South African Breweries PLC
29 November 2001
NOT FOR DISTRIBUTION IN THE UNITED STATES
SOUTH AFRICAN BREWERIES plc
SAB PLC ANNOUNCES MAJOR INVESTMENT IN
EL SALVADOR AND HONDURAS
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 Cerveceria Hondurena 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
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
* Proposed placing of new SAB shares to raise approximately £200
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. '
This announcement, a copy of the slide presentation and video interviews with
management are available on the SAB website at www.sabplc.com and at
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
NET ASSETS 283.1
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
Rothschild advised SAB plc on this transaction.
Proposed placing of new SAB shares
To provide future financial flexibility, and in relation to the acquisition,
SAB is considering raising around £200 million through an equity offering of
new ordinary shares (the New Shares) to institutional investors (the Placing)
which would have a greenshoe option for up to 15% of the Placing. Cazenove &
Co. Ltd (Cazenove) and JP Morgan Securities Ltd. (JPMorgan) (the Banks) are
acting as joint international placement agents and book runners for the equity
fund raising, with ABN Amro Rothschild as joint international placement agent.
The issue of New Shares will take place at a price established through a book
The New Shares will be credited as fully paid and will rank pari passu in all
respects with the existing ordinary shares of US$0.10 each in the capital of
SAB including the right to receive all dividends and other distributions
declared, made or paid after the date of issue save for the interim dividend
for the six months ended 30 September 2001. Application will be made for the
New Shares to be admitted to the official list maintained by the United
Kingdom Listing Authority, and for such shares to be admitted to trading by
the London Stock Exchange on its market for listed securities. Application
will also be made for the New Shares to be listed on the Johannesburg Stock
For further information:
Nick Chaloner, Director of Communications, +44 (0) 20 7659 0119
SAB plc Mob: +44 (0) 7880 502 755
Anna Miller Salzman, Head of Investor Relations, +44 (0) 20 7659 0106
SAB plc Mob: +44 (0) 7973 837 070
Ciaran Baker, Head of Corporate +44 (0) 7979 954 493
David Mayhew, Cazenove +44 (0) 207 588 2828
Ian Hannam, JP Morgan +44 (0) 207 742 8618
This announcement is available on the SAB plc website at www.sabplc.com
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
2. Company profiles
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 Salvadorena, 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 Centroamerica, 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.
Cerveceria Hondurena 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
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.
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
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.
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
3. Country profiles
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
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
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
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%).
Cazenove, JPMorgan and Rothschild have approved this announcement as an
investment advertisement for the purposes of section 57 of the Financial
Service Act 1986. Cazenove and JPMorgan, who are regulated by the Securities
and Futures Authority Limited, are advising SAB in connection with the
proposed Placing and no one else and will not be responsible to any one other
than SAB for providing the protections afforded to customers of Cazenove and
JPMorgan respectively nor for providing any advice in relation to the proposed
Rothschild, who is regulated by the Securities and Futures Authority Limited,
is advising SAB in connection with the transaction and no one else and will
not be responsible to any other than SAB for providing the protections
afforded to customers of Rothschild nor for providing any advise in relation
to the transaction.
This announcement does not constitute an offer to sell or issue or the
solicitation of an offer to buy or acquire Ordinary Shares in the capital of
the Company in the United States or any jurisdiction in which such offer or
solicitation is unlawful. The New Shares referred to in this announcement may
not be offered or sold within the United States or to, or for the account or
benefit of, US persons (as defined in Regulation S under the US Securities Act
of 1933) absent registration or an exemption from registration. Any offering
of securities to be made in the United States will be made by means of a
Public Information Pack that will contain detailed information about the
Company and management, as well as financial statements. No public offering
of securities will be made in the United States.
The distribution of this announcement and the Placing and/or issue of New
Shares in certain jurisdictions may be restricted by law. No action has been
taken by the Company or the Banks that would permit an offer of New Shares or
possession or distribution of this announcement or any other offering or
publicity material relating to New Shares in any jurisdiction where action for
that purpose is required, other than in the United Kingdom. Persons into
whose possession this announcement comes are required by the Company and the
Banks to inform themselves about and to observe any such restrictions.
The New Shares have not been approved or disapproved by the US Securities and
Exchange Commission, any state securities commission in the United States or
any other US regulatory authority, nor have any of the foregoing authorities
passed upon or endorsed the merits of the Placing or the New Shares or the
accuracy of this announcement. Any representation to the contrary is a
criminal offence in the United States.
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.