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SouthAfricanBrewerie (SAB)

  Print      Mail a friend       Annual reports

Thursday 29 November, 2001


Interim Results

South African Breweries PLC
29 November 2001


                              SOUTH AFRICAN BREWERIES plc

                                INTERIM ANNOUNCEMENT

Ref 09/2001


London and Johannesburg, 29 November 2001. South African Breweries plc, the
leading brewer in developing markets, today announces its six-month results to
30 September 2001. Highlights are:


                                        2001      2000               % change
                                        US$m      US$m   US$                 £
Turnover                               2,176     2,106    3                  8
Trading profit                           348       334    4                  9
    - before amortisation (EBITA)        365       343    6                 11
Profit before tax                        302       310   (3)                 2
Adjusted earnings per share *
  US cents                              25.7      24.8    4                  8
  SA cents (up 23%)                    213.0     172.6
Dividend per share (US cents)            6.5       6.5    -

* Prior year restated for change in accounting policy - deferred tax


  * Total beverage volumes up 10% to 47.8 million hls
  * Group EBITA margin grows by 50 basis points
  * Very strong performance from our European business - EBITA up 28%
  * Acquisitions made in China, India, Uganda and Romania, in line with
  * Major Central American acquisition announced today

Graham Mackay, Chief Executive, commented:  'Our businesses have delivered
good results during the first half with SABI Europe achieving volume growth of
7% and Beer South Africa improving its operating margin by 30 basis points.
Today we have announced a significant new investment in Central America, a
region which offers great potential. We continue to focus on growing our
operations, both organically and through international acquisition, to deliver
shareholder value.'

This announcement, a copy of the slide presentation and video interviews with
management are available on the
SAB plc website at and at

CHIEF EXECUTIVE'S REVIEW                                                      2

Business review

Operating performance

During the first half of the financial year, our businesses have delivered a
good performance with underlying improvements in our South African operations
and strong growth from SAB International (SABI), as we continue to build on
the solid positions established in Central and Eastern Europe, Africa and
China. Our alliance with the Castel group in Africa, established in April
2001, is settling down well. During the period, we made further investments in
the SABI territories enhancing our already strong base. The substantial growth
and strong operating performance from SABI will continue to increase the
proportion of our business and results derived from outside South Africa.

In the first six months, total beverage volumes increased by 10% (organic 3%)
over the prior year's first half, with lager beer volumes up by 11% and other
beverage volumes up by 5%. Operating profit before amortisation improved by 6%
and adjusted earnings per share by 4%, with margin enhancement being obtained
in all of our major operations. This positive result was achieved despite the
impact of a 16% depreciation in the rand against the US dollar over the period
and currency depreciation in certain of the African countries in which we

SABI Europe (reporting as a segment for the first time) performed well,
especially in our key markets of Poland, Czech Republic and Russia. An ongoing
focus on brand portfolio management has delivered pleasing volume growth of
the major brands in each of these countries. Continued cost management,
rationalisation and productivity initiatives across the region have
contributed to a strong improvement in margins.

In SABI Africa and Asia (also reported as a segment) performance was ahead of
the prior year, assisted by the first time inclusion of our associate, Castel.
Strong underlying performances from most of our African operations were
diluted by the depreciation of some currencies, and in China, competitive
pressures were experienced, particularly in the South-West region.

In South Africa, the pressures on disposable income have lessened. A strong
marketing focus resulted in a decline in sales volumes being limited to 1%,
and tight financial and operating controls helped margins improve by 30 basis

Other Beverage Interests posted good results in local currency with volumes up

The Hotels and Gaming division had a difficult six months with hotels
adversely impacted by domestic economic conditions. Whilst gaming continues to
perform well, margins were affected by the higher overhead cost of the
Montecasino permanent facility.

General outlook

Our SABI business has delivered good results and the momentum we have achieved
should continue into the next six months.

In South Africa, the outlook for the economy and beverage volumes is
improving. In October and November beer volumes have, on a like for like
basis, shown growth and, year to date, are now ahead of the comparable period
last year. The rand has depreciated further in real terms over the past few
months, and this will have an adverse impact on our US dollar results from
South Africa over the important summer season.

We continue to focus on growing our operations, both organically and through
international acquisition, to deliver shareholder value.


SAB International - Europe


                                            2001          2000         % change
Financial summary                           US$m          US$m              US$

Turnover                                     736           616               19
Trading profit                               124           100               24
Operating margin (%)                        16.8          16.3
EBITA* margin (%)                           18.7          17.6

Sales volumes (hl 000's)
Lager                                     12,847        12,038                7
Lager comparable                          12,744        12,038                6
Other beverages                               94            75               25

* Earnings before interest, tax and goodwill amortisation

SABI Europe's performance for the six months to September was impressive.
Market share growth was recorded in Poland, Russia, Czech Republic and
Slovakia, while in Hungary, the Canaries and Romania, market share was
maintained. Volume growth of 75% in Russia combined with good results in
Poland, Slovakia and the Czech Republic, has led to an overall increase in
beer volumes of 7% for the six months. These volume gains, and relatively
stable currencies, underpinned a 28% increase in operating profit before
goodwill amortisation (EBITA), and growth in EBITA margin from 17.6% to 18.7%.
Our market share in Poland grew further to 31.6% following volume growth of 9%
against an industry growth of 1% in the six month period, and a weakening
Polish economy. Our mainstream brand, Tyskie, which is the leading beer brand
in Poland, grew by 19%, Pilsner Urquell by 62%, and Redd's, launched only last
year, has reached some 3% of total volumes.

In Russia our premium brand, Zolotaya Bochka, grew by 54% on the prior period
and our franchise brands, Miller Genuine Draft and Holsten showed even higher
growth. Better distribution, together with local procurement initiatives,
contributed to an improvement in profitability and a positive operating result
for the first time.

In the Czech Republic the Pilsner Urquell group recorded domestic volume
growth of 1%, gained market share of 1% to 45% and achieved real price
increases. The Pilsner Urquell brand recorded a 19% increase in volume over
last year and our market leading beer brand Gambrinus also grew ahead of the
industry, gaining momentum in the summer with the second quarter up on the
comparable prior year's quarter by 7%.  Continued focus on our brand mix,
resultant revenue growth and rationalisation of our cost base, has resulted in
profit ahead of the target set at the time of acquisition.

Our international premium brand, Pilsner Urquell, is performing well in Poland
and Slovakia. Sales volumes in Germany and the USA are encouraging, with
volumes up 20% and 30% respectively on the prior year. Total volumes of
Pilsner Urquell outside the Czech Republic have grown by 34% to 293,000 hls.

In August we announced the acquisition of Bere Timisoreana SA of Romania,
buying a controlling interest of 83.7%, which now positions us among Romania's
top three brewers. In Hungary, we have held our market share in a slightly
declining market and, with continued emphasis on improved channel management
and cost control, we have grown operating profits by some 39%.


In the Canaries our business, while facing a new domestic competitor, is
maintaining its level of profitability.

SABI Europe remains well placed in its markets and, although entering the
winter period, we believe, with strong brand portfolios and specific emphasis
on continuous improvement across all disciplines, the second half of the year
should again yield a positive performance.

SAB International - Africa & Asia


                                             2001        2000          % change
Financial summary                            US$m        US$m               US$

Turnover                                      430         355                21
Trading profit                                 72          54                33
Operating margin (%)                         16.7        15.2
EBITA  margin (%)                            17.5        15.5

Sales volumes (hl 000's)*
Lager                                      12,347       9,423                31
Lager comparable                            9,761       9,423                 4
Other beverages                             6,611       6,202                 7

* Castel volumes of 4,681,000 hls lager beer and 4,144,000 hls other beverages
are not included.

In SABI Africa, total beverage volumes increased by 5%, whilst in China,
growth in beer volumes was 42% (organic 3%). SABI Africa & Asia operations
posted trading profit growth of 33%, including Castel for the first time,
against turnover growth of 21%. This was despite a variety of challenging
external influences, including currency depreciation in certain African
countries as well as strong competitive pressures in Kenya and China. Castel's
volumes were 5% ahead of the prior year and equity accounted earnings were
above expectations.

Continued emphasis on operational improvements underpinned our good
performance. This included the exploitation of distribution synergies across
our combined lager, traditional beer and carbonated soft drinks (CSD)
businesses in Africa, brand portfolio management with new brand and packaging
launches in many operations, and manufacturing development programmes
resulting in quality and efficiency improvement across the region.

SABI Africa's lager volumes grew by 6% with market share gains in the
competitive markets of Ghana, Mozambique and Tanzania. CSD volumes grew 15%,
with an impressive performance coming from our managed business in Angola. A
somewhat poorer growth in traditional beer volumes of 2% masks a strong
performance of our Chibuku brand in Zambia and Malawi with growths of 41% and
25% respectively. This was offset by a decline in Chibuku volumes of 6% in the
Zimbabwe market.

In Botswana, lager beer volumes grew 6%, although there was a decline in
traditional beer and CSD volumes by 6% and 2% respectively. Notwithstanding
tight management of costs and improved product mix, US dollar operating profit
was marginally down, principally as a result of a 10% currency depreciation
over the period. Kgalagadi Breweries launched the first locally produced AFB,
Fusion Ice, and Botswana Breweries launched a new two litre Chibuku returnable
pack, both of which have been well received by the market.

A week of national mourning, following the death of the vice president, and
government restrictions on duty free outlets, led to a contraction of the beer
market in Tanzania. However, Tanzania Breweries Ltd (TBL) gained lager beer
market share though recording a decline in sales volume of 1%. This was offset
by a 13% growth in traditional beer

volumes and in US dollar terms, TBL delivered growth of 9% in operating

Mozambique posted 12% lager volume growth as a result of an increase in the
total beer market and a gain in market share. This, coupled with good cost
management, limited the decline in operating profits in US dollars, following
a year-on-year currency depreciation of 25%.

Strong operating profit improvements came from Zambia, Malawi and Ghana.

During the period, we took advantage of the opportunity to increase our stake
in Uganda's Nile Breweries from 40% to 93.1%, thereby obtaining full
management control of the operation.

In China, volume growth and profitability have been affected by the inclusion
of four breweries acquired during the first quarter of this year, the
rationalisation of brand portfolios, and competitive pressures on pricing.
Transfer of expertise into our China operations continues, with encouraging
improvements being seen in product quality, brand repositioning and channel

The formation of the joint venture with Blue Sword in Sichuan province, which
is subject to the fulfilment of certain conditions, was announced on 9 October
2001 and represents an important strategic move. Blue Sword is the largest
brewer in Sichuan with ten breweries, nine million hectolitres of capacity and
sales in excess of five million hectolitres. Together with the Snowflake
brand, produced by our two existing breweries in this region, the joint
venture will account for 85% of all beer sold in this province of over 80
million inhabitants.

On 28 June 2001 we announced the acquisition of a 100% interest in Mysore
Breweries Limited, effective 26 September 2001, followed by the 7 November
2001 announcement of the acquisition of a 53% stake in Rochees Brewery
Limited, so accessing the Indian markets of Rajasthan, Maharashtra, Karnataka
and Andhra Pradesh, which are four of the five largest beer-consuming states
in India. Our strategy in India is to continue to establish strong regional
footprints and build on existing brand portfolios.

In local currencies all African operations within the portfolio grew operating
profits. Although growth is expected to continue into the second half, in US
dollar terms the impact of the weakening of some African currencies remains a
concern. In China competitive pressures are expected to continue but our
position in Sichuan province will improve as a result of the Blue Sword

Beer South Africa


                                     2001      2000                % change
Financial summary                    US$m      US$m                 US$       R

Turnover                              594       670                (11)       6
Trading profit                        132       147                (10)       7
Operating and EBITA margin (%)       22.2      21.9

Sales volume (hl 000's)            11,113    11,242                 (1)

In the first six months of the financial year, Beer South Africa volume was
down 1%, whilst operating margins improved by a further 30 basis points and
trading profit grew 7% in rand.  The shifts in consumer spending experienced
over recent years continue to have a dampening effect on volumes, although
encouragingly, consumer and business confidence have shown some signs of
improving in South Africa.


Performance continues to be driven by focusing our efforts, across all
functions, on innovation and operational excellence, with wide ranging
initiatives to deliver consumer appeal and productivity. Marketing activities
have included an increased focus on youth appeal through the launch of the
Castle Loud television programme aimed at the young adult market and marketing
campaigns directed at seeding selected brands in this important consumer
segment. Marketing processes have been further improved and communication
strategies reviewed to reflect the essence of each brand.

Beer South Africa's total market share has been relatively stable, but its
share of turnover of the liquor industry continues to improve. Share of the
premium beer segment has grown by four percentage points over the past six
months and the share of the alcoholic fruit beverages (AFB) market segment by
some 1.4%. Underpinning these achievements are innovative packaging changes,
brand repositioning and new product development, which includes the recent
launch of Redd's Dry and the test marketing of Kingswood Draught, a full
flavoured beer.

Operating margins for the period increased from 21.9% to 22.2%. Benefits from
labour productivity, savings in general procurement, tight overhead management
and production efficiencies from our ongoing World Class Manufacturing
programme, were the main contributors to this margin enhancement. The new
Ibhayi Brewery leads the way in terms of hectolitres produced per employee and
brewing quality. An aggressive project to improve, already world-class, raw
material usage performance at all breweries, is showing good progress.

Beer South Africa has recently been voted South Africa's 'Best Company to Work
for'. This prestigious award recognised the quality and calibre of our people,
our human resource philosophies and practices and the unique and defining
culture of the people of Beer South Africa. Beer South Africa was once more
placed in the top three South African companies in a recent survey of
corporate reputations amongst SA consumers.  We believe that this is, in part,
due to our continuing investment in social projects including job creation,
youth education, empowerment of women and environment management.

Looking ahead, as the economic fundamentals continue to improve, Beer South
Africa has a strong platform to take advantage of future growth opportunities.
We continue to refine and build upon our already extensive brand and product
portfolio, drive for continued margin enhancement, and innovate for value.

Other Beverage Interests*


                                                     2001       2000 % change
Financial summary                                    US$m       US$m   US$    R

Turnover                                              327        355   (8)  10
- ABI                                                 237        254   (7)  11
Trading profit                                         25         31  (19)  (5)
- ABI                                                  22         23   (4)  13
Operating and EBITA margin (%)                        7.7        8.7
- ABI                                                 9.2        9.0

Total (hl 000's)**                                  4,837      4,679    3
ABI volumes (hl 000's)                              4,611      4,474    3

*   ABI, Appletiser, and Distell

** Distell volumes not included


Amalgamated Beverage Industries

ABI's volumes increased by 3%, with growth across all market segments,
continuing the positive trend set in the second half of the previous financial
year. While mainstream CSD's grew marginally, ABI's growth continues to be
driven by the new non-CSD beverages. This soft drink segment led by the fruit
flavoured drink, Bibo, increased substantially, contributing 3% of total
volumes for the period.

Overhead costs containment, productivity initiatives and rationalisation of
operations continued to deliver value and will yield further savings in the
future. ABI's positive sales trend, experienced during the period under
review, is expected to continue.


Appletiser continues to deliver positive results. Internationally, the company
commenced the repositioning of the flagship Appletiser brand, with the brand
name being standardised in all markets through new packaging and positioning.
Appletiser's non-South African revenue increased by 14%, reaching 20% of total

In South Africa, Valpre Spring Water further entrenched its position as market
leader and increased volumes by 32%.

Wines and Spirits

The expected increase in profitability due to the 1 July 2000 merger of
Distillers Corporation (SA) Limited and Stellenbosch Farmers' Winery Group
Limited under the name of Distell is being achieved. Distell's rand operating
profit and earnings, before attributable exceptional reorganisation costs of
some R23 million (US$3 million), increased 22% and 2% respectively during the
period under review.

Distell management are evaluating the implications of the latest development
which now requires a Competition Commission decision on the merger.

Hotels and Gaming


                                                         2001    2000 % change
Financial summary                                        US$m    US$m  US$    R

Turnover *                                                 89     110 (19)  (4)
Trading profit *                                           10      17 (41) (32)
Trading profit (excluding profit on disposal of Sun
International)                                             10      12 (17)  (9)

Revpar **                                             R209.80 R192.60        9

  * Prior year includes Sun International.

** Revenue per available room

The Hotel division continued to be affected by the weak domestic economy and
the impact on tourism in the Southern African region. The hotel portfolio
continues to be realigned, and restructuring initiatives have been put in
place to limit the growth in overheads.  Occupancies for the six months were
61.1% compared to 64.2% last year, but Revpar was up 9% at R209.80.

The gaming market in Gauteng grew at a slower rate than expected due to
pressures on discretionary spending. Tsogo Sun's Montecasino operation
performed well and has delivered increased revenue. However, margins have
declined as the additional operational costs of this permanent facility are
incurred, following the move from the temporary casino facilities in November
2000. Hemingways Casino in East London opened on budget in September 2001.

A conditional agreement was reached in September 2001 in respect of the Durban
casino licence, to create a joint venture in which Tsogo Sun and Durban
Add-Ventures will hold 60% and 40% respectively of the equity.

Financial information

Segmental analysis

In this report we have expanded our segmental analysis and provided greater
disclosure on SABI's two business segments - SABI Europe and SABI Africa &
Asia. Information is provided on turnover, operating profits and volumes,
together with an expanded commentary on each business segment.

Accounting for volumes

In the determination and disclosure of reported sales volumes, the group
aggregates the volumes of all consolidated subsidiaries (or deemed
subsidiaries) and its equity accounted associates other than associates where
the group exercises significant influence but primary responsibility for day
to day management rests with others (such as Distell and Castel). In these
latter cases, the financial results of operations are equity accounted in
terms of UK GAAP but volumes are excluded.


The board has declared an unchanged interim dividend of 6.5 US cents. The
dividend will be payable on 21 December 2001 to shareholders on either
register on 7 December 2001. The ex-dividend trading date as stipulated by the
LSE will be 5 December 2001 on both the London and Johannesburg Stock
Exchanges. As the group reports primarily in US dollars, dividends are
declared in US dollars. They are payable in sterling to shareholders on the UK
section of the register and in South African rand to shareholders on the RSA
section of the register. The rates of exchange applicable on 23 November 2001,
being the last practical date before the declaration date, will be used for
conversion ($/£ = 1.4130 and R/$ = 9.9500), resulting in an equivalent interim
dividend of UK 4.6001 pence per share for UK shareholders and SA 64.6750 cents
per share for RSA shareholders.


In April 2001, a US$328 million US private bond placing, with an average life
of five years, was raised. The proceeds were used to repay drawdowns under the
US$750 million syndicated loan. In August 2001 a US$500 million guaranteed
convertible bond was issued at a rate of 4.25% and with a term of five years.
The manager's option for US$100 million was exercised in September. These new
loans have resulted in gross borrowings increasing to US$1,454 million from
US$1,053 million at March 2001 but net borrowings have only risen to US$962
million from US$835 million. The average loan maturity has been extended to
five years, and the average borrowing rate is now below 8%.


Net interest payable of US$46 million is up from US$24 million in the prior
year's first half due to higher average borrowing levels, principally arising
from the final payments for Pilsner Urquell.


In compliance with FRS19, the accounting policy relating to deferred taxation
has changed from the partial basis in the prior period to the comprehensive
basis, and comparative figures have been restated. The effective tax rate of
28.6% on the comprehensive basis is the same as restated for the prior year
(originally 26.9%).


Share of operating profit of associates is not comparable with the prior
year's first half because of the disposal of Sun International, the purchase
of further breweries in China and additional shares in Uganda, which is now
accounted for as a subsidiary, and the acquisition on 1 April 2001 of a 20%
investment in the Castel Brewing group.

Currency translation

Rand figures in the consolidated supplementary information have been
translated into US dollars as follows:

                                                   Weighted             Closing
                                               average rate                rate

Period ended  :  30 September 2001                     8.29                9.00
              :  30 September 2000                     6.96                7.24
              :  31 March 2001                         7.34                8.00


South African Breweries plc                              Tel: +44 20 7659 0100

Nick Chaloner         Director of Communications         Tel: +44 20 7659 0119
                                                         Mob: +44 7880 502 755

Anna Miller Salzman   Head of Investor Relations         Tel: +44 20 7659 0106
                                                         Mob: +44 7973 837 070

Ciaran Baker          Head of Corporate Communications   Mob:+44 7979 954 493

This announcement, a copy of the slide presentation and video interviews with
management are available on the
SAB plc website at and at

Pictures for the media are available from