| Thu 29 Nov 2001, 0:00 | | Sab Plc Announces Major Investment In El Salvador |
|
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 Cervecer!a Hondure$a 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.
Highlights
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
Proposed placing of new SAB shares to raise approximately 200 million
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
www.cantos.com
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$500 million. Assuming exercise of the First
Option, SAB's effective shareholders' interest in BevCo will become
approximately 75%. Following exercise of the First Option, CAB will have
the right to put to SAB, on an annual basis, between 5% and 15% of the
equity of BevCo for a consideration equivalent to the fair market value of
BevCo at that time. The consideration in respect of the above may be
settled at SAB's option in either cash or SAB shares.
The following information has been extracted from the proforma unaudited
accounts of CHSA and proforma unaudited combined ESBB accounts, applying US
GAAP and El Salvador GAAP respectively.
Year ended 31 December US$m
2000
Turnover 523.6
EBITDA 129.6
EBIT 95.2
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
requirements.
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 building process.
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 Exchange.
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
This announcement is available on the SAB website at www.sabplc.com
-ENDS-
Notes:
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$4.184 billion. SAB is listed on both the London and the Johannesburg
stock exchanges.
2.Company profiles
El Salvador
El Salvador Beverages Business (ESBB) is El Salvador's leading producer and
distributor of beer, carbonated and non-carbonated soft drinks, and bottled
water as well as one of the largest packaging companies in Central America.
Through its longstanding exclusive bottling agreement with The Coca-Cola
Company (TCCC) and its proprietary beer, non-carbonated soft drinks and
bottled water brands, it is the largest beverage business in El Salvador.
Besides serving the El Salvadorian market, ESBB is also an exporter of beer,
water and packaging products to countries including the USA, Guatemala,
Honduras, Nicaragua, Costa Rica, and Panama
Beer
La Constancia has been a leading industrial company in El Salvador for 95
years. It was the first national company dedicated to the production of beer
and now is responsible for 99% of local beer sales - accounting for volumes
of 805,000 hls during the year ended 31 December 2000 - and has its own
national distribution system. The brand portfolio comprises six locally
produced brands (including Regia, Pilsener lager, Suprema and Premier), a
range of imported beers from Guinness, Modelo and Anheuser Busch, and
Maltin, a malt-based carbonated soft drink. In addition La Constancia
exports its own and private label brands (5.5% of beer production) to the
USA.
The beer market in El Salvador is an underdeveloped market, with consumption
of some 12 litres per capita versus the Central American average of
approximately 18.5 litres. The market has grown at an annual compound
growth rate of 3% over the past five years.
Carbonated soft drinks (CSD)
Embotelladora Salvadore$a, 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 Centroam rica, 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.
Packaging
Corcho y Lata, S.A. (Corlasa) is ESBB's packaging products business,
producing crowns, plastic crates, PET bottles and other products.
Honduras
Cervecer!a Hondure$a 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.
Beer
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
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 $915. The young demographic profile of
Honduras, with at least 42% of the population currently under 18 years of
age, provides the basis for long-term volume growth in the beer and soft
drinks markets.
Younger consumers are highest per capita consumers of soft drinks (ages 12
to 19) and beer (ages 18 to 24) in Honduras. With a large segment of the
Honduran population just entering or about to enter these peak beverage
consumption ages, CHSA is well positioned to benefit from the expected
increase in demand.
The expanding economy also creates an attractive market for beverages.
During the 1990s, the economy expanded and continued its evolution from an
agriculture-dependent economy to a manufacturing and services-based economy.
Following severe damage caused by Hurricane Mitch in October 1998, the
economy has gradually recovered and is once again growing rapidly, with real
GDP growth forecast at 3.5% for 2001.
Honduras qualifies for debt relief under the Highly Indebted Poor Countries
initiative, a World Bank and IMF initiative launched in 1996. Trade with
the US is a key part of the Honduran economy with almost one quarter of
exports going to the US and nearly half of imports coming from the US.
Over the last three years, the Honduran currency has appeared relatively
stable in the context of other Latin American currency depreciations. The
Lempira has shown an annual depreciation against the dollar of 7.5% compared
with an average of 14.0% for other non-dollarised Latin American currencies
and 9.7% for other non-dollarised Central American peers.
4. Economic and demographic indicators
El Salvador Honduras
Population (million) 6,276 6,485
Pop. growth 1995- 2.0% 2.7%
2000
GDP (US$ 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 229 230
1999 (US$ million)
Moody's Credit *Baa3 S B2 S
Rating
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 Placing.
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.
