DBRS Confirms SABMiller at BBB (high), Trend now Positive

DBRS has today changed the trend on the long-term rating of SABMiller plc (SABMiller or the Company) to Positive from Stable, and confirmed the rating of the Company at BBB (high). DBRS has also discontinued the short-term rating.

SABMiller’s earnings profile has benefited from enhanced scale and geographic diversification as displayed by better-than-expected revenue growth from organic sources and the acquisition of Bavaria on October 12, 2005. Overall organic volume growth has been driven by gains from all regions more than offsetting lost volume in North America. Operating margins have also benefited from increasing scale and improved pricing and mix, offsetting higher input costs. SABMiller’s financial profile has also improved since the acquisition as a result of strong growth in operating cash flow combined with debt reduction.

The earnings outlook remains favourable due to strong fundamentals in most of the Company’s key markets combined with its continued focus on investing for growth. SABMiller’s well-established presence in high-growth markets of Africa, Asia, Eastern Europe, and Latin America – which together comprise of approximately two-thirds of overall EBITDA – should continue to benefit earnings going forward. The Company has potential to further bolster earnings growth over the longer term with increased investment in China and India, which currently account for a relatively small base of earnings

The financial profile is expected to remain strong on the back of rising cash flow – maintaining cash flow/debt above the 35% level for an extended period could lead to an upgrade in the long-term rating. That being said, the Company remains growth oriented and future acquisitions and/or investments have the potential of involving debt financing. DBRS expects normal course investment in growth (including small tack-on/tuck-in acquisitions) to continue within a range that can be financed by free cash flow. An acquisition of a large-scale brewer that involves a significant component of debt financing could result in the overall credit risk profile stabilizing within the current category.

Notes:
All figures are in U.S. dollars unless otherwise noted.
These ratings are based on public information.