E-Malt.com News article: 1257

The world's second largest brewer SABMiller plc ("SABMiller") and China's No.4 brewer, Harbin Brewery Group Limited ("Harbin"), announced on June 29 that SABMiller acquired a 29.6% stake in Harbin from its largest shareholder, China Enterprise Development Fund ("CEDF"), for HK$675 million (US$87 million) in cash. The transaction is subject to certain conditions precedent. 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.

The stake in China's fourth-largest beer maker will boost SABMiller's market share in China to more than 15 %, making it the largest foreign player in the world's fastest-growing beer market, Roy Bagattini, managing director of SABMiller China, said in an interview. SABMiller entered the Chinese market in 1994 through its joint venture China Resources Breweries ("CRB"). Harbin is focused on the North-Eastern Chinese market where SABMiller already has significant interests. 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."

China has become the world's largest beer market by volume and analysts say it still offers huge growth potential. Per capita beer consumption is about 18 litres per year, compared with 50 litres in Japan and 100 litres in Europe. China has been an elusive target for most of the world's largest brewers, who have been stung by cheap competition and a highly fragmented market. The country has hundreds of breweries, many of which sell beer for less than the cost of mineral water. Poor infrastructure results in high transportation costs and distribution nightmares. Denmark's Carlsberg A/S CARLb.CO and Australia's Foster's Brewing Group Ltd FBG.AX , have scaled back their Chinese operations significantly.


02 July, 2003