Our Strategic priorities
We believe we've created an attractive, international spread of businesses, among the best in the brewing sector, that is weighted advantageously towards fast growing, developing markets. This year we have been active in shaping and developing our portfolio, buying and building production capacity, forming partnerships to take advantage of new markets and acquiring new brands.
Large transactions, such as those involving the Bavaria Group in South America and the Miller Brewing Company in the USA, have changed the shape of the group. Thanks to these and other transactions, we now have a presence in more than 60 countries across six continents. We also believe we have the best-balanced geographic mix of any international brewer. Our five divisions – Latin America, Europe, North America, Africa and Asia and South Africa – cover a broad spread of markets with no single division accounting for more than a third of our operating profit.
The charts below show the progress we've made since our London listing in 1999 in spreading our geographic risk and making sure we're in a position to benefit from the world's growth markets.
In China – the world's largest beer market, by volume – our associate CR Snow pushed ahead this year with an energetic programme of buying existing breweries and building new ones. The business strategy is to strengthen our positions in existing and nearby provinces, take advantage of our unmatched scale to reap significant synergies, and then build up our brands and distribution with particular emphasis on our highly successful Snow brand – China's number one national beer.
Our 2006 joint venture in Vietnam gave us our first entry into another fast growing market. We've built a new brewery near Ho Chi Minh City, which commenced production in early 2007, and we have a distribution capability through our local partner, Vinamilk. The venture will first concentrate on serving southern Vietnam and will then expand nationally.
We've followed a similar strategy in Australia by linking up with Coca-Cola Amatil, a local company with a strong sales and distribution infrastructure. Formed in August 2006, our joint venture imports, markets and distributes our three international premium brands – Peroni Nastro Azzurro, Pilsner Urquell and Miller Genuine Draft. With the premium beer market in Australia expanding at 15% a year, the deal provides another attractive growth opportunity for us.
We've continued to benefit from the South America transaction completed in 2005. The deal gave us a major additional source of growth in one of the beer industry's fastest growing regions. We're now capitalising on the opportunity by developing the market and our own brand portfolio, making sure we win at the point of sale, working on costs and productivity, and improving our organisation and performance.
This year, privatisation provided us with the opportunity to buy a 45% stake in the Empressa N'Gola brewery in Southern Angola, which we had been managing for a number of years. Angola is a market that is growing strongly, underpinned by a robust economy.
Some of the year's transactions have brought new brands into the group to strengthen our premium offering or to fill strategic gaps in the portfolio. Acquisitions of this kind include the Foster's business in India and the purchase by Miller in the USA of the Sparks and Steel Reserve brands.
Between 1999 and 2007, we have grown rapidly from our South African origins into a global operation
We passed a milestone in China in October 2006 when our associate CR Snow became the country's largest brewer by sales volume and brewing capacity. It now has a market share of 15%, some 2.2% ahead of its nearest competitor, while the Snow brand continues its spectacular growth as the country's leading beer.
During the year, we announced the acquisition of five more breweries. Of these, the Guizhou brewery transferred to CR Snow when our purchase of the 38% minority shareholding in the Blue Sword Group completed in April 2007, a move that will consolidate our interests in Sichuan Province. As for greenfield projects, we completed the brewery at Guangdong in April 2006 and announced the construction on the new Harbin brewery in May 2006. This brewery is due to start operating later in 2007.
With the additions of the past 12 months, our Chinese production capacity – at 71 million hectolitres – is now almost twice what it was just five years ago.
While acquisitions will continue, expansion in the future will rely more on building new breweries, upgrading existing capacity, developing our distribution infrastructure and investing heavily in our brands – especially Snow.
Snow bottling line, Tianjin brewery, China.
In 2005 we completed the South America transaction at a cost of approximately US$8,000 million. The deal made us number two in South America and clear market leader in Colombia, Peru, Ecuador and Panama. But that was only the start since we saw in these new markets an opportunity to transfer skills and techniques from the rest of the group and so stimulate the beer category as a whole; notably by turning beer from a downmarket alternative to spirits into an aspirational product in its own right.
Since the deal, a massive integration project has confirmed the value of the initial investment. We're well down the track on our programme of renovation, with pro forma lager volume growth running at 12% boosted by our market investment initiatives and early consumer response to our brand activities. We are also well on course to meet our pre-merger targets. Annual cost synergies and operating improvements are expected to reach US$120 million by March 2010, while actions to increase revenues are set to provide a further boost to profits over the same period.
Costeña, the third leading lager brand in Colombia; Cerveceria Leona brewery, Tocancipá, Colombia.
Beer is becoming more popular with Indian consumers and SABMiller, the subcontinent's number two brewer, is growing rapidly within the country. In an expanding market, our volumes are currently growing at 36%.
In September 2006, SABMiller acquired 100% of the Foster's business in India. Whereas Foster's used to be produced at one national brewery in Maharashtra, SABMiller India will extend production to all its Indian breweries and will look for cost benefits thereby. The process of rolling out production to more breweries is under way and will continue over the coming months. The Maharashtra brewery will provide extra capacity and better access to the market in Mumbai for all our brands.
Foster's makes a valuable addition to the portfolio, joining brands like Haywards and Royal Challenge, and occupying a place alongside Castle near the premium end of the range. The recent introduction of imported Peroni Nastro Azzurro has further strengthened our premium offering in India.
Foster's was acquired in September 2006 and has a presence in 19 Indian states; Haywards production line, Aurangabad brewery, India.