Boca Raton - One of
the biggest challenges facing the incoming chief executive of SABMiller
[JSE:SAB] will be continuing to grow the business as strongly in a world with
fewer acquisitions to make, according to its outgoing chief executive.
With the global beer industry undergoing a wave of
consolidation over the last two decades, brewers can no longer count on much of
a boost from mergers and acquisitions - deals that helped transition SABMiller
from a regional South African brewer to the world's second-biggest, with over
200 brands ranging from Miller Lite to Peroni to Grolsch.
"The opportunity to bring on new businesses, integrate
them and derive earnings ... that opportunity is diminishing," said
SABMiller CEO Graham Mackay in an interview on Tuesday. "Everywhere we are
relying more on organic growth. And that's a lot easier in some markets than in
That will be one issue facing Alan Clark, who will take the
reins at SAB this summer.
"How to drive organic growth is one that he's going to
face particularly keenly," Mackay said on the sidelines of the Consumer
Analyst Group of New York conference in Boca Raton, Florida.
SABMiller recently announced a deal in China through a local
joint venture. Sales volume in the country declined in the most recent period,
however, after the coldest winter there in 28 years.
"China is a long-term growth market, no question,"
Mackay said. "It's never been a particularly profitable market. The
margins are low because prices are very low. They still look set to be at
pretty low levels for some time to come."
By contrast, Mackay said growth was "extremely
profitable" in Africa, where per capita consumption is much lower, but
prices are higher. Africans, who have a cultural proclivity to drink beer,
still only drink about one-tenth the amount, on average, as their American
SABMiller generates half of its revenue and nearly
two-thirds of its profits from Latin America and Africa.
Mergers and acquisitions have "gotten stickier,"
Mackay said, because of fewer available assets and high price expectations. He
said SAB's appetite for acquisitions has not changed from what it has been,
even if its balance sheet is a bit more extended as a result of the 2011
acquisition of Fosters.
The biggest beer deal on the agenda right now is Anheuser
Busch InBev SA's pending takeover of Mexico's Grupo Modelo. The world leader
last week revised its $20.1bn deal to satisfy antitrust concerns that led the
US government to sue to block the deal.
Mackay said he would expect the deal to ultimately get done.
"I would be personally surprised if ABI doesn't get
this thing through one way or the other," Mackay said. "Whether the
major concession they made recently is enough to get it across the line, I have
no inside knowledge. There's lots of commentary, but I'm not sure I can really
add to it."
He did however question the government's use of the argument
regarding "coordinated price action."
The DOJ has argued that if AB InBev owned Modelo - even if
Constellation Brands owned the US distributor Crown Imports as planned - it
would become less likely to buck pricing trends set out by AB InBev or Miller
Coors, the US joint venture of SABMiller and Molson Coors Brewing. To satisfy
that concern, AB InBev revised its deal to include the sale to Constellation of
the Piedras Negras brewery, which supplies the Modelo beer destined for the
As for the ultimate end-game in beer consolidation - the
often speculated on possible takeover of SABMiller by AB InBev - Mackay said
the choice was not his to make.
"The decision of whether to do that or not is obviously
not going to be mine," he said. "It'd be a huge and very expensive
deal. Our job, as I've always said, is to make our business as expensive to buy
as possible and that's it."
The company's market capitalisation is about $80bn, plus it
has about $17bn of debt, Mackay said.
"It would be a very expensive deal for them," he
added. "Of course they'd have to pay, I think, a fairly high premium on
whatever our price was at the time."
Mackay is preparing to step down from his current role, some
35 years after he joined South African Breweries.
He became group managing director in 1997 and chief
executive of South African Breweries when it listed on the London Stock
Exchange in 1999. In 2012, he was appointed executive chairman, with plans to
become non-executive chairman at the 2013 annual general meeting.
During his tenure, the company underwent aggressive
international expansion, moved its primary listing from Johannesburg to London
and acquired Miller Brewing in the United States.
"I've been extraordinarily lucky because I happen to
have been running the show at the time when it was without doubt the most
exciting period in the world beer industry that there's ever been and it can't
happen again either," he said.
"The new guys are much cleverer than I am ... but it
will get harder to drive out growth because the consolidation phase has passed
its first flush."
Clark, who is taking over at this year's general meeting,
joined South African Breweries in 1990 and became COO last year.
When asked what he was most proud of, the 63-year-old Mackay
cited getting rid of SAB's other interests in South Africa to focus on beer and
moving to London.
"That was a seminal decision," he said. "I
obviously didn't take it on my own, but that worked."
On the flip side, Mackay said there are also things he
"should have done if I'd been cleverer, more energetic or could be everywhere."
"I don't regret any of the transactions we did. I
suppose there are some we turned our noses up at, that with hindsight we might
have been more accommodating about," he said.
He declined to be more specific.
As for Mackay's own plans, he expects to play a bit more
He also will keep his seats on the boards of SABMiller,
Reckitt Benckiser Group and Philip Morris International.
"That's kind of enough to keep me out of mischief for a
bit," he added.