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SABMiller brews weaker profit

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Profits fall before AB InBev takeover

The company reported a 16% fall in profit before tax to $4.07m as revenues decreased by 10% to $19.83m for the fiscal year 2016.

Adding headwinds to the company's earnings was the stronger US dollar against its operating currencies "which had a material negative impact on results".

Further charges related to the impairment of its operations in Angola and South Sudan, as well as merger costs associated with the AB InBev deal also reduced profitability.

Good underlying performance

Despite the pre-tax profit figures missing analyst estimates, the company's share price has opened higher this morning at £42.30, up by 20 points (0.5%) since the results announcement.

This is likely due to the company's expectation of delivering "good underlying performance in the year ahead", given a targeted cost-savings of $1,050m per year till 2020 and sales volumes still rising in key markets.

Further, its merger with the world's largest brewing company, AB InBev, is still expected to be completed in the second half of 2016 following regulatory approval.

Developing markets leading growth

From the results today, SABMiller flagged overall beverage volumes rising by 2%, of which lager volumes increased by 1% and soft drinks volumes were up 6% for the year.

This has been led by "improving momentum in Latin America, continued strong and well-balanced momentum in Africa and improvements in Australia and Europe in the second half."

The company's growth is primarily driven by its exposure to Africa, where it has a young and fast growing consumer base.

Increased sales were underpinned by "affordability strategy, selective price increases and continued premiumisation".

However, sales were "moderated by volume weakness in China and the USA".

The merging of two brewing giants

The company is currently in midst of a £71 billion takeover bid from the world's largest brewer AB InBev.

The Belgium-based brewing company has a large portfolio boasting of popular brands such as Budweiser, Stella Artois and Corona; AB InBev aims to increase its presence in Africa, which has been a traditionally strong market for SABMiller, via the acquisition.

The current takeover bid reflects a 4.4% premium to the current market capitalization of the SABMiller business which reflects the small, but real, regulatory hurdles that the acquisition must pass before approval. In their current incarnations the proposed merger would control production of roughly 30% of the global beer market by volume. However, due to this large concentration, divestment of many brands is expected before regulatory approval is given.

By Shweta Upadhyaya

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