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South Africa: Cheers, Charles!
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Business Day (Johannesburg)
COLUMN
16 May 2008
Posted to the web 16 May 2008
Johannesburg
SOMETIMES, treading water is a big relief. SABMiller has been facing a host of input cost increases; everything from barley for the brew, to aluminium for cans and petrol for transport.
For example, malting barley has just about doubled this year. Fuel is at record levels and rising. By rights, this combination should have pressured margins downwards.
But the company dodged the bullet. How did that happen? Part of the equation is the extent to which growth offsets input cost increases, since greater volumes tend to improve efficiency.
Underlying beer volumes over the past year have grown 7%, and so long as this continues, the effect of input price increases will be lower than it might seem as existing plants push out more product from existing capital spend.
But this was only part of the story. SABMiller also has managed to pass on price increases more effectively than expected. Oddly, SABMiller benefits from operating in some high-inflation environments, and price increases do tend to get lost in the inflationary increases. Result: a solid little relief rally on the market yesterday.
Yet, the company is not quite out of the woods yet. Cost of goods rose 6% in the year to March, but they will probably increase further.
Raw material prices, which increased 9%, are likely to rise by low double-digits in the year to come.
A hangover is still a risk.
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The Bottom Line is Edited By Edward West
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