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Directors’ report

The directors have pleasure in submitting their report to shareholders, together with the audited annual financial statements for the year ended 31 March 2007.

Principal activities and business review

SABMiller plc is a holding company which has brewing and beverage interests in more than 60 countries across six continents. The principal subsidiaries and associates of the company are listed in note 32, Principal subsidiary and associated undertakings, of this annual report. The principal activities of the group are the manufacture, distribution and sale of beverages.

The company is required by the Companies Act 1985 to produce a fair review of the business of the group including a description of the principal risks and uncertainties it faces, its development and performance during the year and the position of the group at the end of the year. The business review, including a review of the development and performance of the group during the financial year, its position at the end of the year, likely future developments in the business of the group, key performance indicators and a description of the principal risks and uncertainties facing the group, is set out in the sections from Chairman’s statement to the Operations review of this annual report. Other key performance indicators and matters relating to environmental and employee matters required by the business review are set out in the sustainable development review of this annual report.

Significant acquisitions, disposals, financing transactions, investments and material developments during the year.

In April 2006 the company announced that its South African subsidiary, The South African Breweries Limited ('SAB Ltd'), had finalised the sale of 40% of its bottle top manufacturer, Coleus Packaging (Pty) Limited, to the Nokusa Consortium in a Black Economic Empowerment transaction.

In June 2006 the company announced that its Colombian subsidiary, Bavaria S.A., had entered into an agreement to sell its fruit juice business to the Colombian beverage company Postobón S.A. for US$55.3 million. Following receipt of the required merger clearance, the transaction completed in May 2007.

In July 2006 the company announced that it had entered into an agreement to acquire the Sparks and Steel Reserve brands from the McKenzie River Corporation for US$215 million. The acquisition completed in August 2006.

Also in July the company announced the successful completion of a US$1.75 billion bond issue, issued in three tranches: US$300 million of three-year floating rate notes; US$600 million of five-year notes with a coupon of 6.20%; and US$850 million of ten-year notes with a coupon of 6.50%.

China Resources Snow Breweries Limited ('CR Snow'), an associate of the company and a subsidiary of China Resources Enterprise, Limited, announced in July 2006 that it had agreed to acquire a 100% equity interest in Zhejiang YinYan Brewery Company Limited for US$42.3 million and in addition agreed to acquire the brewing related assets of the Anhui HuaiBei Xiangwang Brewery Company Limited for a consideration of US$10.1 million. Including net debt and intended additional investment, the total investment cost of the YinYan Brewery was US$50.2 million while the total investment cost of the Xiangwang Brewery was US$17.4 million, when additional intended investment is taken into account. The Zhejiang YinYan acquisition completed in August and the Anhui HuaiBei acquisition completed in September 2006.

In August 2006 the company announced that it had entered into an agreement to acquire a 100% interest in the Foster's operation and brand in India. The transaction completed in September 2006 at a cost of US$127 million.

In the same month the company also announced it had entered into a joint venture with Coca-Cola Amatil to import, market and distribute the group's international premium brands in Australia through a joint venture company, Pacific Beverages Pty Ltd. This joint venture commenced operations in December 2006.

Also in August the company announced that to keep pace with growing demand, its Colombian subsidiary, Bavaria S.A., would invest US$175 million in a new brewery in Yumbo, western Colombia. The cost of the investment was subsequently increased to US$230 million to give the new brewery, which will become operational in late 2007, an initial capacity of 3.5 million hectolitres, increasing to 4.5 million hectolitres by 2009.

In the same month, the company's Peruvian subsidiary, UCP Backus & Johnston S.A.A. ('Backus') announced that it would invest US$102 million in March 2007 in infrastructure projects in Peru.

In October 2006 the company launched a US commercial paper programme with a nominal value of up to US$1bn to provide the company with a new flexible and cost effective source of US Dollar funding.

In November 2006 the company announced it was making simultaneous offers on the Lima Stock Exchange for all the voting shares which it did not already own in its listed Peruvian subsidiaries, Backus, Cervecería San Juan S.A.A., Compañia Cervecera del Sur del Peru S.A.A, Industrias del Envase S.A., Inmobiliaria Pariachi S.A. and Vidrios Planis del Peru S.A. Following this and further corporate restructuring, the company's effective economic interest in Backus increased to approximately 93.3%.

Also in November the company announced that its Polish subsidiary Kompania Piwowarska would invest up to US$100 million in an upgrade of its three breweries. The majority of the investment will be in the Tychy brewery near Krakow in Silesia, where production capacity will be increased to serve growing demand for the Tyskie brand. Following the investment, the Tychy brewery will be the group's largest European facility, capable of producing over eight million hectolitres or 1.4 billion pints annually, equating to 16% of SABMiller's total European brewing capacity. The group's total brewing capacity in Poland will rise from 12.5 million hectolitres to 15 million hectolitres.

In December 2006, CR Snow announced that it had agreed to acquire the brewing assets of Shanxi YueShan Brewery Company Limited ('YueShan Brewery') for a cash consideration of US$17.7 million, and the brewing assets of the Inner Mongolia MengYuan Fine Wine & Brewery Company Limited ('MengYuan Brewery') for a consideration of US$4.7 million. Both acquisitions completed in February 2007.

Also in December the company announced the results of simultaneous tender offers in relation to its listed Ecuadorian subsidiaries, Compania de Cervezas Nacionales C.A. ('CCN') and Cervecería Andina S.A. ('Andina'), and its unlisted Ecuadorian subsidiary Agrilsa Agricola e Industrial S.A. ('Agrilsa'). For a consideration of approximately US$54 million paid to non-SABMiller shareholders, the company's effective interest increased to approximately 97% in CCN, 86% in Andina and 97% in Agrilsa.

In January 2007 CR Snow announced it had agreed to acquire, at a cost of US$320 million, the 38% equity interest that it did not already own in the 14 Blue Sword breweries based in the Sichuan province in South West China. The acquisition completed in April 2007.

In January the company also announced that in addition to the investments announced in August 2006, it would be investing approximately US$1.5 billion in its South American operations over the next five years. The investment will finance upgrades to the group's brewing capacity; point of sale improvements; the development of route to market networks; and new packaging, which forms part of a brand renovation programme to enhance the appeal of the group's beers to a broader base of consumers and across a wider range of drinking occasions.

In March 2007 the company announced that SAB Ltd had been given notice by Heineken that it had terminated SAB Ltd's licence to manufacture and distribute Amstel lager in South Africa with immediate effect.

Also in March the company announced that its subsidiary, Cervecería Nacional S.A., the leading beer and soft drinks manufacturer and distributor in Panama, had agreed to sell its Pepsi bottling operations in Costa Rica to a subsidiary of Florida Ice and Farm Company S.A., a listed beverage company in Costa Rica, together with a 42.5% interest in a hotel and real estate development in the north-west of Costa Rica, for a total cash consideration of US$116 million. These sales were completed by the end of April 2007.

In a further announcement in March the company announced that its Russian business would invest approximately US$170 million in the construction of a new brewery outside the city of Ulyanovsk, which is located approximately 1,000 kilometres east of Moscow, on the Volga river. Ulyanovsk enjoys good road and rail links and is home to a number of raw material suppliers. The new brewery, which will have an initial capacity of three million hectolitres, is expected to be operational in early 2009 and will complement the group's existing brewery in Kaluga, which is located some 180 kilometres south west of Moscow.

Dividends

An interim dividend of 14 US cents per share was paid to shareholders on 22 December 2006, in respect of the year ended 31 March 2007. Details of the final dividend proposed by the board for the year ended 31 March 2007 are set out below:

Amount of final dividend proposed by the board: 36 US cents per share
Total proposed dividend for the year ended 31 March 2007: 50 US cents per share

Approval of the final dividend will be sought from shareholders at the company's annual general meeting on 31 July 2007. If approved, the final dividend will be payable to shareholders on either section of the register at 13 July 2007 in the following way:

Dividend payable on: 7 August 2007
Currency of payment:

South African rand - to shareholders on the RSA section of the register,

US dollars - to shareholders shown as having an address in the USA and recorded on the UK section of the register (unless mandated otherwise),

Pounds sterling - to all other shareholders on the UK section of the register.

Ex-dividend dates:

9 July 2007 for shares traded on the JSE Limited, South Africa.

11 July 2007 for shares traded on the London Stock Exchange (LSE),

Dates on which the rate of exchange for conversion from US dollars will be calculated (with the dates of publication on the RNS of the LSE and the SENS of the JSE Limited in brackets):  
South African Rand: 28 June 2007 (29 June 2007)
UK Pounds Sterling: 17 July 2007 (18 July 2007)

Note 9 to the consolidated financial statements discloses dividends waived.

Directors

The names and biographical details of the current directors can be found in the Directors section. With the exception of Mr Devitre (who was appointed to the Board on 16 May 2007), all directors served throughout the period. Ms Nancy De Lisi also held office throughout the period, retiring on 30 April 2007. Details of the interests in shares and/or options of the directors who served throughout the period are set out in the remuneration report.

Corporate governance

The directors continue to be committed to maintaining high standards of corporate governance, which they see as fundamental to discharging their stewardship responsibilities. The board strives to provide the right leadership, strategic oversight and control environment to produce and sustain delivery of value to all of the company's shareholders, the majority of whom are resident in the USA, South Africa and the UK. The board applies integrity, principles of good governance and accountability throughout its activities and each director brings independence of character and judgement to the role. All of the members of the board are individually and collectively aware of their responsibilities to the company's stakeholders. Statements of our application of the Combined Code on Corporate Governance are in the corporate governance report and the directors' remuneration report.

Share capital

During the year, the issued ordinary share capital of the company increased from 1,497,844,458 shares of 10 US cents each to 1,502,187,446 shares of 10 US cents each. 4,342,988 new ordinary shares were issued to satisfy the exercise of options granted under the SABMiller plc Mirror Executive Share Purchase Scheme, the SABMiller plc Approved Executive Share Option Scheme, the SABMiller plc Executive Share Option (No. 2) Scheme and the SABMiller plc International Employee Share Scheme.

In addition, the company has 77,368,338 non-voting convertible participating shares of 10 US cents each and 50,000 deferred shares of £1 each in issue. No non-voting convertible participating shares, convertible participating shares or deferred shares were issued during the year.

Purchase of own shares

At the last annual general meeting, shareholder authority was obtained for the company to purchase its own shares up to a maximum of 10% of the number of ordinary shares in issue on 17 May 2006. This authority is due to expire at the earlier of the next annual general meeting or 28 October 2007, and remains exercisable provided that certain conditions (relating to the purchase) are met.

The notice of annual general meeting proposes that shareholders approve a resolution updating and renewing the authority allowing the company to purchase its own shares.

Shares in the company were purchased during the year by the trustee of the company's employee benefit trust, details of which are provided in the directors' remuneration report. The company did not repurchase any of its shares during the year for the purpose of cancellation, holding in treasury or for any other purpose.

Annual general meeting

The company's annual general meeting for 2007 will be held at the InterContinental London Park Lane, One Hamilton Place, London, W1V 7QY, UK at 11:00 am on Tuesday 31 July 2007. Notice of this meeting may be obtained from the company's website.

Donations

During the year the group invested US$26 million in corporate social investment programmes, of which US$1,763,000 represented charitable donations. Of this amount US$551,294 were charitable donations made by the company and Miller Brands (UK) Limited for the benefit of various causes, both in the UK and overseas, comprising donations in respect of community development, health and education, the environment and other causes.

It remains the group's policy that political donations are only made by exception, and where permitted by local laws, and must be consistent with building multi-party democracy. After careful consideration the following political donations were made during the year.

Miller Brewing Company made contributions to individual candidates for political office and to party committees in the USA, where permitted by applicable campaign finance laws. Political donations in the USA are an accepted part of the local socio-political environment. These contributions amounted to US$671,655 in aggregate.

The group's subsidiary in Colombia made donations to political parties of US$11,750. The donations were made to a number of parties who expressed support for the multi-party democratic process.

A US$13,000 contribution was made in connection with the elections in the Comoros Islands.

The board has reaffirmed the group's policy not to make donations to political organisations in the European Union.

Employment policies

The aim of the group is to be the employer of choice in each country in which it operates. In order to achieve this, each operating company designs employment policies which attract, retain and motivate the highest quality of staff.

The group is committed to an active equal opportunities policy from recruitment and selection, through training and development, appraisal and promotion to retirement. Within the constraints of local law, it is our policy to ensure that everyone is treated equally, regardless of gender, colour, national origin, race, disability, marital status, sexual orientation, religion or trade union affiliation.

Research and development

The group continues to invest in research and development leading to new products, packages and processes, as well as new manufacturing technologies to improve overall operational effectiveness. The group's upstream scientific research continues to yield solid progress in brewing, raw materials, flavour stability, packaging materials and environmental performances. During the year under review, the aggregate amount spent by the group on research and development was US$6 million (2006: US$8 million).

Payment of suppliers

The group's policy is to pay invoices in accordance with the terms of payment agreed in advance. At the year end, the amount owed by the group to trade creditors was equivalent to 60.9 days (2006: 49.1days) of purchases from suppliers.

Overseas branches

The company does not have any branches registered overseas.

Going concern and audit

The directors' responsibilities for preparing the consolidated financial statements can be found on the relevant Statement page. As set out in that statement the directors are satisfied that SABMiller plc is a going concern.

So far as each director is aware, there is no relevant audit information of which the group's auditors are unaware, and each director has taken all the steps necessary that he or she ought to have taken as a director in order to make himself or herself aware of the relevant audit information and to establish that the group's auditors are aware of that information.

PricewaterhouseCoopers LLP have expressed their willingness to continue in office as auditors and resolutions proposing their re-appointment and authorising the board to set their remuneration will be submitted to the forthcoming annual general meeting.

Directors’ indemnities

The company has granted rolling indemnities to the directors, uncapped in amount, in relation to certain losses and liabilities which they may incur in the course of acting as directors of the company or of one or more of its subsidiaries. The Company Secretary and Deputy Company Secretary have also been granted indemnities, on similar terms, covering their roles as Company Secretary and Deputy Company Secretary respectively of the company and as directors or as company secretary of one or more of the company's subsidiaries. The board believes that it is in the best interests of the group to attract and retain the services of the most able and experienced directors and officers by offering competitive terms of engagement, including the granting of such indemnities.

The indemnities are categorised as 'qualifying third-party indemnities' for the purposes of the Companies Act 1985 and will continue in force for the benefit of directors and officers for as long as they remain in their positions.

Substantial shareholdings

Details of notifications received by the company in accordance with the Disclosure and Transparency Rules as at 25 May 2007 are set out in the ordinary shareholding analyses page of this annual report.

Financial Instruments

Information on the financial risk management objectives and policies of the group are contained in Note 22 to the consolidated financial statements.

John Davidson

General Counsel and Group Company Secretary

For and on behalf of the board of SABMiller plc

4 June 2007

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