Johannesburg - SABMiller's latest interim results show the global brewing giant is benefiting from growing economies across the African continent and its strategy to embrace traditional African drinks and cheaper brewing staples.

Although its revenue for the six months to end-September dropped 6%, SABMiller grew beer volumes by 8% in Africa to a total of 12.3m hectolitres. That generated $1.2bn in revenues with a resultant 3% growth in earnings before tax, interest depreciation and amortisation (Ebitda) of $246m.

According to Absa Asset Management analyst Chris Gilmour, SABMiller employed a unique strategy in Africa where it embraced local traditional ingredients to aid the diversity and affordability of its products.

"SABMiller understands Africa well," says Gilmour. "It has been able to adapt to Africa's traditions and has modified lessons it learnt in other parts of its operations to suit it better in Africa. It also uses cheaper products than barley to make affordable beer."

SABMiller acknowledged as much: "Our strategy of broadening the brand portfolio continued with the introduction of local premium beer offerings in five markets and the rollout of more affordable beverages in Tanzania and Mozambique to grow the beer category at the expense of subsistence alcohol." It also completed the acquisition of a water business in Ethiopia and a non-alcoholic beverage business in Zambia.

New plants in Tanzania, Mozambique and Angola were due to be commissioned shortly.

In Uganda, Sudan and Ghana it recently upgraded capacity. "We concluded the acquisition of the Maheu business (in Zambia), a traditional maize-based non-alcoholic flavoured drink, in September 2009."

Brewing with bananas

SABMiller is adding African staples like cassava to its brewing ingredients for more affordable drinks.

"In countries like Uganda and Nigeria, farmers are commissioned to grow cassava solely for sale to the company," says Gilmour. In Tanzania the easy availability of bananas has made it an ideal and affordable ingredient.

Its beer products are also complemented by sorghum, which is used extensively across Africa.

In South Africa and Zambia, SABMiller is one of the biggest companies sustaining barley farms.

"They are taking small farmers and provide them with all the financial and technical support they need, and in turn it consumes their whole produce," says Gilmour.

Many farmers in the Western Cape would otherwise not survive without the guaranteed market for their products SABMiller provides.

In addition to more affordable beer, SABMiller has also benefited from growing economies and improved governance in major African countries where the company has operations.

"Africa has been doing incredibly well in the last decade," says Gilmour. "The improving governance has brought about growing economies, which in turn have seen middle classes growing."

In Nigeria there have been three successful democratic elections, while Ghana is regarded as being among the best-governed African countries.

SABMiller's partnership with French brewer Castel in Francophone Africa is also paying off with strong performances in countries like Algeria and Cameroon, says Gilmour.

- Fin24.com