SABMiller has reason to raise its glass in celebration, despite the loss of the Amstel brand.

Bruce Whitfield:
Solid profit growth for SABMiller, it’s got stronger beer sales in Eastern Europe and it has been able to recoup the rising costs from its customers through price increases but cost pressures are building and I guess the question is for how much longer can SAB keep growing its volumes if it is obliged to keep rising costs on the higher input levels as well. That's a question we will put to Malcolm Wyman, the chief financial officer in a minute or two, but Malcolm, welcome to the programme, we will get onto that costs story in a moment, but I do notice with a great deal of interest that South Africa is no longer your most profitable region. That honour I guess, has been taken over by Latin America. Are you simply selling far more beer there or is it just the margins increasing there?

Malcolm Wyman:
I think it is, probably to put it into context, that we now have three divisions that are roughly the same size, Latin America is slightly ahead of South Africa and then that is followed by Europe. And we did have volume growth in Latin America, five percent, and we had flat sales in South Africa, so you know with that type of difference, sooner or later it does impact and the volumes were as I said flat in South Africa and increased volumes in Latin America meant more profitability.

Bruce Whitfield:
But flat in South Africa for the last financial year must have been quite a relief if that doesn't sound like a contradiction based on the fact that you did lose the Amstel deal, didn't you?

Malcolm Wyman:
Well in fact, we think it was a very satisfactory result because we started the year off losing the Amstel brand, which was nine percent of our volumes so in effect we started off nine percent down in volumes and I think the team there has done a great job in ensuring that we now have ended up on a neutral basis which means they have gained volume through the year both through premium brands and the introduction of Hansa Martzen Gold and also through our mainstream brands with Castle and Carling.

Bruce Whitfield:
One of the analysts that I have spoken to describes what you have in South Africa and when you plug that gap, it is called monopoly default theory, I don't know if it is in a textbook anyway but that is the term that he uses. The fact that you don't have a big competitor in the South African market means that when you lost Amstel you were simply able to plug the gap through your distribution mechanisms with your own brands. The fact that you have enough volumes to do that and I guess it is impressive but it is not as if you did have a massive competitor on your doorstep at that particular time.

Malcolm Wyman:
For the first six months what happened was that Amstel was actually slow back into the market so we did obviously take advantage of that and we were able to utilise our other brands to fill the vacuum but since then Amstel has come back and as we all know it is a strong brand, it has been developed by SAB in South Africa for the last 40 years, so it’s got a very good brand equity, and now we are having to compete with it and we are introducing new brands as I mentioned and we will be bringing the Grolsch brand which is a great Dutch brand as well and we will be bringing that in later on in this calendar year.

Bruce Whitfield:
The question really I suppose is whether or not the brands you do have can sustain the current level of market share especially as Amstel is becoming probably increasingly aggressive and they are getting their systems finally in shape to actually ship the stuff into the country and by the end of next year, early 2010, actually brewing on your own doorstep.

Malcolm Wyman:
Well we are putting a portfolio together, if you look at the introduction of Hansa Martzen Gold, what we are doing with other new brands that we are bringing on in our cider like beverages and the introduction of Grolsch and you know we have a very strong brand portfolio in South Africa and we believe that that will be able to compete very well with the brands that were brought in now by Heineken.

Bruce Whitfield:
They are going to be building a three-million hectolitre brewery just south of Johannesburg. You do have a remarkable distribution platform which has been something that you have developed very deliberately over the past couple of decades; distribution is going to possibly be their big challenge…

Malcolm Wyman, I am not sure that I have offended him but that is the second time we have lost a call to London this evening.

Rudi van der Merwe, our market commentator still in the studio this evening and the SAB story is a remarkable one, they have exported South African capabilities globally, and it is a good story despite the fact that Heineken is coming to play in its own backyard.

Rudi van der Merwe:
That’s quite right Bruce and the South African operation actually, all things considered, I think had a good year. They obviously lost Amstel as you mentioned, there has been significant cost pressures in South Africa on all the raw materials, they had to import glass, problems with CO2 during the year, and distribution costs went up I think 47-odd percent.

Bruce Whitfield:
Just diesel, I mean, that is what is so terrifying about that.

Rudi van der Merwe:
So for them to have a reasonably flat year actually was most impressive and the more you were talking now about distribution and the like the more I was thinking well Heineken has got a really tough job ahead of them.

Bruce Whitfield:
It is the biggest challenge that they have got, you can brew the stuff that's easy relatively speaking, I couldn't make a bottle of beer if I tried but brewing in brewing terms is actually easy but getting the stuff from the brewery to market is where the big difficulty is in that is what those guys are going to have to contend with.

Rudi van der Merwe:
Absolutely and this is not a small country, it is very diverse, and the distances between the major centres are enormous.

Bruce Whitfield:
Malcolm Wyman is back with us; sorry we lost you there for a moment Malcolm. Let's move on to maybe the cost pressures which you are facing in the market. You have got aluminium costs which have gone up a bit, transport costs which have gone up exponentially and then of course there is the basic input cost of the hops and barley and all the good things that you put into beer.

Malcolm Wyman:
Yes I think the aluminium cost increases were in fact the 2006 and 2007 story. The recent problems had been an agricultural input cost increase story and it has been through barley and malt which has more than doubled in the last 12 months and hops which in fact are up somewhere between seven and 10 times during the same period so there has been a substantial increase in input costs from raw materials.

Bruce Whitfield:
So far so good you have passed those costs on to your consumers but how much longer if we do see sustained higher prices can one afford to do that?

Malcolm Wyman:
Well we think we should be able to do that again this year and if you look at what SABMiller has been doing over the last few years we have been pricing at lower than CPI not only in South Africa or Africa but also around the world so we think that we will be able to price in order to retain or recover our input costs for a period of a year or two without there being too much impact on the volumes. So we are confident that in the coming year we should be able to recover those costs.

Bruce Whitfield:
Eastern Europe very strong, Poland, Romania, Russia delivering good growth, Peroni is doing exceptionally well. In the US you have had that long-running war with Anheuser-Busch, you have built up a partnership with Coors, the Miller-Coors venture; is that beginning to bear fruit as yet or is it still early days?

Malcolm Wyman:
Well that is still awaiting the regulatory approval, we are expecting that in mid-2008, but in the meantime Miller is going from strength to strength, profits up 27 percent and I am happy to say that our potential partner is also doing very well in the marketplace so that bodes well for putting the two businesses together when the deal closes.

Bruce Whitfield:
It is almost a perverse logic here but for years you have been having almost a price war with Anheuser-Busch, with global inflation coming in, neither of you can afford to play that game any more and there is almost I suppose a better pricing opportunity for you in the US market.

Malcolm Wyman:
Well there is no doubt that once we have been through the price war for a year or two it made sense for all parties concerned to get back to normal business, everyone had shaken out market shares, I think we have done extremely well and Anheuser-Busch had lost something like 600-million of Ebita and we had lost somewhere out 70-million of Ebita. I think the industry now is a stronger one and as we put our business together with Coors we are going to be a much stronger competitor in that market.

Bruce Whitfield:
Where are the big growth opportunities for SAB? You have got a global footprint second to none, big opportunities for you in China where there are strong growth opportunities there as well, you are in Asia, you are in Europe, not in the UK, not in Australia. Are those vague possibilities for you in terms of actually getting into brewing in those countries?

Malcolm Wyman:
Not really because we like to stay where the growth is and United Kingdom has very little growth in the beer market. Australia on the other hand has a very fast-growing premium market which is still very small and we entered there about a year ago in a joint-venture and our business has done extremely well, it's very small coming off a small base, but growing very quickly.

Bruce Whitfield:
Malcolm Wyman, the cellphone unfortunately letting us down but thanks for talking to us this evening, the chief financial officer of SABMiller on the line to us from London this evening.