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China seminar - Slide presentation - 28 September 2000 - SABMiller

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<strong>China</strong><br />

Graham Mackay<br />

SAB Chief Executive<br />

<strong>28</strong> <strong>September</strong> <strong>2000</strong>


Agenda for today<br />

11.00am<br />

11.30am<br />

12.00pm<br />

12.45pm<br />

1.45pm<br />

Graham Mackay<br />

Frank - Ning Gaoning CRE Chairman<br />

Chris Barrow - SABI Asia MD<br />

Break for lunch<br />

Chris Barrow - contd


Agenda for today<br />

2.30pm<br />

3.00pm<br />

3.30pm<br />

4.00pm<br />

4.30pm<br />

6.30pm<br />

Humor - Wang Qun CREB MD<br />

Tea<br />

Jonathan Solesbury - SABI Asia FD<br />

Andre Parker - SABI Africa & Asia MD<br />

Graham Mackay<br />

Cocktails & dinner


South African Breweries plc<br />

SAB plc<br />

Graham Mackay<br />

Chief Executive<br />

Beer South Africa<br />

Norman Adami<br />

SABI Asia & Africa<br />

Andre Parker<br />

SABI Europe<br />

Mike Simms<br />

Other Beverages<br />

Alan Clark<br />

Hotels & Gaming<br />

Ron Stringfellow


Strategy Update<br />

! South Africa<br />

! Emerging markets<br />

! Major transactions


Xinjiang Uygur Zizhiqu<br />

Gansu<br />

Qing Hai<br />

Ürümqi<br />

Xining<br />

Xinzang Zizhiqu (Tibet)<br />

Lhasa<br />

Ningxia<br />

Huizu<br />

Zizhiqu<br />

Lanzhou<br />

Hohhot<br />

Xi’an<br />

Shaanxi<br />

Sichuan<br />

Sichuan<br />

Mianyang<br />

Mianyang<br />

Chongqing<br />

Chongqing<br />

Chengdu<br />

Chengdu<br />

Yunnan<br />

Kunming<br />

Guizhou<br />

Guiyang<br />

Nanning<br />

Gunagxi<br />

Zhuangzu<br />

Zizhiqu<br />

Hunan<br />

Changsha<br />

Jiangxi<br />

Nanchang<br />

Fujian<br />

Fuzhou<br />

Hubei<br />

Wuhan<br />

Zhejiang<br />

Zhangzhou<br />

Shanghai<br />

Shanghai<br />

Jiangsu<br />

Anhui<br />

Nanjing<br />

Heifei<br />

Henan<br />

Zhengzhou<br />

Shandong<br />

Qingdao<br />

Hebei<br />

Shanxi<br />

Taiyuan<br />

Tianjin<br />

Zhangjiakou<br />

Beijing<br />

Liaoning<br />

Liaoning<br />

Shenyang<br />

Shenyang<br />

Jilin<br />

Jilin<br />

Changchun<br />

Changchun<br />

Inner<br />

Mongolia<br />

Heilongjiang<br />

Harbin<br />

Russia<br />

Russia<br />

Kazakhstan<br />

Kazakhstan<br />

Pakistan<br />

Pakistan<br />

Taiwan<br />

Taipei<br />

Guandong<br />

Guandong<br />

Guangzhou<br />

Guangzhou<br />

Shenzhen<br />

Shenzhen<br />

Haikou<br />

Hainan<br />

Mongolia<br />

Mongolia<br />

India<br />

India<br />

Nepal<br />

Nepal<br />

Korea<br />

Korea<br />

Bhutan<br />

Bhutan<br />

Burma<br />

Burma<br />

Laos<br />

Laos<br />

Vietnam<br />

Vietnam<br />

Russia<br />

Russia<br />

Hong<br />

Kong


Key Questions<br />

! Value<br />

! Permanence<br />

___________<br />

! Mechanism<br />

! Implications


For while the tired waves, vainly breaking,<br />

Seem here no painful inch to gain,<br />

Far back through creeks and inlets making<br />

Comes, silent, flooding in, the main<br />

A.H. Clough - “Say Not the Struggle Nought Availeth”


“Imponderables”<br />

! Core competence<br />

! <strong>China</strong> “challenge”


Business Model<br />

Partners &<br />

Partnership<br />

SAB<br />

Competence<br />

Basic<br />

Strategic<br />

Choices<br />

Development


Partners & Partnership<br />

! Unique strength<br />

! Two-way way street<br />

Partners &<br />

Partnership<br />

Basic<br />

Strategic<br />

Choices<br />

SAB<br />

Competence<br />

! Chinese operational strengths<br />

Development<br />

! Management substance


SAB Competence<br />

! Involvement<br />

! Flexibility, pragmatism<br />

Partners &<br />

Partnership<br />

Basic<br />

Strategic<br />

Choices<br />

SAB<br />

Competence<br />

! Measurements & controls<br />

Development<br />

! Performance management


Strategic choices<br />

! Second tier regions<br />

! Mainstream brands<br />

Partners &<br />

Partnership<br />

Basic<br />

Strategic<br />

Choices<br />

SAB<br />

Competence<br />

! Costs<br />

Development


Development<br />

! Geographic stronghold<br />

! Affordable, progressive quality<br />

Partners &<br />

Partnership<br />

Basic<br />

Strategic<br />

Choices<br />

SAB<br />

Competence<br />

! Brand portfolio development<br />

Development<br />

! Sales & distribution development<br />

! Management substance


Graham Mackay<br />

Q&A


<strong>China</strong><br />

Ning Gaoning known as “Frank”<br />

CRE Chairman<br />

<strong>28</strong> <strong>September</strong> <strong>2000</strong>


<strong>China</strong> Resources<br />

The PRC State<br />

Govt<br />

CRH Hldgs<br />

Other Portfolio<br />

CRE (Listed)<br />

Food & Bev<br />

Property<br />

Retail & Dist<br />

Infrastructure<br />

Fin Serv


<strong>China</strong> Resources Enterprise Ltd<br />

! CRE Background<br />

! Driving principles<br />

! Bridge between <strong>China</strong> and the World<br />

! Recent restructuring; continued focus on beverages


Joint venture between CRE & SAB<br />

! Why SAB?<br />

" Same strategic thinking<br />

! Initial stages difficult<br />

! Joint authorisation<br />

! Catalyst for change in breweries<br />

" management<br />

" processes<br />

! Joint venture selects and trains local managers


Outlook for <strong>China</strong><br />

! Difficult trading conditions over past 5 years<br />

! Economy showing signs of recovery<br />

! World Trade Organisation<br />

! Future expectations


Ning Gaoning<br />

Q&A


<strong>China</strong><br />

Chris Barrow<br />

SABI Asia MD & CREB Executive Director<br />

<strong>28</strong> <strong>September</strong> <strong>2000</strong>


∪<br />

∪<br />

Ni hao!


∪<br />

Ni hao ma?<br />

You good?


Introduction<br />

! ma - neutral - Question word<br />

! ma - high flat - Mother<br />

! ma - rising - Plant (hemp)<br />

∪<br />

! ma - falling/rising - Horse<br />

! ma - falling - Scold<br />

Mum rides the horse, the horse is slow,<br />

mum scolds the horse.


SABI Asia structure<br />

Hong Kong office<br />

! Finance<br />

! Marketing<br />

! Human Resources<br />

! India<br />

! <strong>China</strong>


<strong>China</strong> team in Shenyang<br />

! Technical<br />

" Production generalist<br />

" Project engineer<br />

" Production specialists<br />

! Marketing, Sales & Distribution<br />

" Distribution<br />

" Brands<br />

! Commercial<br />

" Finance<br />

" Business development


What is different about <strong>China</strong>?<br />

! Regionality


Six Regions of <strong>China</strong><br />

Russia<br />

Russia<br />

Pakistan<br />

Kazakhstan<br />

India<br />

Xinjiang Uygur Zizhiqu<br />

Xinzang Zizhiqu (Tibet)<br />

Nepal<br />

North- West<br />

Gansu<br />

Qinghai<br />

South- West<br />

Bhutan<br />

Burma<br />

Mongolia<br />

Yunnan<br />

Ningzia<br />

Huizu<br />

Zizhiqu<br />

Sichuan<br />

Laos<br />

Shaanxi<br />

North<br />

Shanxi<br />

Guizhou<br />

Gunagxi<br />

Zhuangzu<br />

Zizhiqu<br />

Henan<br />

Hubei<br />

Hunan<br />

South<br />

Hainan<br />

Inner<br />

Mongolia<br />

Beijing<br />

Tianjin<br />

Hebei<br />

Shandong<br />

Anhui<br />

Jiangxi<br />

Guandong<br />

Liaoning<br />

Jiangsu<br />

Shanghai<br />

East<br />

Zhejiang<br />

Fujian<br />

Hong<br />

Kong<br />

Heilongjiang<br />

North<br />

East<br />

Jilin<br />

Korea<br />

Taipei<br />

Taiwan<br />

Vietnam Vietnam


Europe & <strong>China</strong>


What is different about <strong>China</strong>?<br />

! Regionality<br />

!Seasonality<br />

!Overcapacity<br />

!Infrastructure<br />

!Distances<br />

!Communication<br />

!Culture/etiquette<br />

!Cuisine


Source: EIU<br />

Highlights from <strong>China</strong>…..<br />

1996 1999 2002<br />

Population (bn(<br />

bn) 1.22 1.26 1.29<br />

Urbanisation 29% 30% 31%<br />

GDP (US$bn<br />

bn) 817 976 1 308<br />

GDP growth rate 9.6% 7.1% 8.0%<br />

GDP per capita (US$) 670 780 1 010<br />

GDP per capita (US$ppp<br />

ppp) 3 360 4 <strong>28</strong>0 5 520


Source: EIU<br />

Further highlights…..<br />

1996 1999 2002<br />

National Savings Ratio 40.5% 43.5% 43.8%<br />

Net FDI (US$bn<br />

bn) 38.1 37.2 56.3<br />

Interest rate (prime) 10.1% 5.9% 7.0%<br />

Currency (RMB : US$) 8.3 8.3 8.3<br />

Consumer price inflation 8.3% (1.3%) 3.5%


Conclusion<br />

! Large market of consumers<br />

! Growing “wealth”<br />

! Increasing disposition to consume<br />

! Strong inward investment<br />

" into <strong>China</strong><br />

" into “West”<br />

! Stable economic background


History of beer consumption<br />

250<br />

200<br />

150<br />

100<br />

Beer vols (m hl)<br />

50<br />

0<br />

1949 1976 1980 1991 1999 2002(f)<br />

Source: Canadean


Industry characteristics<br />

! Currently 500 breweries (in 1995 = 800)<br />

! 19 produce more than 2 million hls h s pa<br />

! 106 produce more than 0.5 million hls h s pa<br />

! 106 ⇒ 70% of output<br />

! Excess capacity ≈ 50 million hlsh<br />

Source: Canadean


Per capita consumption- litres/cap<br />

- on an upward trend<br />

40<br />

35<br />

30<br />

25<br />

20<br />

15<br />

10<br />

5<br />

North East<br />

East<br />

North<br />

<strong>China</strong><br />

South<br />

North West<br />

South West<br />

0<br />

1995 1996 1997 1998 1999<br />

Source: Canadean


Production per region (% of total)<br />

45<br />

40<br />

35<br />

30<br />

25<br />

20<br />

15<br />

10<br />

5<br />

0<br />

1995 1996 1997 1998 1999<br />

East<br />

South<br />

North East<br />

North<br />

South West<br />

North West<br />

Source: Canadean


Competitor<br />

Locations<br />

Pakistan<br />

Kazakhstan<br />

India<br />

Ürümqi<br />

Xinjiang Uygur Zizhiqu<br />

Xinzang Zizhiqu (Tibet)<br />

Nepal<br />

Russia<br />

Lhasa<br />

Bhutan<br />

✪ Anheuser-Busch (1)<br />

● Heineken (Asia Pacific Breweries) (3)<br />

▼ Carlsberg (2)<br />

✭ Asahi (8)<br />

✤ Danone (2)<br />

❖ Interbrew (2)<br />

♣ San Miguel (3)<br />

➲ Suntory (2)<br />

✸ Tsingtao (25)<br />

✷ Yanjing (3)<br />

Gansu<br />

Qing Hai<br />

Xining<br />

CHINA<br />

Burma<br />

Lanzhou<br />

Sichuan<br />

Kunming<br />

Mongolia<br />

Yunnan<br />

Laos<br />

Ningxia<br />

Huizu<br />

Zizhiqu<br />

Hohhot<br />

✸<br />

Xi’an<br />

Shaanxi<br />

Mianyang<br />

Chengdu<br />

Congqing<br />

Guiyang<br />

Guizhou<br />

✭<br />

Liaoning<br />

✸✤<br />

Beijing<br />

✭ ✸<br />

✷✷ ✸ Tianjin<br />

Taiyuan Hebei<br />

♣ ✸<br />

✸<br />

✭✭<br />

Shandong<br />

✸✸✸✸<br />

Henan ✸✸✸<br />

❖ ✸<br />

Nanjing➲<br />

Zhengzhou<br />

✸Anhui<br />

✸ Heifei<br />

✸✸<br />

▼●➲<br />

✤✪<br />

✸<br />

✭✭<br />

Zhangjiakou<br />

Shanxi<br />

Hubei Wuhan<br />

Jiangxi<br />

Changsha<br />

Hunan<br />

Gunagxi<br />

Zhuangzu<br />

Zizhiqu<br />

Nanning<br />

●<br />

Inner<br />

Mongolia<br />

❖▼<br />

♣♣<br />

✸<br />

✭✭<br />

Haikou<br />

Hainan<br />

✷<br />

Nanchang<br />

Guandong<br />

Guangzhou<br />

Shenzhen<br />

Hong<br />

Kong<br />

Jiangsu<br />

Zhejiang<br />

Fuzhou<br />

Fujian<br />

✸<br />

✸<br />

Heilongjiang<br />

Harbin<br />

●<br />

Jilin<br />

Changchun<br />

Shenyang<br />

Russia<br />

Shanghai<br />

Korea<br />

Zhangzhou<br />

Taipei<br />

Taiwan<br />

Vietnam Vietnam


Beer market characteristics<br />

! 640ml returnable bottle = pack of choice<br />

! Growth in 330ml glass & can<br />

! Light lager 3.5 - 5% ABV<br />

! 70% beer consumed with meals<br />

! Very small, but growing pub culture<br />

! Logistics


Government involvement<br />

! Simple tax regime<br />

! Few restrictive laws<br />

! Foreign structures<br />

! Protection to 10 Chinese breweries<br />

! Distribution restricted<br />

! State Owned Enterprise breweries


Chris Barrow<br />

Q&A


<strong>China</strong><br />

Chris Barrow<br />

SABI Asia MD & CREB Executive Director<br />

<strong>28</strong> <strong>September</strong> <strong>2000</strong>


SAB in <strong>China</strong><br />

! We are winning:<br />

" vs competitors<br />

" vs initial budgets<br />

! Our measurement:<br />

" individual brewery Return on Investment<br />

" positioning for future <strong>China</strong> growth<br />

! Currently a low margin industry:<br />

" US$ per hlh<br />

profitability<br />

" consolidated EVA


Key differentiators<br />

! South African heritage/culture<br />

! Geographic focus<br />

! Local brand focus<br />

! Cost and margin focus<br />

! SAB approach<br />

! Partners<br />

! CREB structure


South African heritage/culture<br />

! “Emerging” market experience<br />

! Culture diversity/sensitivity<br />

! Newness in the global arena<br />

! Pioneering spirit


Geographic focus<br />

! High per capita North East (start)


CREB Locations - <strong>China</strong><br />

Russia<br />

Wang Hua<br />

Russia<br />

Shenyang Snowflake<br />

Heilongjiang<br />

Harbin<br />

Kazakhstan<br />

Pakistan<br />

India<br />

Ürümqi<br />

Xinjiang Uygur Zizhiqu<br />

Xinzang Zizhiqu (Tibet)<br />

Nepal<br />

Mianyang<br />

Lhasa<br />

Chengdu C’estbon<br />

Gansu<br />

Qing Hai<br />

Bhutan<br />

Xining<br />

Mongolia<br />

Lanzhou<br />

Sichuan<br />

Kunming<br />

Yunnan<br />

Anshan<br />

Ningxia<br />

Huizu<br />

Zizhiqu<br />

Hohhot<br />

Xi’an<br />

Shaanxi<br />

Henan<br />

Zhengzhou<br />

Nanjing<br />

Heifei<br />

Mianyang<br />

Hubei<br />

Anhui<br />

Zhangzhou<br />

Chengdu<br />

Wuhan<br />

Chongqing<br />

Jiangxi Zhejiang<br />

Changsha<br />

Nanchang Fuzhou<br />

Hunan<br />

Fujian<br />

Guiyang<br />

Guizhou<br />

Shenyang<br />

Zhangjiakou<br />

Liaoning<br />

Beijing<br />

Tianjin<br />

Taiyuan Hebei<br />

Qingdao<br />

Shandong<br />

Shanxi<br />

Gunagxi<br />

Zhuangzu<br />

Zizhiqu<br />

Nanning<br />

Inner<br />

Mongolia<br />

Guandong<br />

Guangzhou<br />

Shenzhen<br />

Jiangsu<br />

Jilin<br />

Changchun<br />

Tianjin<br />

Shanghai<br />

Jilin<br />

Dalian<br />

Korea<br />

Taipei<br />

Taiwan<br />

Burma<br />

Laos<br />

Haikou<br />

Hainan<br />

Hong<br />

Kong<br />

Shenzhen<br />

C’estbon<br />

Vietnam Vietnam


Geographic focus<br />

! High per capita North East (start)<br />

! Lower levels of competition in second tier cities<br />

! Concentrated consumer base<br />

! Important operations for local government<br />

! Regional distribution easier than national


Local brand focus<br />

! Didn’t introduce foreign brand<br />

! Segmenting the market differently


Market Segmentation and Growth<br />

Share<br />

Retail price<br />

Import premium 0.5% 10+<br />

Foreign licensed 10% 10+<br />

Local premium 4% 4-5<br />

Local mainstream 35.5% 2-3<br />

Local low price 50% 1.5-2<br />

! Highest growth achieved in the mid-range price brand: 3-83<br />

8 RMB<br />

! The market is dominated by local mainstream beers


Local brand focus<br />

! Didn’t introduce foreign brand<br />

! Segmenting the market differently<br />

! Riding economies of scale


Costs and margin focus<br />

! Low cost of capacity<br />

" initial entry<br />

" upgraded effectively<br />

" high capacity utilisation


Costs and margin focus<br />

! Low cost of capacity<br />

" initial entry<br />

" upgraded effectively<br />

" high capacity utilisation<br />

! Low operating costs<br />

" few expats<br />

" economies of scale<br />

" lower wage costs<br />

" targeted distribution/marketing spend


SAB approach<br />

! Top executive involvement<br />

! Human Resource pool<br />

! Proven systems<br />

! South Africa visits


Partner<br />

! “Purple” chip<br />

! Focused on People’s Republic of <strong>China</strong><br />

! Diversification benefits<br />

! Credibility<br />

! Other foreign partners


CREB structure<br />

! Joint management and authorisation process<br />

! Regular Board meetings<br />

! SAB expats support on the ground<br />

! CREB managers run the day to day operations<br />

! Use of teams for key issues


Key differentiators<br />

! South African heritage/culture<br />

! Geographic focus<br />

! Mainstream local beer focus<br />

! Cost and margin focus<br />

! SAB approach<br />

! Partners<br />

! CREB structure<br />

Winning formula for <strong>China</strong>


Going forward...<br />

! Continued consolidation in the industry<br />

! Increased competition<br />

! Key issues for value<br />

" brands<br />

" distribution<br />

" human resources<br />

" acquisitions/growth


Conclusion<br />

! Robust, workable strategy<br />

! Solid foundation<br />

! Forward looking - flexible<br />

! Committed to profitability<br />

! Excellent partners<br />

! Good working relationship<br />

Well positioned for future growth


Chris Barrow<br />

Q&A


Supplementary slides


Per capita consumption<br />

1995 1996 1997<br />

1998 1999<br />

<strong>China</strong> (l/cap)(<br />

13.0 13.8 15.3 15.8 16.6<br />

North 17.2 18.5 22.0 24.0 21.8<br />

North East 27.3 25.6 29.3 30.5 33.8<br />

East 17.7 18.5 22.0 24.0 21.8<br />

South 7.9 8.0 9.5 11.0 11.2<br />

South West 4.0 5.0 4.3 5.3 8.3<br />

North West 5.4 5.8 6.9 7.0 8.2<br />

Source: Canadean


<strong>China</strong><br />

Wang Qun known as “Humor“<br />

Humor”<br />

CREB MD<br />

<strong>28</strong> <strong>September</strong> <strong>2000</strong>


Partnership with SAB<br />

! Extensive involvement of SAB expatriates<br />

! Joint authorisation on key issues<br />

! Most decision making powers remaining<br />

with local managers


Operational Successes<br />

! Management reorganisation:<br />

" right person for the right job<br />

! Total managerial responsibility<br />

! Deeper understanding of quality<br />

! Better pay and conditions for top managers<br />

! Realistic improvement targets


Operational Challenges<br />

! Characteristics of State Owned Enterprises<br />

" sole focus on production<br />

! Difficulties experienced during purchasing<br />

! Difficulties experienced after purchasing<br />

" relationship between employees and management<br />

" a different understanding of quality<br />

" input vs output: an unbalanced view<br />

" irrational remuneration<br />

" lack of skills


Conclusion<br />

! Ideal parents: SAB and CRE<br />

! Profound understanding of <strong>China</strong>’s situation<br />

! Greater focus on human resources<br />

! Faster progress than our competitors’


Wang Qun<br />

Q&A


<strong>China</strong><br />

Jonathan Solesbury<br />

SABI Asia FD & CREB Exec Director<br />

<strong>28</strong> <strong>September</strong> <strong>2000</strong>


CREB Locations<br />

<strong>2000</strong> Wang Hua<br />

1994 Shenyang<br />

1996 Shenyang Winery<br />

Harbin<br />

<strong>2000</strong> Anshan<br />

Shenyang<br />

1998<br />

Jilin<br />

Beijing<br />

1996<br />

Dalian<br />

1999<br />

Tianjin<br />

Shanghai<br />

Mianyang<br />

Chengdu<br />

1997<br />

Mianyang<br />

Hong<br />

Kong<br />

1996<br />

Shenzhen


Beer sales volume & capacity<br />

1<strong>2000</strong><br />

10000<br />

Sales vol (000 hls)<br />

Capacity (000 hls)<br />

8000<br />

6000<br />

4000<br />

<strong>2000</strong><br />

0<br />

F96 F97 F98 F99 F00 F00(a)


Price of beer, relative to other countries,<br />

is the amongst the lowest at 40c a litre<br />

Typical retail prices per litre in US$<br />

<strong>China</strong><br />

South Africa<br />

Czech<br />

Hungary<br />

Germany<br />

Poland<br />

0.4<br />

1.1<br />

1.2<br />

1.3<br />

1.6<br />

1.8<br />

Australia<br />

USA<br />

UK<br />

Japan<br />

2.2<br />

2.5<br />

4<br />

4<br />

0 0.5 1 1.5 2 2.5 3 3.5 4 4.5


…relatively speaking, beer is<br />

affordable..<br />

Minutes worked to buy 1litre of beer<br />

Germany<br />

USA<br />

Australia<br />

Japan<br />

<strong>China</strong><br />

UK<br />

Hungary<br />

Czech<br />

South Africa<br />

Poland<br />

Romania<br />

Zimbabwe<br />

Kenya<br />

10<br />

15<br />

20<br />

25<br />

<strong>28</strong><br />

40<br />

48<br />

58<br />

60<br />

150<br />

155<br />

600<br />

1800<br />

1 10 100 1000 10000


…particularly compared to other<br />

beverages…….<br />

Units of product affordable for 1 day’s work<br />

Beer 0.64ltr<br />

18<br />

Water 0.6ltr<br />

16<br />

Soft Drinks 0.34ltr<br />

14<br />

Chinese wine 0.5ltr<br />

8.5<br />

0 5 10 15 20


In conclusion…..<br />

! Relative to other countries beer is inexpensive<br />

! Relative to other beverages beer is affordable<br />

Affordability drives consumption


Taxation<br />

Supportive tax regime<br />

! VAT @ 17%<br />

! Excise at $ 2.68 / hlh<br />

! Income tax<br />

" base rate 33%<br />

" investment incentives<br />

– geographic zones<br />

– industry<br />

– foreign investment


Funding Expansion<br />

! Expansion funded internally<br />

! Reinvestment of dividends<br />

" within People’s Republic of <strong>China</strong><br />

" outside People’s Republic of <strong>China</strong><br />

! Use of local borrowings<br />

" decrease cost of capital<br />

" low cost<br />

" natural hedge<br />

! Strong balance sheet<br />

" low gearing


Case Study<br />

SHENYANG


Shenyang<br />

! First acquired 1994<br />

! Snowflake and Winery<br />

" original capacity : 2 300 000 hls h<br />

" current capacity : 4 400 000 hls h<br />

" current sales: 4 050 000 hls h<br />

! New acquisition - Wang Hua<br />

" current capacity : 500 000 hls h<br />

" expansion to 1 000 000 hls h


Improving Margins<br />

25<br />

25%<br />

20<br />

20%<br />

15<br />

10<br />

15%<br />

10%<br />

Revenue/hl<br />

EBIT %<br />

5<br />

5%<br />

0<br />

F96 F97 F98 F99 F00<br />

0%


With fixed and variable costs being<br />

managed down….<br />

12<br />

11<br />

10<br />

US$/hl<br />

9<br />

8<br />

7<br />

6<br />

5<br />

F96 F97 F98 F99 F00<br />

Year<br />

Variable Cost<br />

Fixed Cost


Our spend on marketing has been<br />

increasing…..<br />

12<br />

10<br />

% of Sales<br />

8<br />

6<br />

4<br />

2<br />

0<br />

F96 F97 F98 F99 F00<br />

Year<br />

Sales & Marketing


..and we have managed to achieve<br />

dramatic increases in productivity….<br />

1200<br />

1100<br />

1000<br />

Hl/Man<br />

900<br />

800<br />

700<br />

600<br />

500<br />

F96 F97 F98 F99 F00<br />

Year<br />

Productivity


..leading to positive EVA by year 3<br />

at Shenyang<br />

ROCE%<br />

18<br />

16<br />

14<br />

12<br />

10<br />

8<br />

6<br />

4<br />

2<br />

0<br />

F96 F97 F98 F99 F00<br />

Shenyang<br />

WACC


Experience curve<br />

! Incorporated into standards and policies<br />

! Transferred learnings successfully across<br />

operations, assisted by:<br />

" closely integrated business<br />

" absolute control<br />

" local management transferred between operations<br />

" central pool of core specialists<br />

! Allowing us to achieve positive results more<br />

quickly


Conclusion<br />

! Portfolio of businesses in different stages<br />

! Established businesses profitable<br />

! New businesses trending on the same path<br />

! Focus on margins per hlh<br />

! Strong balance sheet to fund future growth


Jonathan Solesbury<br />

Q&A


Supplementary <strong>Slide</strong>s


Investment History<br />

Investment<br />

Date of<br />

Investment<br />

Percentage Interest<br />

Effective Ownership<br />

Capacity <strong>2000</strong><br />

(in '000 hlsh<br />

for Peak <strong>2000</strong>)<br />

Clear Beer<br />

Shenyang Snowflake 1994 44%<br />

Shenyang Winery 1996 44%<br />

4 400<br />

Dalian 1996 49% 1 800<br />

Jilin 1998 44% 2 400<br />

Mianyang 1997 49% 1 500<br />

Tianjin 1999 45% 1 500<br />

Anshan <strong>2000</strong> 44% 800<br />

Wang Hua <strong>2000</strong> 39% 500<br />

Non Beer<br />

Purified Water 1996 49% 1 800<br />

Soymilk 1998 49% 200


Brands<br />

Beer consumption by leading brands 1996-99<br />

000's<br />

1996 1997 1998 1999<br />

168,847 188,592 196,950 204,622<br />

1 Yanjing<br />

Beijing Janjing Beer Group<br />

5,710 7,030 7,780 8,600<br />

2 Zhujiang<br />

Zhujiang Brewery Group<br />

2,562 3,505 4,616 7,146<br />

3 Snowflake<br />

CREB<br />

3,015 2,978 3,199 4,695<br />

4 Tsingtao<br />

Tsingtao<br />

3,185 3,897 3,700 4,500<br />

5 Blue Sword<br />

Sichuan Blue Sword Brewing Company<br />

1,300 1,599 2,553 4,<strong>28</strong>0<br />

6 Gold Star<br />

Henan Gold Star Brewery<br />

1,500 1,650 2,200 4,084<br />

7 Harbin<br />

Harbin Brewery<br />

1,600 2,529 3,154 4,027<br />

8 Chongqing<br />

Chongqing Brewery<br />

2,381 2,724 3,478 3,510<br />

9 Jinglongquan<br />

Golden Lion (Chocolate Products) Malaysia 1,613 2,226 3,129 3,058<br />

10 Xingyingge<br />

Danone Asia 2,200 2,500 3,000 2,918<br />

11 Shenquan<br />

12 Pabst Blue<br />

Ribbon<br />

13 Sankong<br />

14 Haomen<br />

15 Qianjiang<br />

16 Kingway<br />

17 Baoji<br />

18 Zhonglou<br />

19 Liquan<br />

20 Amber<br />

Anhui Shenquan Brewery 1,100 2,255 2,5<strong>28</strong> 2,575<br />

Noble <strong>China</strong> / Blue Ribbon <strong>China</strong> Group<br />

2,330 2,274 2,337 2,575<br />

Shandong Sankong Brewery 1,469 1,641 1,714 2,215<br />

Danone Asia 1,500 1,830 2,480 2,202<br />

Qianjiang Brewery 2,440 2,354 2,306 2,000<br />

Guangdong Brewery Holdings Ltd 1,253 1,370 1,838 2,000<br />

Shaaxi Western Brewing Group 1,400 1,620 1,791 1,850<br />

Zuanhua Beer Co Ltd 980 1,500 1,621 1,700<br />

Liquan Beer Co Ltd 630 900 1,427 1,550<br />

Guangdong Brewery Holdings Ltd 1,360 1,478 1,431 1,500<br />

Total Volume Top 20 Brands 39,5<strong>28</strong> 47,860 56,<strong>28</strong>2 66,985<br />

Total Share Top 20 Brands 23.40% 25.40% <strong>28</strong>.60% 32.70%


<strong>China</strong><br />

André Parker<br />

SABI Africa & Asia MD<br />

<strong>28</strong> <strong>September</strong> <strong>2000</strong>


From Mount<br />

Kilimanjaro….


….to the The<br />

Great Wall of<br />

<strong>China</strong>!


First Impressions<br />

! Although the market is vast, individual consumers are<br />

poor - affordability is an issue<br />

! <strong>China</strong> should not be seen as one homogenous market<br />

but rather as a grouping of regional markets<br />

! The country is ancient, history runs deep and the<br />

people are proud


First Impressions<br />

! <strong>China</strong> is fascinating, exciting, complex and difficult<br />

! A society in transition under state supervision<br />

and leadership<br />

! Experience elsewhere has limited relevance when it<br />

comes to understanding the consumer and getting<br />

things done in <strong>China</strong><br />

! A credible dynamic partner is essential


Our ambition<br />

Become the brewer of choice<br />

in <strong>China</strong>;


Our joint venture<br />

partnership is the key


Andre Parker<br />

Q&A


<strong>China</strong><br />

Graham Mackay<br />

SAB Chief Executive<br />

<strong>28</strong> <strong>September</strong> <strong>2000</strong>


Where to from here?<br />

! Pricing environment?<br />

! First tier regions?<br />

! National brands?<br />

! Consolidation?


Graham Mackay<br />

Q&A

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