SABMiller makes strategic investment in Harbin Brewery Group
29 June 2003
Deal consolidates SABMiller status as the leading international brewer in China
SABMiller plc ("SABMiller") and Harbin Brewery Group Limited ("Harbin") today announce SABMiller's acquisition of a 29.6% stake in Harbin from its largest shareholder, China Enterprise Development Fund ("CEDF"), for HK$675 million (approximately US$87 million) in cash. The transaction is subject to certain conditions precedent.
In addition SABMiller and Harbin will sign a Strategic Investor Agreement ("SIA"), the terms of which will, inter alia, allow SABMiller to appoint not less than two directors to the eleven member board, and provide the framework for the sharing of best practices and the transfer of relevant expertise. Under this agreement SABMiller and Harbin will explore possibilities for co-operation in areas such as sales, distribution and procurement.
The transaction will be effected by the creation of a new subsidiary of SABMiller, Gardwell Limited ("Gardwell"), which will buy the CEDF shareholding. Certain members of the existing Harbin management team will acquire a 5% stake in Gardwell ensuring their continued contribution to the successful working of the alliance. The transaction is expected to be earnings enhancing for SABMiller in the first full year.
This strategic investment further consolidates SABMiller's position as the leading international brewer in China, a market the Company entered in 1994 through its joint venture China Resources Breweries ("CRB"). Harbin is China's fourth largest brewer and is focused on the North-Eastern Chinese market where SABMiller already has significant interests.
The majority of Harbin's volumes are accounted for by the Harbin brand umbrella which is largely focused on the fast growing and profitable upper mainstream and premium market segments. The Harbin brand is the oldest beer brand in China. Following the acquisition of three breweries in 2002 Harbin now has proforma sales volumes of approximately 10.4 million hectolitres which represents a compound annual volume growth rate of approximately 34% since 1996. For the year ended 31 December 2002 Harbin recorded sales of HK$1,119 million (US$144 million) and pre-tax profit of HK$160 million (US$21 million).
Harbin was listed on the Hong Kong Stock Exchange in June 2002. Aside from the CEDF stake, 30% of Harbin's equity is held by the Municipal Government of Harbin and 34.6% is in the hands of the public.
Graham Mackay, Chief Executive of SABMiller said: "We are delighted to have made this strategic investment in Harbin, one of the most successful and profitable brewers in the Chinese market. The transaction represents a further step in SABMiller's strategy in China of focusing on local brands to build regional leadership, and strengthens our position in the world's largest beer market. Whilst this transaction has, unusually, been made outside of CRB, we remain committed to that joint venture and have received their full support for this transaction."
Peter Lo, Chief Executive of Harbin Brewery stated, "We are very pleased to be partnering with one of the world's leading brewing groups which has the ability to bring significant value to Harbin. Its brands, expertise, and experience in developing countries are all extremely valuable to us."
Ning Gao Ning, Chairman of China Resources Enterprise Limited and non-executive director of SABMiller, praises the acquisition , "I believe that, with SABMiller as a significant shareholder in both CRB and Harbin, there is potential for an improvement in the operating environment in the North Eastern part of China, which should ultimately lead to improvements in profitability. I look forward to future co-operation between the two companies."
Further details, including a map of SABMiller's and Harbin's operations in China, may be found on SABMiller's website: www.sabmiller.com
JPMorgan and Cazenove acted as joint financial advisors to SABMiller.
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SABMiller plc is one of the world's leading brewers, with major brewing and distribution operations in America, Africa, Europe and Asia. It is the world's second largest brewer by volume with 122 breweries in over 40 countries and some 45,000 employees. In the year ending 31 March 2003, SABMiller generated US$770 million pre-tax profit from turnover of US$9.1 billion. The company is listed on both the London and the Johannesburg stock exchanges. SABMiller, through its joint venture partner, China Resources Breweries, operates 30 breweries in 9 provinces in China with total volumes of over 27 million hectolitres in the year ended 31 March 2003. It entered the China market in 1994 and is one of the few profitable foreign brewers operating in China.
Harbin Brewery Group Limited
Following the acquisition of three breweries during 2002 Harbin now has an installed capacity of approximately 12.5 million hectolitres and proforma sales volumes of 10.4 million hectolitres. The company, through the Harbin brand, is a leader in the North-Eastern China market in terms of market share and profitability.
China Enterprise Development Fund
CEDF is an investment fund listed on the Irish Stock Exchange with the investment objective to focus on the industrial, manufacturing and services sector on China. It has held its stake in Harbin since 1998.
Notes to editors
- The Chinese beer market is one of the fastest growing markets in the world. Consumption is growing at over 6% per annum and as a result the Chinese market is now believed to be the largest beer market in the world by volume.