E-Malt.com News article: Africa: One of AB InBev’s most obvious gains from acquiring SABMiller will be gaining the leading position on the African market

Africa is Budweiser’s lost continent. For SABMiller, it is the jewel in the crown, The New York Times reported on September 25.

While Anheuser-Busch InBev is basically absent, Africa generated 28 percent of SABMiller’s revenue and 30 percent of its earnings before interest, taxes, depreciation and amortization last year. That is the key to a potential offer by Anheuser-Busch InBev, the Budweiser brewer, for SABMiller, its $89 billion rival.

Macroeconomic trends, and shifting African drinking habits, underpin SABMiller’s strength in Africa. For one thing, the population is growing across Africa. SABMiller forecast the rise at 2.6 percent this year. And it said that gross domestic product per capita was rising 5.4 percent – around twice the global average.

The beer story is even stronger. Africa’s annual average per-capita consumption of beer is in line with the annual global average, which is around 45 litres a head. Africans drink nine litres of branded beers a head, and much of the rest of their alcohol consumption comes from illicit or homemade liquor. As per-capita wealth rises, so does the chance that more Africans will drink more branded beer. Governments might even help that shift because branded beers, unlike the so-called informal brews, bring tax revenue.

SABMiller and Castel, one of its partners, share around 55 percent of Africa’s “formal” beer market, according to the research specialist Canadean. Using SABMiller’s 2015 figures as a baseline, that means each additional litre of branded beer sold across Africa per person would add $800 million to SABMiller’s revenue. If SABMiller sold just three more litres a head, its total sales would increase by almost 20 percent.

In March, SABMiller said that its African revenue, before exchange-rate fluctuations, rose at a compound annual rate of 9 percent in the five years from 2010. It said growth around 10 percent was possible in the future. A convincing top-line expansion story is required if shareholders on either side are to roll into the new entity and reduce the acquirer’s debt financing needs.

Even in developed markets, getting drinkers to buy more expensive beers will help, as will the existence of small but increasingly popular craft beers. But if Anheuser’s proposed $110 billion-plus acquisition of SABMiller happens, a large part of the new company’s future riches may come from the world’s poorest continent.


29 September, 2015