DBRS Rates SABMiller & Rel Entities R-1(low), Conf BBB(high)

Dominion Bond Rating Service (“DBRS”) has today assigned a Commercial Paper rating of R-1 (low) and confirmed the long-term ratings of SABMiller plc (“SABMiller” or the “Company”) and SABMiller Finance BV, as indicated above.

The acquisition of Grupo Empresarial Bavaria (“Bavaria”), completed in October 2005, has raised SABMiller to a top three position among global breweries by sales revenues and volumes. Bavaria provides SABMiller with a strong presence and platform for growth in the South American market, as the second-largest brewery in the continent and the dominant brewer in Peru, Colombia, Ecuador, and Panama. The acquisition improves the Company’s already strong geographic diversification, as EBITDA is projected to be well balanced across South Africa, Central and South America, Africa, Europe, and the U.S. Strong geographic diversification helps mitigate the risks from less stable political, economic, and currency environments due to the Company’s high proportion of developing market operations (over 60% of EBITDA). The Africa & Asia division has been growing rapidly and has become a meaningful contributor (8% of EBITDA) to cash flow and, with the addition of Bavaria, the Company has a more favourable earnings outlook compared to most of its peers.

SABMiller faces some challenges in the near term from integration of Bavaria and the ongoing execution of its turnaround initiative for its U.S. operating subsidiary, Miller Brewing Company (“Miller”). Earnings results in the U.S. have not improved significantly despite being near the end of the initiative’s three-year timeframe, although this is partly due to challenging U.S. market conditions. However, the Company has made significant progress with its brands and distribution, and we expect that results should improve over the intermediate term. Recent improvement in U.S. volume trends are encouraging and may indicate that an industry recovery is forthcoming.

Debt levels remain conservative, as a large portion of the estimated US$7.8 billion acquisition price for Bavaria was financed with equity (40%). Total debt has increased, but cash flow from operations should increase sufficiently to result in continued strong cash flow-to-debt ratios in the 0.30-0.40 times range. Cash flow from operations is stable and should continue to comfortably cover capital expenditures and dividends, resulting in good free cash flow. The Company is also in a strong liquidity position with over
US$1.0 billion in cash on hand (projected) and sizeable availability under its bank facilities. However, balance sheet improvement is expected to be modest as the Company continues to be growth oriented and may increase its investments in higher growth regions, such as China and India, and make future acquisitions. In addition, dividends could rise as acquisitions over the last three years have increased the equity base.

Note:
This rating is based on public information.