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SABMiller plc Annual Report 2007

Strategic priority one

Creating a balanced and attractive global spread of businesses

Our acquisitions in recent years have given us a wide geographic spread with good exposure to emerging markets. We now span six continents with a portfolio of businesses that captures opportunities around the world without being over-reliant on any single region. According to some sources, we’ve recently become the world’s biggest brewer by volume – not something we deliberately set out to achieve, rather a by-product of creating a widespread, value-generating portfolio.

While geographic expansion remains part of the strategy, we’re looking increasingly to identify and exploit the opportunities for growth within the existing business portfolio. This can involve a range of activities from entering into local joint ventures or partnerships, to buying or building breweries, to acquiring local brands to help shape a full, local, brand portfolio. All are potential means of ‘owning the growth’ in individual markets.

The headline transactions of the year – the proposed MillerCoors joint venture and the acquisition of Grolsch, both detailed alongside – have contributed to this process. But much has been happening elsewhere. In a young market like India with its low per-capita consumption of beer, the key is to increase our volumes by switching consumers to beer from other, stronger, alcoholic beverages. In India, last year’s acquisition of Foster’s is now contributing strongly to our growth. In China, part of the strategy is to acquire new breweries (four purchased in the past year) or to build from scratch where doing so adds value.

In other markets it may be more advantageous to acquire a company. That’s what we did with Belgia in Poland – a move that gave us another brewery and an economy brand that fills a gap in the local portfolio. Another acquisition was that of Bluetongue in Australia, providing a local premium brand to put alongside our imported brands. Australia, like the UK, is an example of owning the local growth by importing attractive and interesting brands into a mature market.

Owning the growth is a complex process and one that requires clever, innovative thinking to address the varied opportunities in any given market. The case studies in this section are a few examples of how we’ve gone about it during the year.

Grolsch: a strong addition to the premium portfolio

The acquisition of Royal Grolsch N.V. in February 2008 adds a prestigious brand to the portfolio and strengthens our hand strategically.

With its 400 years of Dutch brewing tradition, Grolsch brings a long record of innovation and excellence and exciting opportunities to share best practice. It also contributes a large, state-of-the-art brewery that gives SABMiller the opportunity both to expand production of Grolsch and to brew its own international brands for sale in the Netherlands and for export to markets such as the UK.

Grolsch complements the existing premium brand portfolio and adds another powerful name in the fastest growing segment of the global beer market. Grolsch, in turn, will benefit from SABMiller’s global distribution network.

Northern European brands have been among the most successful global premium brands, accounting for nearly half the growth within the segment. Importantly for our purposes, they’re highly regarded in developing markets and have proved to be an excellent way of establishing the premium sector in parts of the world where the top end of the market has yet to be occupied. We therefore see strong potential for Grolsch, particularly in Africa where the premium segment is in its infancy. Further opportunities exist in the more developed markets of Central and Eastern Europe. Grolsch will also help us develop the premium sector in South Africa.

MillerCoors will benefit from the largely complementary geographic strengths

MillerCoors: a leading US brewer for the 21st century

The agreement to combine Miller Brewing Company with Coors Brewing Company, the US subsidiary of Molson Coors, is a major advance for the business. The joint venture will have the scale, resources and distribution to compete more effectively as cost pressures mount, competition intensifies, consumers look for greater differentiation and retailers and distributors consolidate.

The combined business, MillerCoors, will benefit from the largely complementary brand portfolios and geographic coverage of the two companies and from synergies and productivity improvements worth an estimated US$500 million a year. The gains will be felt not just by the business, but by consumers, retailers, distributors and the industry at large.

With its wider portfolio of brands and improved ability to innovate, MillerCoors will be able to offer greater choice and availability to US consumers. Streamlined processes and systems will provide the more sophisticated service that retailers increasingly demand, helping them, in turn, to compete more effectively. Distributors, for their part, will benefit from a stronger portfolio of brands along with lower costs and simpler logistics. All these together will make for greater efficiency and ensure strong, healthy competition in the industry.

We hope to close the transaction in mid-2008.

Bluetongue: another route into Australia

Pacific Beverages, our 50-50 joint venture with Coca-Cola Amatil, was formed in 2006, initially to import SABMiller’s international premium beers into Australia, where the premium sector has been growing by 15% per annum over the past five years. Already handling Peroni Nastro Azzurro, Miller Genuine Draft, Pilsner Urquell and Miller Chill, the business has been looking for a local premium brand to complement the portfolio.

In 2007 it found the answer in Bluetongue, a characteristically Australian brand that started life in 2003, was named New Product of the Year at the 2004 Australian Liquor Awards and saw a 70% increase in sales during 2007. Its acquisition adds a successful, fast-growing, local brand to Pacific Beverages’ existing portfolio (sales of which more than doubled in 2007) and will expand the joint venture’s share of Australia’s highly profitable premium beer market.

A further advantage is that the acquisition of Bluetongue creates sufficient critical mass in terms of local sales for Pacific Beverages to invest in a new brewery near Sydney. Due to be completed in 2010, this will provide extra capacity both for Bluetongue and for our other premium brands. With its advanced environmental technology, the new plant is planned to be one of the most water-efficient breweries in the world.

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