China seminar - Slide presentation - 28 September 2000 - SABMiller
China seminar - Slide presentation - 28 September 2000 - SABMiller
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