UPDATE: SABMiller Profit Boosted By Emerging Markets, Cost Savings

SABMiller PLC (SBMRY), maker of Grolsch, Peroni Nastro Azzuro and Miller Lite, Thursday said fiscal year net profit rose on volume growth in emerging markets, cost-cutting and some price increases, but the global brewer cautioned that the outlook for inflation and the pace of recovery in Europe and North America is uncertain.

A strong performance from developing economies in Africa and Asia, where socio-economic improvement, rising incomes and a thirst for Western lifestyles are fuelling demand, helped more than offset sluggish volume growth in more mature markets, which are suffering from a cutback in consumer spending, high unemployment levels and a competitive, saturated marketplace.

Although volumes in its mature markets Europe and the U.S. remain under pressure, SABMiller reported an increase in profitability in both regions, due to cost cutting measures and synergies of $275 million from MillerCoors LLC--the joint venture between SABMiller and Molson Coors Brewing Co. (TAP).

SABMiller Chief Executive Graham Mackay said he has not seen an improvement in the U.S. economic climate, but added that it is not getting worse either.

Compared with its peers such as Anheuser Busch InBev (ABI.BT) and Heineken NV (HEIA.AE), SABMiller is more exposed to emerging markets, which generate more than 80% of its profit, compared with around 50% for its rivals.

"While consumer demand is likely to continue growing in most developing markets, there are uncertainties in the outlook for inflation and the pace of recovery in Europe and North America. Pricing will be considered selectively, country by country, taking account of an expected moderate increase in our raw material input costs, the competitive context and our intention to achieve growth through affordability in some markets," the brewer said in a statement.

CEO Mackay said he expects a low-single digit increase in input costs in fiscal 2012, in line with estimates from peer Heineken which guided for the same increase in February this year.

SABMiller's net profit for the year ended March 31 rose to $2.41 billion, up from $1.91 billion in the same period last year. Earnings before interest, taxes and amortization increased 15% to $5.04 billion from $4.38 billion. Ebita growth was strongest in Asia, North America and Africa due to cost savings and lower raw material costs.

Sales rose 7% to $28.3 billion from $26.4 billion, supported by price increases. The company recorded lager volumes of 218 million hectoliters, up 2% on the prior year on an organic basis.

African, Asian and Latin American sales rose 20%, 16% and 7% respectively. North America sales were flat in a challenging market. European sales fell 3% following difficult economic circumstances in the region.

However, the company suffered a 6% drop in volumes in its key Latin American market Columbia, where it was hurt by a duty increase introduced in Feb. 2010. "I expect a low to mid single digit increase of Colombian volumes for our next fiscal year," Mackay said.

Earlier this month, Miller Coors said first-quarter net profit fell 21%, as a year-earlier liability settlement gain in Brazil masked higher pricing and continued cost savings.

London-based SABMiller, the world's second-biggest brewer by volume after AB InBev, continues to step up brand investment in developing economies, which also include Latin America and Eastern Europe.

Like its drinks rivals, the group, also one of the world's largest bottlers of Coca-Cola Co. (KO) products, was hit by a fall in demand for alcohol during the global economic downturn. While key growth economies are experiencing a recovery in demand, sales in Western Europe and North America remain weak as government austerity measures, introduced to rein in borrowing, hit the spending power of cash-strapped drinkers.

Mackay declined to comment on potential acquisition targets. Recent media reports suggested SABMiller is looking to buy Brazil's second largest brewer, Primo Schincariol, as is its rival Heineken. SABMiller is also reportedly interested in the acquisition of Australia's Foster's Group (FGL.AU) after the company split its beer and wine business.

Analyst say the results were in line with expectations and at 0918 GMT the company's shares were flat at 2266 pence, in a slightly higher London market.

By Simon Zekaria and Anna Marij van der Meulen, Dow Jones Newswires; +44 207 842-9410; simon.zekaria@dowjones.com

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