 30 show that the economic downturn is severely affecting its business, especially in Europe.
SABMiller posted earnings before interest, tax and amortisation (Ebita) of $2,2-billion, up 9% from 2007, but its revenue increased by only 4%, to $11,2-billion.
SABMiller chief executive Graham Mackay says that weakening consumer demand in certain markets presented a challenging start to the year.
According to SABMiller’s interim report, “the deterioration in global economic conditions is causing weakening consumer demand in many of our markets. Cost pressures will continue and the strength of the US dollar relative to the group’s major currencies is expected to adversely affect reported results.”
Following several years of strong volume growths in Europe the region has slowed to a 2% growth rate.
The slowdown in Europe is attributed to poor weather, strong competition and “high distributor stocks”.
Growth in Russia, Italy, Hungary, Poland, the Netherlands and the Czech Republic were all down, while Romania grew 24% in volume and the United Kingdom 17%.
North America, too, showed lower beer volumes, down by 3,5%.
The one factor that stands SABMiller in good stead is its diversified geographic footprint. While there may be declining consumer demand in Europe, developing nations in Africa and South America are experiencing significant growth.
Lager volumes increased in Africa by 11% and in Latin America by 3%.
“Ebita margins for our African businesses came under pressure from increasing commodity costs, however, robust pricing and the portfolio benefit of having soft drinks and traditional beer mitigated some of these cost pressures,” says SABMiller. “Angola, Botswana, Zambia, Tanzania and Mozambique all reported good volume growth as their economies continued to expand and sales execution was improved.
“Lager volumes in South Africa were down 1% against the prior year in which the group had less competition in the premium segment.”
It is clear from the results that the reintroduction of Amstel into the market has hit sales of Hansa Marzen Gold and Castle Lite.
SABMiller says consumers in South Africa are continuing to feel the effects of higher food and fuel prices and this is affecting beer sales. This can be seen in the increase in mainstream beer sales as consumers trade down from premium brands because of the tough economic environment.