SABMiller faces higher commodity prices

SABMiller reported a 10 percent rise in annual earnings for the year to 31 March 2007 but warned over rising commodity prices, especially aluminium beer cans.

Tough luck. SABMiller said it was hit by high aluminium prices in the U.S. beer market. While its rivals gained from caps on aluminium price contracts, Miller Brewing, which had not used them, had to bear the full brunt.

This cost Miller around USD 100 million due to higher aluminium prices compared to its rivals, a cost it mitigated by a round of cost-cutting. However, these contract price caps started to expire in December 2006, and Chief Executive Graham Mackay said this disadvantage would lessen with time.

Miller Brewing, which makes 10 percent of group profits, has struggled for growth since it was purchased by SAB in 2002 due largely to stiff competition from Anheuser-Busch, which controls around half the U.S. beer market.

SABMiller expects that higher prices of commodities such as energy, grains, and glass as well as aluminium will add USD 150 million to USD 200 million to costs in the current year, which it hopes again to mitigate by further cost-cutting measures and prices rises to consumers.

This comes at the time when the brewer is struggling to grow in a market where drinkers have moved to wines and spirits as well as to craft and imported beers. SABMiller admitted that during its past financial year it suffered a 17 percent profit fall at Miller following the decline in Miller Lite volumes and price cutting in the economy beer segment led by Anheuser-Busch. It added it planned to cut costs by USD 100 million by 2010 at Miller and to reinvigorate the business.

The group also said that the loss of its Amstel brewing licence in South Africa in March will cost it around USD 80 million in profits in the current year.

Latin America is now the major earner for SABMiller