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SABMiller investors hope for cost savings during rand frailty

Local investors in SABMiller would like to see the brewer's estimated annual cost savings of $500 million (R5 billion) in its new US joint venture flow ahead of schedule, to get maximum benefit from this period of rand weakness.

Miller Brewing and rival Coors Brewing have formed a joint venture in the US that will lead to Miller producing Coors brands in regions where Miller has strong brewing capacity.

Coors will brew Miller in regions where Miller's capacity is weaker. This will cut countrywide beer transport bills, a key cost in the industry.

SABMiller said last week that it was already "cross-brewing" Coors Light at its Irwindale, California plant.

The partnership, MillerCoors, in which SABMiller holds a 58 percent stake, came into effect on July 1.

SABMiller said late last year that it expected savings to enhance earnings in the second full financial year of combined operations, which would be the year to March 2011, while the full $500 million shared saving would be achieved a year later.

The management has a history of "underpromising and overdelivering" on merger and acquisition benefits, say some analysts.

SABMiller's share of the full cost saving has the potential to increase the brewer's North American earnings by half in financial 2012, were it to maintain its earnings.

Mark Ansley, a portfolio manager at Cadiz, said that while the integration benefits would materialise "quite quickly", they would also come with integration costs.

Ansley expected net cost savings to start coming through after December and to continue climbing through June, after which they would be significant.

The weakening of the rand against the dollar, if maintained, would boost rand earnings for local investors.

But this was offset by declines in some significant emerging market currencies in SABMiller's geographic portfolio, such as South Africa and Colombia, Ansley said. The group reports in dollars.

Iain Power, a fund manager at RMB Asset Management, said SABMiller had a conservative approach to setting targets, so he expected the brewer to meet them, and "possibly even be ahead of schedule".

written on 21.10.2008 um 05:47.

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