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SAB plc announces major investment in El Salvador and Honduras

29 November 2004

London and Johannesburg, 29 November 2001. South African Breweries plc, the leading brewer in developing markets, today announces that it has acquired a 97% equity interest in Cervecería Hondureña S.A. (CHSA), the sole brewer and largest soft drinks bottler (Coca-Cola) in Honduras, from the Dole Food Company Inc. for a cash consideration of US$537 million on a debt free basis. At the same time, SAB has formed BevCo with a prominent local family consortium which owns a leading conglomerate in El Salvador with wide ranging commercial interests in Central America. This family consortium, through a separate holding company (CAB), controls the sole brewer and largest soft drinks bottler (Coca-Cola) and water business in El Salvador (together defined as "ESBB").

SAB will contribute its interest in CHSA, comprising equity of US$507 million and debt of US$30 million, and CAB will contribute between 80% and 100% of ESBB, to form BevCo. BevCo will have an aggregate value of shareholders' interests of approximately US$883 million for 100% of both operations. It will have net debt of up to a maximum of US$260 million. In the year ended 31 December 2000 BevCo would have generated, on an unaudited proforma basis, earnings before interest, tax and depreciation of approximately US$130 million, and as at 31 December 2000 would have had proforma combined net assets of US$283 million. BevCo will be the leading brewer and soft drinks bottler in Central America, with total beverage volumes of 10 million hls comprising 1.8 million hls of beer, 6.1 million hls of soft drinks and 2.1 million hls of water.


  • SAB becomes first international brewer to enter Central America
  • Builds on SAB's developing market expertise
  • Synergies and commercial benefits from operating beer and soft drinks businesses together and from combining operations in both countries
  • SAB has acquired approximately 60% equity interest in BevCo for US$507 million together with operational control
  • BevCo will be the sole brewing and leading soft drinks business in El Salvador and Honduras
  • Combined total beer and soft drinks volumes of 10 million hectolitres

Graham Mackay, Chief Executive, commented: "This acquisition is consistent with our stated strategy of investing in growth markets. BevCo will give us the leading position in the growing beer and soft drinks markets of El Salvador and Honduras and we believe we can achieve significant revenue growth and substantial cost savings while working closely with our strong local partner. The acquisition is expected to be earnings enhancing in its first financial year."

The markets of El Salvador and Honduras offer the potential for growth in both volumes and profits. Per capita consumption is relatively low in comparison with other Central American markets and together with favourable demographics this provides the basis for sustainable long-term volume growth in beer and soft drinks. These two countries have stable political environments, good economic growth prospects and benefit from a close trading and political relationship with the USA. In El Salvador, the full use of the US dollar as the local currency was introduced on 1 January 2001, and over the last few years the Honduran currency has been relatively stable, trading against the US dollar in line with inflation differentials.

BevCo expects to achieve significant revenue benefits in both countries, anticipated to be US$14 million by the third financial year, through a combination of distribution extension and brand portfolio management. In addition, utilising SAB's management expertise, the Board of SAB believes that substantial cost savings of approximately US$20 million per annum can be anticipated by the third financial year by operating the beer and soft drinks businesses more closely together within each country, and by generating synergies between the businesses in the two countries. The Board of SAB believes that the acquisition will be earnings enhancing in the first financial year following completion of the transaction.

Initially SAB and CAB will each hold 50% of the ordinary voting shares of BevCo. In addition, SAB will hold non-voting convertible A shares in BevCo, the amount of which will be determined on finalisation of the shareholders interests of CHSA and ESBB contributed to BevCo by SAB and CAB respectively. SAB will have operational control of BevCo and will appoint the Chief Executive. The A shares are convertible on a one for one basis into ordinary shares, at SAB's option, at any time between 30 June 2005 and 31 March 2010. On a fully diluted basis (based on an assumed 90% contribution of ESBB) SAB's effective shareholding and voting interest in BevCo will be approximately 60% (following conversion of the A shares).

SAB has the option, exercisable at any time between 30 June 2005 and 31 March 2010, to acquire from CAB (and CAB the corresponding option to put to SAB) a further 15% of the equity in BevCo for a consideration based upon the fair market value of BevCo at that time plus US$63 million (First Option). This option is subject to a minimum consideration of US$125 million and a maximum consideration of US$500 million. Assuming exercise of the First Option, SAB's effective shareholders' interest in BevCo will become approximately 75%. Following exercise of the First Option, CAB will have the right to put to SAB, on an annual basis, between 5% and 15% of the equity of BevCo for a consideration equivalent to the fair market value of BevCo at that time. The consideration in respect of the above may be settled at SAB's option in either cash or SAB shares.

The following information has been extracted from the proforma unaudited accounts of CHSA and proforma unaudited combined ESBB accounts, applying US GAAP and El Salvador GAAP respectively.

Year ended 31 December 2000 US$m
Turnover 523.6
EBITDA 129.6
EBIT 95.2

Based on combined unaudited proforma management accounts of CHSA and ESBB for the first nine months of calendar 2001, EBITDA is in line with prior year.

The transaction is not subject to any conditions precedent or regulatory requirements.

Rothschild advised SAB plc on this transaction.

For further information:

Nick Chaloner, Director of Communications, SAB plc
+44 (0) 20 7659 0119
Mob: +44 (0) 7880 502 755

Anna Miller Salzman, Head of Investor Relations, SAB plc
+44 (0) 20 7659 0106
Mob: +44 (0) 7973 837 070

Ciaran Baker, Head of Corporate Communications, SAB plc
+44 (0) 7979 954 493

David Mayhew, Cazenove +44 (0) 207 588 2828

Ian Hannam, JP Morgan +44 (0) 207 742 8618


1.    SAB plc
SAB is the world's leading brewer in high growth developing markets, with major brewing and distribution operations in Africa, Central and Eastern Europe, and Asia. It is the world's fifth largest brewer overall by volume with 96 breweries in 22 countries and over 31,000 employees. In the year to 31 March 2001 SAB generated US$646 million pre-tax profit from a turnover of US$4.184 billion. SAB is listed on both the London and the Johannesburg stock exchanges.

2.   Company profiles
El Salvador

El Salvador Beverages Business (ESBB) is El Salvador's leading producer and distributor of beer, carbonated and non-carbonated soft drinks, and bottled water as well as one of the largest packaging companies in Central America. Through its longstanding exclusive bottling agreement with The Coca-Cola Company (TCCC) and its proprietary beer, non-carbonated soft drinks and bottled water brands, it is the largest beverage business in El Salvador. Besides serving the El Salvadorian market, ESBB is also an exporter of beer, water and packaging products to countries including the USA, Guatemala, Honduras, Nicaragua, Costa Rica, and Panama.

La Constancia has been a leading industrial company in El Salvador for 95 years. It was the first national company dedicated to the production of beer and now is responsible for 99% of local beer sales - accounting for volumes of 805,000 hls during the year ended 31 December 2000 - and has its own national distribution system. The brand portfolio comprises six locally produced brands (including Regia, Pilsener lager, Suprema and Premier), a range of imported beers from Guinness, Modelo and Anheuser Busch, and Maltin, a malt-based carbonated soft drink. In addition La Constancia exports its own and private label brands (5.5% of beer production) to the USA.

The beer market in El Salvador is an underdeveloped market, with consumption of some 12 litres per capita versus the Central American average of approximately 18.5 litres. The market has grown at an annual compound growth rate of 3% over the past five years.

Carbonated soft drinks (CSD)
Embotelladora Salvadoreña, S.A. (Embosalva) is the leading producer and distributor of carbonated soft drinks in El Salvador and for the year ended 31 December 2000 sold over 2.4 million hls through its own distribution system. It currently has approximately 89% of the CSD market in El Salvador, which it serves with a wide range of products and brands. It has the exclusive bottling and distribution rights for all TCCC brands in El Salvador including Coca-Cola, Fanta, Sprite, Tropical, Fresca, Coca-Cola Light, Diet Sprite, and Powerade, as well as the exclusive representation of Kinley Products in El Salvador. Embosalva also exports to Guatemala, Nicaragua, and Costa Rica. Volumes have grown at a CAGR rate of 8.1% in the last three years with per capita consumption of approximately 44.0 litres versus the Central American average of some 55.6 litres.

Bottled water and non-carbonated soft drinks
Industrias Cristal de Centroamérica, S.A. de C.V. (Cristal or Industrias Cristal), produces and distributes a wide range of non-carbonated soft drinks, including short life juices, extended life juices, cordials, isotonic beverages, and other products. For the year to 31 December 2000 the company sold over 2.2 million hls giving it a market share of 82% in bottled water with its brands Cristal, Cristalina and Oasis, 42% in short life juices with Tampico, 14% in extended life juices with Paradise, more than 24% with Glupy and Frosty cordials and 17% in the isotonic market with Tigerade. Furthermore, Industrias Cristal exports to Guatemala, Honduras, Costa Rica and Nicaragua.

Corcho y Lata, S.A. (Corlasa) is ESBB's packaging products business, producing crowns, plastic crates, PET bottles and other products.

Cervecería Hondureña S.A. (CHSA) is the leading producer and distributor of soft drinks and beer in the Republic of Honduras and is headquartered in San Pedro Sula. Through its exclusive bottling agreement with TCCC, which has been in place since 1928, and its own proprietary line of soft drinks and beer, CHSA has become the largest beverage company in Honduras.

CHSA is the sole domestic brewer and the leading beer importer in Honduras, supplying 98% of the beer consumed in the country. The Beer division is headquartered in San Pedro Sula, where its main brewery is located. It also operates a second, smaller facility in Tegucigalpa. Sales volumes for the year ended 31 December 2000 were 941,179 hls in a market where per capita consumption is 14.8 litres versus the Central American average of 18.5 litres. The market has grown at an annual growth rate of 2.7% over the past 10 years.

The company's lines of proprietary brands and imports account for approximately 96% and 2% respectively of the Honduran beer market volume. CHSA's strength relative to other importers and potential market entrants is a result of its long history of product quality, customer loyalty, its national distribution system and economies of scale. Its main proprietary domestic brands include Salva-Vida, Imperial and Port Royal.

Soft drinks
CHSA is the exclusive bottler for Coca-Cola, Coca-Cola Light, Sprite, Fresca and Canada Dry in Honduras, TCCC's largest market in Central America. In addition, the Company also produces and distributes its own proprietary line of flavoured soft drink brands, Tropical and Acti-Malta, a sweet, nutritious, malt-based non-alcoholic beverage of a type popular in Latin America. Volumes have grown at a CAGR rate of 3.8% in the last 6 years. The volume sold of 3.6 million hl during

2000 is in a market where consumption per capita of soft drinks is approximately 68 litres versus Central American average of 55.6 litres.

The company's lines of TCCC and proprietary brands account for approximately 68% and 12% respectively of the Honduran soft drinks market by volume making CHSA the market leader.

Other businesses
To support its core operating businesses the company also owns a national beverage distribution system, over 16,000 acres of sugar plantation and packaging interests producing mainly bottle caps, plastic crates and PET bottles.

3.    Country profiles
El Salvador

El Salvador has a stable democratic political regime and is a rapidly developing economy with attractive demographics for beverage demand. The total population is approximately 6.3 million and GDP for 2000 was US$13.2 billion equating to a GDP per capita of $2,106. The young demographic profile of El Salvador with at least 36% of the population currently under 18 years of age, provides the basis for long-term volume growth in the beer and soft drinks market.

Given El Salvador's excellent record of macroeconomic stability over the last ten years, it has been able to move towards the dollarisation of its economy. On January 1, 2001, the Law of Monetary Integration became effective, which allows full use of the US dollar as a local currency. This de-facto dollarisation of the El Salvadorian economy has increased confidence from international investors, reducing foreign exchange exposure and transaction costs.

The dollarisation is expected to drive further convergence between El Salvadorian and US interest rates.

Trade with the USA and US dollar repatriation are important to the El Salvadorian economy with the US being the principal trade partner. El Salvador's long term economic growth potential is estimated at greater than 4% per annum. Recent trade agreements and ongoing trade negotiations should facilitate market access for new exports into the USA while the maquila system (which allows goods assembled outside the United States from U.S components to be imported into the United States without payment of U.S. import duties) should make a greater contribution to growth.

Honduras has a stable democratic political regime and is a rapidly developing economy with attractive demographics for beer and soft drinks. Total population stands at 6.5 million and GDP in 2000 was $5.9 billion equating to a GDP per capita of $915. The young demographic profile of Honduras, with at least 42% of the population currently under 18 years of age, provides the basis for long-term volume growth in the beer and soft drinks markets.

Younger consumers are highest per capita consumers of soft drinks (ages 12 to 19) and beer (ages 18 to 24) in Honduras. With a large segment of the Honduran population just entering or about to enter these peak beverage consumption ages, CHSA is well positioned to benefit from the expected increase in demand.

The expanding economy also creates an attractive market for beverages. During the 1990s, the economy expanded and continued its evolution from an agriculture-dependent economy to a manufacturing and services-based economy. Following severe damage caused by Hurricane Mitch in October 1998, the economy has gradually recovered and is once again growing rapidly, with real GDP growth forecast at 3.5% for 2001.

Honduras qualifies for debt relief under the Highly Indebted Poor Countries initiative, a World Bank and IMF initiative launched in 1996. Trade with the US is a key part of the Honduran economy with almost one quarter of exports going to the US and nearly half of imports coming from the US.

Over the last three years, the Honduran currency has appeared relatively stable in the context of other Latin American currency depreciations. The Lempira has shown an annual depreciation against the dollar of 7.5% compared with an average of 14.0% for other non-dollarised Latin American currencies and 9.7% for other non-dollarised Central American peers.

4.    Economic and demographic indicators

  El Salvador Honduras
Population (million) 6,276 6,485
Pop. growth 1995-2000 2.0% 2.7%
GDP (US$ million) 13,217 5,932
GDP growth 1995-2000 3.6% 3.1%
GDP growth 2001F 2.0% 3.5%
GDP per capita 2,106 915
GDP per cap. growth 1995-2000 1.6% 0.4%
Foreign investment 1999 (US$ million) 229 230
Moody’s Credit Rating *Baa3 S B2 S
Inflation 2001F 3.0% 9.5%
* Investment grade rating

Inflation in Central American economies was 7.9% in 2000, a slight increase over 1999. This was mainly due to increases in public services and rising oil prices. Inflation in the region is forecast to be 7.0% in 2001. Inflation is currently expected to be 3.0% in 2001 in El Salvador (down from 4.3% in 2000) and 9.5% in Honduras (down from 10.1%).

This announcement does not constitute an offer to sell or issue or the solicitation of an offer to buy or acquire any securities in the capital of the Company.

This announcement includes 'forward-looking statements'. All statements other than statements of historical facts included in this announcement, including, without limitation, those regarding the Company's financial position, business strategy, plans and objectives of management for future operations (including development plans and objectives relating to the company's products and services), as well as those regarding the outlook for the markets and economies of El Salvador and Honduras, are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of the Company or those markets and economies to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Company's present and future business strategies and

the environment in which the Company will operate in the future. These forward-looking statements speak only as at the date of this announcement. The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

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