Grupo Empresarial Bavaria

Company Profile

Publication Date: 29 Sep 2008

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TABLE OF CONTENTS

TABLE OF CONTENTS

Company Overview..............................................................................................4
Key Facts...............................................................................................................4
SWOT Analysis.....................................................................................................5

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Grupo Empresarial Bavaria
Company Overview

COMPANY OVERVIEW

Grupo Empresarial Bavaria (Bavaria) is engaged in the production and retailing of beer, malt, fruit
refreshments and bottled water. The company is SABMiller's industrial operation in Colombia. It
primarily operates in Ecuador, Peru, Panama, Bolivia, Chile, Costa Rica and the US. It is
headquartered in Bogota, Colombia and employed about 4,518 people as of March 2008.

The company is a subsidiary of SABMiller. The separate financials for the company are not available.

KEY FACTS

Head Office Grupo Empresarial Bavaria

Calle 94, 7-47
Bogota
COL
Phone 57 1 638 9000
Fax
Web Address http://www.bavaria.com.co
Financial Year End December
Employees 4,518

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SWOT Analysis

SWOT ANALYSIS

Bavaria is engaged in the production and retailing of beer, malts, soft drinks, fruit juices and milk
drinks. Bavaria has a dominant position in the Andean beer markets of Colombia, Peru, Ecuador
and Panama and the company's market leadership in these markets increases its bargaining leverage.
However, the beverage industry throughout Latin America is highly competitive and pricing pressures
may hurt company's bottom line in the long run.

Strengths Weaknesses

Wide range of operations Investigations

Strong parent support

Opportunities Threats

Strategic initiatives Rising raw material prices

Growing demand for beer Intense competition
Growth in private label products Changing consumer preferences

Strengths

Wide range of operations

Bavaria through its subsidiaries is engaged in the production and distribution of beer, malts, bottled
water, soft drinks, fruit juices and milk drinks. It offers a range of 60 beverages, 12 of which are
produced for the export markets. Its primary beer brands are Aguila, Cristal, Cusquena, Pilsen,
Poker, Costena and Atlas. The company’s operations are conducted through seven breweries located
in Barranquilla, Bogota, Duitama, Bucaramanga, Cali, Medellin and Tocancipa; and two malting
plants, one in Tibito and the other in Cartagena. The company's fully owned subsidiaries include
Cerveceria Leona, located in Colombia; Cerveceria Nacional, located in Panama, and Union de
Cervecerias Peruanas Backus and Johnston, located in Peru. In addition, the company holds interest
in Compania de Cervezas Nacionales in Ecuador and Corporacion Boliviana de Bebidas in Bolivia.
Such wide portfolio of services and operations gives the company an edge over its competitors.

Strong parent support

Bavaria is SABMiller's industrial operation in Colombia. It has strong parent support. SABMiller is
one of the largest brewing companies worldwide, with the highest volume, operations in over 60
countries and regions worldwide and a production that exceeds 216 million hectoliters of beer. It
offers more than 170 brands. Furthermore, SABMiller has shown strong financial performance in
the recent past. SABMiller’s revenues have increased at a compounded annual growth rate, CAGR

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SWOT Analysis

(2005-2008) of 18%. Similarly, the operating profit and net profit of SABMiller increased at a CAGR
(2005-2008) of 11% and 10% respectively. SABMiller provides Bavaria with financial and technical
support. Furthermore, the company could leverage the existing network of SABMiller of companies
to further strengthen its market position.

Weaknesses

Investigations

The company is currently subject to a number of investigations. The Superintendence of Industry

and Commerce (SIC), the general competition authority, in April 2007, notified Bavaria of the initiation
of a formal investigation over alleged restrictive competitive practices. Bavaria has been accused
of imposing illicit additional conditions on commercial outlets which sell beer and of obstructing the
access of third parties to these distribution channels. Investigations such as these would adversely
impact the corporate image of the company.

Opportunities

Strategic initiatives

The company has undertaken number of initiatives in order to focus on its core beer and malted
beverages business. For instance, in August 2008, the company sold its water business to Coca
Cola de Chile (TCCC) and Industria Nacional de Gaseosas (Coca-Cola FEMSA). The sale includes
the Brisa brand, the production assets and the inventory related to the water business. The disposal
of the water business will enable Bavaria to focus on its core strength which in turn would enhance
its market position and profitability.

Growing demand for beer

The demand for beer is expected to rise in Brazil and the Andean market. The Brazilian beer market
is forecasted to increase at a CAGR (2006-2011) of 2.3% to reach $10,400 million by the end of
2011. Furthermore, the Andean beer market (comprising Colombia, Ecuador, Peru, Bolivia and
Chile) is forecasted to grow at a CAGR (2006-2010) of 4%, well in excess of the global industry
average of about 2%. Bavaria has a dominant position in the beer markets of Colombia, Peru and
Ecuador. The company could thus leverage its strong position to exploit the growing beer market in
Brazil and Andean region.

Growth in private label products

Private label products are witnessing a strong growth in sales. Private labels have been growing at
twice the rate of established brands over the last 10 years. In 2006, the US private label industry
was worth a sales value of $114 million. Private label accounted for 23% of food sales and 7% of

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SWOT Analysis

drinks sales in the US in 2006. Sales are forecast to grow at just over 3% per year to top $56 billion
by 2011. Private label brands provide higher margins than branded products. Increased acceptance
of the private label products will have a favorable impact on the company's revenues.

Threats

Rising raw material prices

Barley and molasses are the key raw ingredients used in alcohol production. The price of barley has
increased at an annual rate of 13% in the last two decades because of the booming ethanol market.
The increase is partly because farmers are devoting less acreage to the grain in favor of more
lucrative crops, especially corn. The barley prices are forecast to increase from $90–94 per ton to
$117–134 per ton in 2008. Also, the company faces an increasing threat of volatility in prices of
molasses. The tight molasses market is prompting the companies to call for extra imports in order
to avoid shortages in the market. Operations throughout the world are severely impacted due to
higher prices of molasses, leading to disruption of deliveries and increased costs of transportation
and supplies, at a time when energy costs used in manufacturing process have increased significantly.
On the other hand, the supply situation within the industry has remained weak as a result of which
the companies are unable to increase prices in order to recover the higher costs. An increase in the
prices of raw materials may adversely affect the margins of the company.

Intense competition

The beverage industry in Latin America is highly competitive. Bavaria faces intense competition from
bottlers of other carbonated drinks such as Pepsi and Coca Cola, as well as from other low cost
beverages. Furthermore, competitive pressure on alcoholic beverages company (such as Bavaria)
is on the rise, owing to the increasing production in new areas every year. Furthermore, the beer,
cider and flavored alcohol beverages (FABs) industry is also witnessing significant consolidation,
as regional leaders look to expand their operations through acquisitions. InBev made several key
acquisitions in the past few years (including AmBev of Brazil) to become the leading brewer in the
world, in volume terms. InBev completed the acquisition of Fujian Sedrin Brewery (Fujian Sedrin) in
China in June 2006. Anheuser-Busch increased its economic interest in Tsingtao from 25% to 30%
in 2006, making it the largest non-government shareholder of Tsingtao. In August 2007, SABMiller's
Polish subsidiary, Kompania Piwowarska acquired 99.96% of Browar Belgia from the Belgian brewer,
Palm Breweries. SABMiller through a joint venture with China Resources Enterprise has agreed to
acquire four breweries in separate transactions; two breweries in Liaoning province, one brewery in
Anhui and one in Hunan province. The acquisition of Lakeport by Labatt in 2007 represents new
challenges. Moreover, the recent acquisition of Anheuser- Busch by InBev in July 2008 to become
the world's biggest brewer poses bigger threat. Increasing competition and industry consolidation
could lead to a loss of market share of the company, which in turn, would affect its profitability.

Changing consumer preferences

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SWOT Analysis

The growth in the beer market is beginning to show signs of slowing, as consumers are increasingly
opting for wines and spirits. Young adults in particular have begun to see beer as old-fashioned.
Also, consumers are worried about the negative health impact of beer consumption especially with
regard to calories and the fattening properties of beer. Growth in the beer market especially in the
mature markets is beginning to show signs of slowing, as consumers are increasingly opting for
wine and spirits. European consumers are showing an increased propensity to switch to wine as it
is gaining preference on more occasions. Wine manufacturers would continue to gain market share
at the expense of beer manufacturers because of lower prices, as well as success in targeting young
adults, a major customer segment for beer producers. Changing consumer preferences could
negatively impact the topline of the company.

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