san miguel brewery inc

April 15, 2011 Philippine Stock Exchange Inc. Disclosure Department 3rd Floor, Philippine Stock Exchange Center Ayala Triangle, Ayala Avenue Makati City Attention: Ms. Janet A. Encarnacion Head-Disclosure Department Gentlemen: We submit herewith the SEC Form 17-A of San Miguel Brewery Inc. for the fiscal year ended December 31, 2010.

SAN MIGUEL BREWRY INC. A subsidiary of San Miguel Corporation

C O V E R S H E E T

C S 2 0 0 7 1 1 8 2 8 S. E. C. Registration Number

S A N M I G U E L

B R E W E R Y

I N C .

(Company’s Full Name)

N o . 4 0 S a n M i g u e l

A v e n u e , M a n d a l u y o n g

C i t y

(Business Address: No. Street City/Town/Province)

ATTY. ROSABEL T. BALAN 632-3000 Contact Person Company Telephone Number

1 2 3 1 17-A

Month Day FORM TYPE Month Day Annual Meeting

Secondary License Type, If Applicable

Dept. Requiring this Doc. Amended Articles Number/Section Total Amount of Borrowings

Total No. of Stockholders Domestic Foreign

----------------------------------------------------------------------------------------------------------- To be accomplished by SEC Personnel concerned

____________________________ File Number LCU

____________________________ Document I. D. Cashier

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SECURITIES AND EXCHANGE COMMISSION

SEC FORM 17-A

ANNUAL REPORT PURSUANT TO SECTION 17

OF THE SECURITIES REGULATION CODE AND SECTION 141 OF THE CORPORATION CODE OF THE PHILIPPINES

1. For the fiscal year ended DECEMBER 31, 2010

2. SEC Identification Number CS200711828 3. BIR Tax Identification No. 006-807-251 4. Exact name of issuer as specified in its charter SAN MIGUEL BREWERY INC. 5. PHILIPPINES 6. (SEC Use Only) Province, Country or other jurisdiction of

incorporation or organization Industry Classification Code:

7. 40 SAN MIGUEL AVENUE, MANDALUYONG CITY 1550 Address of principal office Postal Code 8. (632) 632 3000 Issuer's telephone number, including area code 9. N.A. Former name, former address, and former fiscal year, if changed since last report. 10. Securities registered pursuant to Sections 8 and 12 of the SRC, or Sec. 4 and 8 of the RSA Title of Each Class Number of Shares of Common Stock

Outstanding and Amount of Debt Outstanding as of December 31, 2010

COMMON SHARES 15,410,478,960 LONG-TERM DEBT P51.364 billion 11. Are any or all of these securities listed on a Stock Exchange. Yes [ √ ] No [ ] If yes, state the name of such stock exchange and the classes of securities listed therein: THE PHILIPPINE STOCK EXCHANGE, INC. COMMON SHARES

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12. Check whether the issuer: (a) has filed all reports required to be filed by Section 17 of the SRC and SRC Rule 17.1 thereunder or Section 11 of the RSA and RSA Rule 11(a)-1 thereunder, and Sections 26 and 141 of The Corporation Code of the Philippines during the preceding twelve (12) months (or for such shorter period that the registrant was required to file such reports): Yes [√ ] No [ ] (b) has been subject to such filing requirements for the past ninety (90) days. Yes [√ ] No [ ] 13. The aggregate market value of the voting stock held by non-affiliates of the Company as of December

31, 2010 and March 31, 2011 are P 2,828,994,300.00 and P 2,837,734,705.00, respectively.

DOCUMENTS INCORPORATED BY REFERENCE 14. The following documents are attached and incorporated by reference: None.

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PART I – BUSINESS AND GENERAL INFORMATION

Item 1. Business

San Miguel Brewery Inc. (the “Company” or “SMB”) and its subsidiaries, Iconic Beverages, Inc. (“IBI”) and San Miguel Brewing International Limited (“SMBIL”) and its subsidiaries (“SMBIL Group”) (and together with Brewery Properties Inc. (“BPI”) and its subsidiary, collectively, the “Group”), is primarily engaged in the manufacture and sale of fermented and malt-based beverages, particularly beer of all kinds and classes. The Company, a majority-owned subsidiary of San Miguel Corporation (“SMC”), is the largest producer of beer in the Philippines with five breweries strategically located across the Philippines and a highly developed distribution system serving 475,355 outlets. With the completion of its acquisition of the international beer and malt-based beverage business of SMC through its purchase of the 100% issued and outstanding capital stock of SMBIL from San Miguel Holdings Limited, a wholly-owned subsidiary of SMC, in January 2010, the Company broadened its geographical participation with operations in Hong Kong, Indonesia, mainland China, Thailand, and Vietnam. The SMBIL Group operates one brewery each in Indonesia, Vietnam, Thailand, and Hong Kong, and two breweries in China. International operations account for 17% of the total beer volume of the Group. Following approval by the shareholders of SMC of the spin-off of the domestic beer business on July 24, 2007, and the creation of the Company, all plant and equipment used in the domestic beer business were transferred to the Company, while SMC retained ownership of the brands and land assets used in the domestic beer business.

The Company undertook an initial public offering of its shares (“IPO”) in April to May 2008 pursuant to which the Company offered to the public a total of 77,052,000 new common shares. After the IPO, the Company’s resulting outstanding common shares totaled 15,410,478,960 which were listed on the PSE on May 12, 2008. On February 20, 2009, SMC and Kirin Holdings Company, Limited (“Kirin”) signed a share purchase agreement for the acquisition by Kirin of approximately 43.249% stake in the Company. Such sale by SMC to Kirin was completed in May 2009. The additional shares acquired by Kirin from all existing shareholders of the Company by virtue of the mandatory tender offer resulted in Kirin increasing its stake in the Company, which currently stands at 48.39%. The Company issued on April 3, 2009, Philippine peso-denominated fixed rate bonds in the aggregate principal amount of P38.8 billion to finance its acquisition of the interests of SMC in IBI and BPI. IBI is the company into which SMC transferred certain Philippine beer and malt-based beverages brands, including related trademarks, copyrights, patents, and other intellectual property rights and know-how, while BPI is the company into which SMC transferred certain parcels of land on which all of the Company’s production facilities and certain sales offices used by the Company for its beer businesses are located (“Land”). Brewery Landholdings, Inc. (“BLI”), the wholly-owned subsidiary of BPI, also owns land on which certain sales offices used by the Company in its domestic beer operations are located. The Company completed its purchase of SMC’s interests in IBI on April 29, 2009, as a result of which IBI became a wholly-owned subsidiary of the Company. On the other hand, the Company and SMC executed a Deed of Absolute Sale of Shares on November 10, 2010 for the purchase by the Company of all the interests of SMC in BPI, comprising 40% of the issued and outstanding capital stock of BPI. A

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portion of the purchase price for the said shares, corresponding to the 128 Land titles transferred in the name of BPI, has been paid by the Company to SMC, with the balance to be paid upon transfer by SMC of the remaining eight Land titles in the name of BPI.

The developments in the Group are also discussed in the Group’s Management Discussion and Analysis attached hereto as Annex “E” and in Notes 2, 10, 12, 13, 17, 19, 26 and 34 of the Group’s Audited Consolidated Financial Statements attached hereto as Annex “F”.

Other than the foregoing, there was no bankruptcy, receivership or similar proceeding or material reclassification, merger, consolidation, or purchase or sale of a significant amount of assets by the Company which is not in the ordinary course of business since the Company’s incorporation in 2007.

Products

The Company’s and SMBIL Group’s (the “SMB Beer Group”) product portfolio has grown over the past 120 years from a single product produced in a single brewery in 1890. SMB now has an array of popular beer products catering to the distinct tastes and preferences of beer drinkers across all segments and markets in the Philippines. San Miguel Pale Pilsen, the SMB Beer Group’s flagship brand, has been an iconic Philippine brand for most of the 20th century and up to today. After considering the Filipino beer drinker’s evolving preferences, other brands and products have been introduced, and these have been very successful. Today, the Company offers a portfolio of eleven strong and popular brands: Pale Pilsen, Red Horse, San Mig Light, Super Dry, Cerveza Negra, San Mig Strong Ice, Gold Eagle, San Miguel Premium All-Malt, Oktoberfest Brew (a seasonal beer), Cali, the country’s only malt-based non-alcoholic drink and the recently launched San Miguel Alcoholic Malt Beverage in apple and lemon flavors. The country’s top four beer brands (Red Horse, Pale Pilsen, San Mig Light, and Gold Eagle) are all produced by the Company. Unlike most other markets for beer, imported beer brands account for only 0.1% of the Philippine beer market, with distribution limited to upscale bars and hotels and high-end supermarkets. The international beer operations also offer the Pale Pilsen and San Mig Light brands in the Hong Kong, China, Thailand, Vietnam and Indonesia markets and Red Horse in the Thailand market, in addition to local brands: Valor (Hong Kong, China), Blue Ice (Hong Kong), Dragon and Guang’s Pineapple (South China), Super Cool and Blue Star (North China), W1N Bia and Dzo (Vietnam) and Anker, Kudah Putih, Sodaku, and Soda Ice (Indonesia). The SMB Beer Group’s beverage products are listed in Annex “A” hereof. The Company derives much of its revenue from the sale of its most popular brands Red Horse and Pale Pilsen. Together, revenues of these two brands contribute 78% of the total revenues of the Company. Export sales from the Philppines were only 0.74% of total revenues of the Company in 2010. The Company’s top three export markets in 2010 were Taiwan, Korea and Singapore. Exports to these markets accounted for approximately 21%, 13% and 11%, respectively, of its total export volumes. Other Revenues include sales of CO2 and traded products.

In addition to serving their local markets, the breweries of the SMBIL Group also sell their products in various export markets.

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The following table presents the Group’s net sales for the periods indicated:

For the Year ended December 31, 2010



(in millions) P P P Beer Sales

Philippines ..................................................................................................... 55,211 50,441 48,310 Exports .......................................................................................................... 365 391 366

International ................................................................................................... 11,789 - - Other Revenues ................................................................................................. 210 177 111 Total .................................................................................................................. 67,575 51,009 48,787

Distribution Methods of Products

The Company maintains a network of five local breweries that are strategically located in the three main islands of the Philippines: Luzon, Visayas and Mindanao. The Company has breweries in each of Valenzuela City, Metro Manila; San Fernando City, Pampanga; Mandaue City, Cebu; Bacolod City, Negros Occidental; and Darong, Sta. Cruz, Davao del Sur. The strategic location of the Company’s breweries in the Philippines reduces overall risks by having alternative product sources to avert possible shortages and meet surges in demand in any part of the country. This also assists the Company in ensuring that the beer is freshly delivered to customers at an optimal cost. Currently under construction is the bottling plant in Sta. Rosa, Laguna. The Company has a far-reaching and efficient distribution system in the Philippines, which is based on five strategically located breweries and effective management of third party service providers. The Company’s products are delivered from any one of the Company’s five breweries by contract haulers and, in certain circumstances, by a fleet of boats contracted by the Company, to a sales office or dealer warehouse generally within five days from production in the breweries. The sales office or dealer then delivers the beer to the wholesaler or retailer promptly afterward, ensuring ample stock and quality wherever and whenever San Miguel Beer products are needed. As of December 31, 2010, the Company had more than 50 administrative and sales offices and approximately 500 dealers throughout the Philippines. As of December 31, 2010, the Company, together with its distributors and call center associates, had a sales force of approximately 1,251 in the Philippines. For the international operations, the SMBIL Group has one brewery each in Indonesia, Vietnam, Thailand, and Hong Kong, and two breweries in China. Third party service providers transport the products produced from these breweries to the customers of the SMBIL Group, which may consist of dealers, wholesalers, retail chains, or outlets, depending on the market as discussed in Customers below. The SMBIL Group maintains a total sales force of approximately 656 in the said five countries with 18 sales regions in China (Guangzhou, Greater Foshan, Baoding), seven in Thailand, four in Vietnam and five in Indonesia. In Thailand, all local sales are done through the Group’s marketing arm, San Miguel Marketing Thailand Limited (“SMMTL”), while in Indonesia, the distribution of products is through Jangkar Delta Indonesia (“JDI”), a subsidiary in the Group.

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Status of any publicly-announced new products

The Company launched in the domestic market the San Miguel Alcoholic Malt-Beverage in apple and lemon flavors in 2010. The SMBIL Group also introduced the lower alcohol, lower calorie, lower original gravity San Mig Light in long neck bottle in Hong Kong, the local brand Dzo in Vietnam and the San Miguel Pale Pilsen in steinie bottles in Indonesia in 2010. Competition

The Company faces domestic competition from another domestic producer, Asia Brewery, Inc. (“ABI”), which sells both its own brand and foreign brands it produces under license, and from foreign brewers. ABI is the Company’s largest competitor in the Philippine market. It operates two breweries and also holds the license for Carlsberg, Coors and Colt 45 in the Philippines. ABI competes, mainly on the basis of price, through its own Beer na Beer and Colt 45 brands. ABI also competes with the Company’s market-leading high-alcohol beer product, Red Horse, with its licensed Colt 45 brand. Competition from imported beers is minimal. In its main international markets, the SMBIL Group contends with both foreign and local beer brands, such as Blue Girl (Hong Kong), Carlsberg (Hong Kong, Thailand), Heineken (Hong Kong, South China, Thailand, Vietnam and Indonesia), Tsingtao (Hong Kong, China), Yanjing (China), Tiger (Thailand, Vietnam and Indonesia), Guinness (Hong Kong and Indonesia), Bintang (Indonesia), Budweiser and Snow (China), Singha and Asahi (Thailand), and Foster’s and Saigon Beer (Vietnam). The SMB Beer Group also competes with producers of other alcoholic beverages, primarily low-priced gin and brandy. In the beer industry — and more generally the alcoholic beverage industry — competitive factors generally include price, product quality, brand awareness and loyalty, distribution coverage, and the ability to respond effectively to shifting consumer tastes and preferences. The Company believes that its market leadership, size and scale of operations, and extensive distribution network in the Philippines create high entry barriers and provide the Company with a competitive advantage in the Philippines.

Sources and Availability of Raw Materials and Packaging Supplies

A. Malted Barley, Hops, and Adjuncts The SMB Beer Group depends on raw materials sourced from third parties to produce its products. The SMB Beer Group procures key raw materials for its beer operations through a procurement group that uses standardized procurement procedures. Beer production requires malted barley and hops, which are sourced generally from the United States, Australia and Europe, while new sources in China and India are being developed; and adjuncts, primarily corn, sugar and rice, which are generally sourced domestically (where the breweries are located). The SMB Beer Group enters into supply contracts with key raw material suppliers with terms ranging from approximately one month to five years. These contracts typically provide for a pre-determined price for the duration of the contract. In addition, depending on considerations such as price trends and the quality of raw materials, the SMB Beer Group also makes spot purchases in the open market. To ensure the quality of its products, the SMB Beer Group closely monitors the quality of its raw materials.

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B. Bottles and Packaging Materials In 2010, approximately 98% of the Company’s beer sales in the Philippines are in returnable glass bottles in plastic cases, while approximately 95% of the glass bottles used by the Company were returned bottles. The Company’s efficient returnable bottle system decreases its exposure to rising packaging costs driven by increases in fuel and therefore helps the Company to keep its products affordable. The durable nature of the returnable glass bottles and plastic crates results in an average usage of 60 cycles over a span of 10 years. New glass bottles and plastic cases are purchased only to support accelerating sales and to replace broken and scuffed bottles. For the international operations, the returnable bottle system is also used in Vietnam and Indonesia, except for products which are intended for exports which use one-way containers. Products in Hong Kong and Thailand are also in one-way containers, while China employs both returnable bottle system and one-way containers. The SMB Beer Group also sells its products in aluminum cans and kegs. The SMB Beer Group sources most of its packaging materials from San Miguel Yamamura Packaging Corporation, a subsidiary of SMC, and its subsidiaries, which manufacture, among other packaging products, new glass bottles, aluminum cans, crowns, plastic cases and carton boxes. The SMB Beer Group’s top suppliers of raw materials and packaging supplies are listed in Annex “B” hereof. Customers

The SMB Beer Group markets, sells and distributes its products principally in the Philippines and in Asia. Many of the Company’s products have strong market positions in the Philippines. The Company believes that it maintains the most extensive distribution network in the Philippine beverage market. The Company’s beer products are distributed and sold at 475,355 outlets in the Philippines, including off-premise outlets such as supermarkets, grocery stores, sari-sari stores, and convenience stores, as well as on-premise outlets such as bars, restaurants, hotels and beer gardens. As of December 31, 2010, the Company had approximately 500 dealers throughout the Philippines. Customers of the international beer operations vary across markets. In Hong Kong, the Group directly sells to retail chains, wholesalers and on-premise outlets, which is similar to Vietnam, wherein the Group also directly sells to dealers (who then distributes to wholesalers, retailers and outlets) and retail chains. The SMBIL Group only sells to dealers in China, which dealers then serves wholesalers, retailers, supermarkets and outlets. For Thailand and Indonesia, the sales are conducted by their respective selling arm, SMMTL and JDI. As of December 31, 2010, the international operations had 266 dealers in China, Thailand, Vietnam and Indonesia and serves 14 wholesalers and over 5,000 outlets (including retail chains, supermarkets, convenience stores) in Hong Kong. Dealers generally provide their own warehouse facilities and trucks, considerably reducing the SMB Beer Group’s own investment requirements. The SMB Beer Group enters into written distribution agreements with its dealers that specify the territory in which the dealer is permitted to sell the SMB Beer Group’s products, the brands that the dealer is permitted to sell, the performance standards applicable to the dealer, procedures to be followed by the dealer in connection with the distribution rights and circumstances upon which distribution rights may be terminated

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The SMB Beer Group also handles the sale and distribution of its beer brands in modern trade outlets such as hotels, bars and restaurants, supermarkets, hypermarkets, malls and convenience stores. The sales to these modern trade channels account for only 4.8% of total sales revenue of the Company in 2010. The Company is not dependent on modern trade given its strong relationship and the relatively large contributions of the secondary and tertiary trades in the Philippines. Transactions with and/or dependence on related parties The Group, in the normal course of business, has transactions with related parties. Significant related party transactions include (i) those of the Company with IBI relating to licensing of the brands and related intellectual property rights used in its beer business under a licensing agreement; (ii) those with BPI and BLI relating to leasing of land owned by BPI and BLI on which the Company’s production facilities and sales offices are located, (iii) those with SMC and its subsidiaries (other than the Group) relating to leases of office space and land, licensing of trademark under a licensing agreement, and shared corporate services rendered by SMC such as treasury services; (iv) those of the Company with Petron Corporation primarily for supply of fuel, and (v) those with the San Miguel Yamamura Packaging Group for purchases of bottles and packaging materials. The SMBIL Group also purchases products from the Company in the normal course of business. Other related party transactions include cost-sharing arrangements for certain expenses and costs of services such as utilities, rental of office space, internet, and photocopying services (SMC; San Miguel Pure Foods Co., Inc. (“SMPFC”) and subsidiaries); information technology and systems services (SMITS, Inc.); toll-manufacturing services (San Miguel Beverages, Inc. and Ginebra San Miguel, Inc.); logistics and warehousing services (SMC Shipping and Lighterage Corporation); insurance brokering services (Anchor Insurance Brokerage Corporation); stock transfer services (SMC Stock Transfer Services Corporation); deposit pick up arrangements (Bank of Commerce); liaison and consultancy services for power and energy (Archen Techonologies, Inc.) and sale of waste products (SMPFC subsidiary). The Group’s transactions with related parties are described in Note 27 of the Group’s Audited Consolidated Financial Statements attached hereto as Annex “F”. Registered trademarks/Patents, Etc. Brands, trademarks, patents and other related intellectual property rights used by the Company are either registered or pending registration in the name of IBI in the Philippines. Most of the brands, trademarks and other intellectual property rights used by the international operations are registered or pending registration in the name of SMBIL, with certain local brands in the name of its subsidiaries in Hong Kong and Thailand. IBI and SMBIL are wholly-owned subsidiaries of the Company. Government Approval The permits or licenses of the Company for its domestic operations have been transferred from SMC except for the water permits covering the deep wells in the breweries (except in Polo Brewery which relies on a third-party for its water supply). The Group has obtained all necessary permits, licenses and government approvals to manufacture and sell its products, and undertake its businesses.

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Government Regulation Various government agencies in the Philippines regulate the different aspects of the Company’s beer manufacturing, sales and distribution business. Philippine national and local government legislation require a license to sell alcoholic beverages and prohibit the sale of alcoholic beverages to persons below 18 years of age or within a certain distance from schools and churches. The Bureau of Food and Drugs (under the Department of Health) administers and enforces the law, and issues rules and circulars, on safety and good quality supply of food, drug and cosmetic to consumers; and regulation of the production, sale, and traffic of the same to protect the health of the people. Pursuant to this, food manufacturers are required to obtain a license to operate as such. The law further requires food manufacturers to obtain a certificate of product registration for each product. The Department of Health also prescribed the Guidelines on Current Good Manufacturing Practice in Manufacturing, Packing, Repacking, or Holding Food for food manufacturers. The Consumer Act of the Philippines, the provisions of which are principally enforced by the Department of Trade and Industry, seeks to protect consumers against hazards to health and safety and against deceptive, unfair and unconscionable sales acts and practices; and provide information and education to facilitate sound choice and the proper exercise of rights by the consumer. The Standards of Trade Practices and Conduct in the Advertising Industry as formulated by the Philippine Advertising Board, a voluntary association of various companies and groups engaged in the fields of advertising, marketing and media in the Philippines, prescribe rules on the advertising activities of its members. The Securities and Exchange Commission (“SEC”) issues regulations on the registration and regulation of securities exchanges, the securities market, securities trading, the licensing of securities brokers and dealers and reportorial requirements for publicly listed companies and the proper application of the Securities Regulation Code, as well as the Corporation Code, and certain other statutes. Its shares and its Peso-denominated fixed rate bonds being listed on the First Board of The Philippine Stock Exchange, Inc. (“PSE”) and the Philippine Dealing & Exchange Corp. (“PDEx”), respectively, the Company is also subject to the listing rules of the PSE and PDEx. The Company is subject to extensive regulation by the Philippine Department of Environment and Natural Resources (“DENR”). The Company is required to comply with the provisions of the Philippine Environmental Impact Statement System (“EIS Law”). The EIS Law is the general regulatory framework for any project or undertaking that is either (i) classified as environmentally critical; or (ii) is situated in an environmentally critical area. The law is implemented by the DENR. Under the EIS Law, an entity that will undertake any such declared environmentally critical project or operate in any such declared environmentally critical area is required to submit an Environmental Impact Statement and secure an Environmental Compliance Certificate (“ECC”). This ECC requirement is applicable to each of the five (5) breweries that the Company operates throughout the Philippines. The Company is also subject to the provisions of the Philippine Clean Water Act of 2004 (“Clean Water Act”) and its implementing rules and regulations. The Clean Water Act requires the Company to secure a wastewater discharge permit, which authorizes it to discharge liquid waste and/or pollutants of specified concentration and volume from its breweries into any water or land resource for a specified period of

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time. The Environmental Management Bureau (“EMB”) of the DENR is responsible for issuing discharge permits and monitoring and inspection of the facilities of the grantee of the permit. The provisions of the Philippine Clean Air Act and its implementing rules and regulations are likewise applicable to the Company. The Clean Air Act provides that before any business may be allowed to operate facilities and equipment, which emit regulated air pollutants, the establishment must first obtain a Permit to Operate Air Pollution Source and Control Installations. The EMB is responsible for issuing permits to operate air pollution source and control installations as well as monitoring and inspection of the facilities of the grantee of the permit. Other regulatory environmental laws and regulations applicable to the Company are as follows:

The Water Code, which governs the appropriation and use by any entity of water within the Philippines. Water permits are issued by the National Water Resources Board.

Toxic Substances and Hazardous and Nuclear Wastes Control Act of 1990 and its

implementing rules and regulations, which requires waste generators to register with the EMB. The law aims to regulate the management of hazardous wastes generated by various establishments such as the Company.

The SMBIL Group’s international operations are also regulated by various applicable laws in their respective markets, including the regulations on food labeling in China and Hong Kong, the regulatory ban on advertising alcohol in Thailand, and the local regulations in Indonesia passed by cities, municipalities and provinces which are influenced by the sharia (religious law of Islam) or the peraturan daerah (“perda”). In addition, the SMBIL Group’s Hong Kong and Indonesia subsidiaries are listed companies, and are thus subject to the regulatory and listing requirements of their respective stock exchanges. Taxation In the Philippines, excise tax represents a significant component of beer production costs. Excise tax is payable by the producer, and the tax rate varies depending on the type of alcoholic beverage being produced, with more expensive products being subject to higher rates. Excise tax accounts for a significant portion of the Company’s production costs. As of January 1, 2010, the excise tax rates applicable to the Company’s products ranged from P9.64 per liter to P19.05 per liter. Excise tax rates applicable to beer have been raised by a further 8% effective January 1, 2011. The sale of beer in the Philippines is also subject to a value-added tax. Save for Hong Kong, the SMBIL Group’s products are also subject to excise tax in the markets in which the SMBIL Group operates. The rates are: IDR11,000/liter for Indonesia; 45% of taxable price for Vietnam; 60% of the ex-factory price (which is an established price floor, the product is the “beer tax”) plus 10% of the beer tax (interior tax) plus 2%of the beer tax (healthy tax) plus 1.5% TBPS for Thailand; and RMB220/ton for products priced less than RMB3,000 and RMB250/ton for products priced more than RMB3,000 for China.

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Research and Development The following table presents the amounts spent by the SMB Beer Group on research and development activities, in millions of pesos and as a percentage of net sales, for the periods indicated:

For the years ended

December 31, 2010 2009 2008

Amount (in millions) …………………………………………………………… P108.0 P43.0 P32.0 Percentage of net sales …………………………………………………………… 0.16% 0.08% 0.06% Cost of Compliance with Environmental Laws

In 2010, the SMB Beer Group spent P 94.4 million in complying with environmental laws and regulations. Human Resources and Labor Matters

The table below presents the SMB Beer Group’s personnel numbers by functional category for the periods indicated.

Category Number of Employees

For the year ended December 31, 2010 Executives (Officers and Managers). . . . 237 Project Employees and Consultants. . . . 90 All other Employees. . . . . . . . . . . . . . . . . 4,168 Total. . . . . . . . . . . . . . . . . . . . . .. . . . . . . 4,495

The SMB Beer Group does not expect the number of its employees to materially change in the next 12 months. The Company has nine existing domestic Collective Bargaining Agreements (“CBAs”) as of December 31, 2010 that cover approximately 50% of the Company’s employees. The international operations has five existing collective labor agreements (“CLAs”). Details of the CBAs and CLAs and their expiration dates, in respect of both the term of the agreement for employment and the term for the union to represent employees, are set out in Annex “C”. The Company has not experienced any strikes or work stoppages in the last three years.

The Company and some of its international subsidiaries have a funded, noncontributory retirement plans covering all of their permanent employees. Under the Company’s plan, all regular monthly-paid employees and daily-paid workers of the Company are eligible members. Eligible members who reach the age of 60 (65 for employees transferred from SMC) are entitled to compulsory retirement. The Company may, however, at its own discretion, continue

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an employee’s membership under the plan on a year-to-year basis after he/she reaches compulsory retirement. Eligible members may opt to retire earlier after they have completed at least 15 years of credited service at the Company. Upon retirement, eligible members will receive a certain percent of their final monthly pay for each year of their credited service. The amount varies depending on the years of service of the retiree. Eligible members may receive certain resignation benefits if they resign before they reach an eligible retirement date if they have completed at least five years of service at the Company. The retirement plan of the Group is further described in Note 29 of the Audited Consolidated Financial Statements of the Group attached hereto as Annex “F”. Major Business Risks

Competitor Risks The SMB Beer Group faces competition from domestic or local producers, which sells both its own brand and foreign brands it produces under license, and from foreign brewers. The consolidation of the SMB Beer Group’s competitors, the entrance of a new, larger competitor into the markets, or unanticipated actions or irrational behavior by existing competitors, could lead to downward pressure on prices or a decline in the SMB Beer Group’s market share. The SMB Beer Group also competes with producers of other alcoholic beverages, primarily from low-priced gin and brandy. In the beer industry — and more generally the alcoholic beverage industry — competitive factors generally include price, product quality, brand awareness and loyalty, distribution coverage, and the ability to respond effectively to shifting consumer tastes and preferences. The SMB Beer Group also competes with other discretionary items, including both other food and beverage products and other goods and services generally. Catastrophy and Environmental Risks Natural catastrophes such as typhoons, volcanic eruptions, earthquakes, mudslides, droughts and floods may impair the economic conditions in the affected areas, as well as the overall economy in the market where the SMB Beer Group operates, and disrupt the SMB Beer Group’s ability to produce or distribute its products, and may materially disrupt and adversely affect the Company’s business and operations. Regulatory Risks The Group’s operations are subject to various regulations and taxes. Regulatory restrictions in the Group’s activities, such as promotions and advertising particularly in Thailand and changes in regulations and actions by national or local regulators can result in increased competitive pressures. Excise tax accounts for a significant portion of the Company’s production costs. The Philippine government increased the excise tax rates applicable to beer products on January 1, 2005 by 20%, on January 1, 2007 by 8% and on January 1, 2009 by an additional 8%. The excise tax rates applicable to beer has been raised by a further 8% effective January 1, 2011. In general, the SMB Beer Group attempts to pass on higher taxes to its consumers by raising the prices of its products. Sourcing Risks/Price Risks The SMB Beer Group depends on raw materials sourced from third parties to produce its products. Beer production requires malted barley and hops, which are sourced primarily from the United States, Australia and Europe, and adjuncts, primarily corn and sugar, which are primarily sourced domestically. Raw

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materials are subject to price volatility caused by a number of factors, including changes in global supply and demand, weather conditions and governmental controls. Financial Risks a. Interest Rate Risk The Group’s exposure to changes in interest rates relates primarily to the SMB Beer Group’s long-term borrowings. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. On the other hand, borrowings issued at variable rates expose the Group to cash flow interest rate risk. The Group manages its interest cost by using an optimal combination of fixed and variable rate debt instruments. b. Currency Risk The SMB Beer Group’s foreign currency exchange rate risk exposure results primarily from business transactions denominated in foreign currencies. The SMB Beer Group uses a combination of natural hedges and buying foreign currencies at spot rates, where necessary, to address short-term imbalances from importations, revenue and expense transactions, and other foreign currency-denominated obligations. c. Credit Risk The Group’s exposure to credit risk arises from default of counterparties to settle its obligations. Credit risk is controlled by the stringent policies on credit approvals, determination of appropriate credit limits, and credit monitoring procedures. It is the Group’s policy to enter into transactions with a diversity of creditworthy parties to mitigate any concentration of credit risk. The Group ensures that sales of its products are made to customers with appropriate credit history and sufficient collateral. The Group has an internal mechanism to monitor the granting of credit and adopts a prudent credit policy to manage credit exposures. If necessary, the Group makes provisions for potential losses on credit accounts and obtains additional collateral to cover increase in credit limit as a result of price adjustments. The Group’s exposure to credit risk arises from the default of the counterparties with a maximum exposure equal to the carrying amount of these instruments, net of the value of collaterals, if any. The Group does not expect any counterparty to default on its obligations given the rich credit ratings and the careful process to establish creditworthiness of its customers. The Group has no significant concentration of credit risk with any counterparty. d. Liquidity Risk The Company’s liquidity risk exposure arises primarily from its financial liabilities resulting from the issuance of its fixed rate bonds and unsecured loan facility. The Group manages its liquidity risk by, among others, constantly monitoring its liquidity position, liquidity gaps or surplus on a daily basis; maintaining an adequate time spread of refinancing maturities; being able to access funding when needed at the least possible cost; and ensuring adequate funding is available at all times. For other financial risks material to the Group’s operation, see Note 32 of the Group’s Audited Consolidated Financial Statements attached hereto as Annex “F”.

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Social and Cultural Risks The ability of the SMB Beer Group to successfully launch new products and maintain demand for its existing products depends on the acceptance of these products by consumers, as well as the purchasing power of consumers. Consumer preferences may shift because of a variety of reasons, including changes in demographic and social trends or changes in leisure activity patterns. The SMB Beer Group intends to expand its product and brand portfolio to cover a wider range of the market. The SMB Beer Group has also introduced products that try to address or are attuned to the evolving lifestyles and need of its consumers. The SMB Beer Group is likewise developing packaging improvements for existing brands as well as convenience pack formats consistent with faster-paced lifestyles and addressing the various activities and interest of consumers. Political Risk Political or social instability in the markets where the SMB Beer Group operates could negatively affect the general economic conditions and operation environment therein, which could have a material impact on the SMB Beer Group’s business, financial position and results of operation. Personnel Risk The SMB Beer Group depends on certain key personnel, and its business and growth prospects may be disrupted if their services were lost. The SMB Beer Group’s future success is dependent upon the continued service of its key executives and employees. If many of its key personnel were unable or unwilling to continue in their present positions, or if they joined a competitor or formed a competing company, the SMB Beer Group may not be able to replace them easily, and the business of the SMB Beer Group may be significantly disrupted and its financial position and financial performance may be materially and adversely affected. For example, the Company has 30 brewmasters, a position critical to its manufacture of beer. These brewmasters typically have degrees in chemistry or chemical engineering, and each of them has over ten years of on-the-job-training experience working for the Company, making them difficult to replace.

Item 2. Properties The Company’s principal owned properties in the Philippines consist of five breweries and 41 warehouses, administrative and sales offices. The Company leases the land where its properties are located from BPI and BLI, while the land improvements, buildings, machinery, transportation equipment, office equipment and furniture, and/or tools and small equipment on these parcels of land in which these breweries, region offices, sales offices and warehouses are located are owned by the Company. The locations and general asset description of the properties of the Group are set out in Annex “D” attached hereto. The properties owned and/or leased by the Company are in good condition and are free from liens and encumbrances, other than those permitted under the Trust Agreement dated March 16, 2009 between the Company and The Hong Kong Shanghai Banking Corporation in connection with the Company’s offer of its Philippine peso-denominated fixed rate bonds in the aggregate principal amount of P38.8 billion.

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Item 3. Legal Proceedings The Group is not a party to any material pending legal proceedings, and none of the properties owned by the Group are the subject of any legal proceeding. Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.

PART II – OPERATIONAL AND FINANCIAL INFORMATION

Item 5. Market for Issuer’s Common Equity and Related Stockholder Matters The Company's common shares are traded in the PSE. Such shares were listed on the Main Board of the PSE on May 12, 2008. The Company’s high and low closing prices for the following quarters are as follows:

2009 2010 High Low High Low

1st 10.75 8.20 9.60 8.20 2nd 9.30 8.50 10.50 9.00 3rd 9.40 8.70 10.25 9.00 4th 9.70 8.70 31.95 9.50

2011 High Low

1st 33.00 26.10 The closing price as of April 4, 2011, the latest practicable trading date is P30.40. The approximate number of shareholders of common shares as of December 31, 2010 is 960. The top 20 stockholders as of December 31, 2010 are as follows:

Rank

Name of Stockholders

Total No. of Shares

% of Total O/S

1 San Miguel Corporation 7,859,319,2701 50.999838 2 Kirin Holdings Company, Limited 7,456,859,8802 48.388242 3 PCD Nominee Corporation (Filipino) 73,306,510 0.475693 4 Henry Sy, Sr. 12,500,000 0.081114 5 San Miguel Corporation Retirement Plan 3,129,000 0.020304 6 PCD Nominee Corporation (Non-Filipino) 1,593,800 0.010342

1 Excludes beneficial shares held by the five nominee directors of 5,000 shares each (25,000 shares).

2 Excludes beneficial shares held by the four nominee directors of 5,000 shares each (20,000 shares).

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Rank

Name of Stockholders

Total No. of Shares

% of Total O/S

7 Macario Enriquez Asistio III 63,000 0.000409 8 Ponciano V. Cruz, Jr. 62,500 0.000406 9 Marivic L. Almeda 62,000 0.000402 10 Michael Ryan R. Fernando 62,000 0.000402 11 Cecilio D. Hipolito, Sr. 62,000 0.000402 12 Rene Michael S. French 62,000 0.000402 13 Mario Ong 62,000 0.000402 14 Florito F. Santos 60,000 0.000389 15 Mariano P. Blanco and/or Ligaya V.

Blanco 50,000 0.000324

16 Jennifer L. Sarrosa 50,000 0.000324 17 Arturo John J. Ledesma, Jr. 50,000 0.000324 18 Luzviminda Santos and/or Cynthia C.

Santos 50,000 0.000324

19 Michelle Ledesma 50,000 0.000324 20 John Paul V. Blanco and/or Christina S.

Blanco 40,000 0.000260

Cash dividends declared per share amounted to P0.550 and P0.595 in 2010 and 2009, respectively. There were no securities sold by the Company since its incorporation in 2007 which were not registered under the Securities Regulation Code or exempt securities (including issuance of securities constituting an exempt transaction), other than the (i) subscription by SMC to 250,000 common shares (then with a par value of P100.00 per common share) prior to the incorporation of the Company to comply with the requirements under the Corporation Code as to the percentage of the capital stock of a corporation which should be subscribed before it can be registered with the SEC (SRC Section 10.1 (i)); (ii) the issuance of a total of 15,308,416,960 Common Shares, comprising of 75,000,000 Common Shares from its unissued authorized capital stock and 15,233,416,960 common shares from the increase in its authorized capital stock, in exchange for the net assets of the domestic beer business of SMC with a net book value equivalent to P 15,308,416,960 (SRC Section 10.1 (e)); (iii) issuance of 5,000 common shares to each of the independent directors of the Company (SRC Section 10.1 (c)); and (iv) initial public offering of its common shares in April-May 2008 and issuance of fixed rate bonds in the aggregate principal amount of P38.8 billion in April 2009 pursuant to registration statements rendered effective and permits to sell issued by the SEC. Item 6. Management's Discussion and Analysis or Plan of Operation. The information required by Item 6 (A) may be found on Annex “E” hereto. Item 7. Financial Statements

The 2010 Audited Consolidated Financial Statements of the Group and Statement of Management’s Responsibility are attached hereto as Annex “F” with the Supplementary Schedules attached as Annex “G”.

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Item 8. Information on Independent Accountant and Other Related Matters (A) External Audit Fees and Services The accounting firm of Manabat Sanagustin & Co., CPAs served as the Company’s external auditors for the last two fiscal years. Fees for the services rendered by the external auditor to the Company for the last (2) fiscal years are as follows: (in millions, approximate)

Audit Fees Tax Fees All Other Fees 2009 P 6.0 - - 2010 6.0 - P 0.60

All Other Fees are fees paid to the external auditor for the advisory services rendered in connection with the valuation of the contigent consideration as set out in the Audited Consolidated Financial Statements of the Group. Other than the foregoing, no other services were rendered by the external auditor to the Company.

The stockholders approve the appointment of the Company’s external auditors. The Audit Committee reviews the audit scope and coverage, strategy and results and endorses the same for the approval of the board and ensures that audit services rendered shall not impair or derogate the independence of the external auditors or violate SEC regulations. (B) Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There are no disagreements with the Company’s external auditors on accounting and financial disclosure.

PART III – CONTROL AND COMPENSATION INFORMATION Item 9. Directors and Executive Officers of the Issuer The names of the incumbent directors and key executive officers of the Company, and their respective ages, periods of service, directorships in other reporting companies and positions held in the last five (5) years, are as follows: Ramon S. Ang, 57, Filipino, has served as Chairman of the Company since July 26, 2007 and is the Chairman of the Company’s Executive Committee. He also holds, among others, the following positions: Vice Chairman, President and Chief Operating Officer of SMC; Chairman of San Miguel Properties, Inc. (“SMPI”), San Miguel Yamamura Packaging Corporation (“SMYPC”), Anchor Insurance Brokerage Corporation (“AIBC”), and San Miguel Brewery Hong Kong Limited (Hong Kong); and a Director of Ginebra San Miguel, Inc. (“GSMI”), San Miguel Pure Foods Company, Inc. (“SMPFC”) and Top Frontier Investment Holdings, Inc. (“Top Frontier”). He is also the Chairman and Chief Executive Officer of Petron Corporation and SMC Global Power Holdings Corp. (“SMC Global”); Chairman of Liberty Telecoms Holdings Inc., Philippine Diamond Hotel & Resort, Inc., Philippine Oriental Realty Development, Inc., Atea Tierra Corporation and Cyber Bay Corporation; Vice Chairman of The Manila Electric Company; and an Independent Director of Philweb Corporation. Mr. Ang has held directorships in various subsidiaries of SMC during the last five years and was previously the Company’s President (2007-2009).

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Roberto N. Huang, 62, Filipino, has served as Director since October 8, 2007 and President of the Company since April 30, 2009. He is also a Member of the Company’s Executive Committee; and Chairman and President of IBI, SMBIL, BPI and BLI. He also served as General Manager of the Company (2007-2009); Director of GSMI (2004-2008), SMPFC (2004-2008); President of San Miguel Beverages, Inc. (2007-2008); and President of Coca-Cola Bottlers Philippines, Inc., Cosmos Bottling Corporation and Philippine Beverage Partners, Inc. (2003-2007). Ferdinand K. Constantino, 59, Filipino, has served as Director of the Company since July 26, 2007 and is the Chairman of the Company’s Executive Compensation Committee, and a Member of its Audit Committee. He also holds, among others, the following positions: Director, Senior Vice President, Chief Finance Officer and Treasurer of SMC; President of AIBC; and a Director of SMYPC, SMC Global, Top Frontier and Bank of Commerce. Mr. Constantino previously served SMC as Chief Finance Officer of the San Miguel Beer Division (1999-2005); and as Director of SMPFC (2008-2009), GSMI (2008-2010) and SMPI (2001-2009); Chief Finance Officer of Manila Electric Company (2009); and as Chief Finance Officer and Treasurer of the Company (2007-2009). He has held directorships in various subsidiaries of San Miguel Corporation during the last five years. Keisuke Nishimura, 54, Japanese, has served as Director of the Company and its Executive Vice President since April 30, 2009. He is a Member of the Company’s Executive Committee and Executive Compensation Committee and a Director of San Miguel Brewery Hong Kong Limited (Hong Kong) and San Miguel Brewing International Limited (BVI). His previous work experience includes: Chairman and CEO of Kirin (China) Investment Company, Limited (2005); and Manager, Corporate Planning Department (2002). Carmelo L. Santiago, 68, Filipino, has served as Independent Director of the Company since February 25, 2010. He was an Independent Director of the Company from October 8, 2007 to April 30, 2009. He is the Chairman of the Company’s Audit Committee and a Member of its Executive Committee, Executive Compensation Committee and Nominations and Hearing Committee. He is currently an Independent Director of SMC, GSMI, SMPI, AIBC, Liberty Telecoms Holdings Inc. and San Miguel Brewery Hong Kong Limited (Hong Kong); and Director of Terbo Concept, Inc. Mr. Santiago is the founder and owner of several branches of Melo’s Restaurant and founder of Wagyu Restaurant. Alonzo Q. Ancheta, 78, Filipino, has served as an Independent Director of the Company since April 30, 2009 and is the Chairman of the Company’s Nominations and Hearing Committee and a Member of its Audit Committee. Atty. Ancheta is a Director of Philippine Tobacco Flue-Curing and Redrying Corporation; President of Zobella & Co. (A.Q. Ancheta and Partners), Ogilvy & Mather (Philippines), Inc., Kinoshita Pearl (Philippines), Inc. and Growe Investments Ltd.; Member of the Board of Trustees and Corporate Secretary of St. Luke’s Medical Center; Corporate Secretary of Ingasco, Inc.; Council Adviser of the Intellectual Property Association of the Philippines; and Philippine National Committee member and Vice Chair of the ASEAN Law Association. He was the Senior Vice President (2000-2006) and President (2006-2009) of the Asian Patent Attorneys Association. Yoshinori Isozaki, 57, Japanese, has served as Director of the Company since May 18, 2010. He is the Managing Director of Kirin Holdings Company, Limited (“Kirin”). His previous work experience in Kirin includes: Managing Executive Officer and General Manager (2009), and Executive Officer and General Manager (2008), Corporate Planning Department; and Deputy General Manager, Media Section, Corporate Communication Department. (2001). He was previously a Director of SMC (2004).

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Carlos Antonio M. Berba, 45, Filipino, has served as Director of the Company since August 10, 2010. He is the Managing Director of SMBIL since January 1, 2008. He is also currently Vice Chairman of San Miguel Brewery Hong Kong Limited (Hong Kong), a Commissioner of PT Delta Djarkarta Tbk (Indonesia); and a Director of San Miguel Beer (Thailand) Limited and San Miguel Holdings (Thailand) Ltd. He previously served SMC as President of the San Miguel Beer Division (2006); and Vice President, CFO for International Beer Operations and Director for Business Planning and Information Management, San Miguel Beer Division (2002-2006). Takahiro Kobayashi, 57, Japanese, has served as Director of the Company since August 10, 2010. He is the Executive Officer, General Manager of the Strategy Planning Department of Kirin. His previous work experience in Kirin includes: Executive Officer, General Manager of Corporate Planning Department (2010), CSR and Quality Assurance Department (2009), Internal Audit Department (2008); General Manager of the Internal Audit Department (2006-2007). Virgilio S. Jacinto, 54, Filipino, has served as Director of the Company since October 14, 2010 and is a Member of the Audit Committee and the Nominations and Hearing Committee. He is the Corporate Secretary, Compliance Officer, Senior Vice- President and General Counsel of SMC; and a Director and Corporate Secretary of GSMI and Top Frontier. He was formerly the Vice President and First Deputy General Counsel of SMC (2006-2010) and SMC Deputy General Counsel (2005). He was Director and Corporate Secretary of United Coconut Planters Bank; Partner at Villareal Law Offices and Associate at SyCip, Salazar, Feliciano & Hernandez Law Office. Mr. Jacinto is a professorial lecturer at the University of the Philippines. He holds various directorships in various local and offshore subsidiaries of SMC.3 Teruyuki Daino, 50, Japanese, has served as Director of the Company since April 12, 2011 and is a member was the Executive Committee and Audit Committee. He is the Executive Financial Advisor of the Company. His previous work experience includes: General Sales Manager of Gifu Branch of Kirin Brewery Company Limited (2009- March 2011); President and Chief Executive Officer of Four Roses Distillery, LLC (2002-2009), Planning Manager of Corporate Planning Department of Kirin Brewery Company Limited (1998-2002), Business Planning Manager of Budweiser Japan Company (1993-1997) and Brand Manager of Marketing Department of Kirin Brewery Company Limited (1988-1993).4 Mercy Marie Jacqueline L. Amador, 49, Filipino, is Vice President and Chief Finance Officer and Treasurer of the Company since March 16, 2009. She was previously Chief Finance Officer of San Miguel Brewing International Limited (2007-2009); and Division Finance Officer of the San Miguel Beer Division (2006-2007), and Vice President and Manager, Financial Planning Analysis and Investor Relations (2001-2006), of SMC. Minerva Lourdes B. Bibonia, 52, Filipino, is Senior Vice President and Marketing Manager of the Company since October 1, 2007. She is also a Commissioner of PT Delta Djarkarta Tbk (Indonesia). She previously served SMC as Senior Vice President and Marketing Head for Corporate Marketing (2002-2007); and was Director of San Miguel Brewery Hong Kong Limited (Hong Kong) (2006-2010).

3 Atty. Jacinto replaced Atty. Francis H. Jardeleza who resigned as Director, Corporate Secretary and Compliance

Officer on October 14, 2010 in view of his resignation as General Counsel of SMC. 4 Mr. Daino replaced Mr. Motoyasu Ishihara who resigned as Director and Executive Financial Advisor on April

12, 2011 on account of his new assignment in Kirin.

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Debbie D. Namalata, 45, Filipino, is Vice President and National Sales Manager of the Company since October 1, 2007. She was previously Vice President and National Sales Manager of the San Miguel Beer Division of SMC (2007); Executive Assistant to the San Miguel Beer Division President (2007); General Manager of San Miguel Super Coffeemix Co., Inc. (2006-2007); and General Manager of Magnolia, Inc. (2005-2006). Rosabel Socorro T. Balan, 47, Filipino, is Vice President and General Counsel since January 1, 2010 and Corporate Secretary and Compliance Officer since October 14, 2010. She is also currently the Corporate Secretary of SMBIL and its various subsidiaries, IBI, BPI and BLI. She was Vice President and Deputy General Counsel of SMC (2003-2009) and Assistant Corporate Secretary of the Company prior to her appointment as Corporate Secretary. She also acted as Assistant Corporate Secretary of SMC, GSMI, SMPFC and SMPI; and Compliance Officer of AIBC and SMC Stock Transfer Service Corporation. Atty. Balan has also been a director, corporate secretary and/or assistant corporate secretary of other various subsidiaries of SMC, during the last five years. Rebecca S. Flores, 55, Filipino, is the Assistant Vice President and Head of the Brewing Technical Group of the Company since February 16, 2008. She was previously Plant Manager of San Miguel Baoding Brewery, North China Operations (2006-2008) and Mandaue and Bacolod Breweries (2001-2006), San Miguel Beer Division; and Brewmaster and Brewing Manager of Mandaue Brewery of San Miguel Brewing Philippines (former name of the San Miguel Beer Division) (1996-2000) of SMC. Rene T. Ceniza, 48, Filipino, is Assistant Vice President and Logistics Head since October 1, 2007. He previously served SMC in the following capacities, among others: Assistant Vice President and Manager for National Logistics of the San Miguel Beer Division (May 2005-2007), and Manager, National Logistics (2004-2005) of the San Miguel Beer Division. Enrico E. Reyes, 48, Filipino, is Assistant Vice President and Human Resources and Business Affairs Communications Head since October 1, 2007. He previously served SMC in the following capacities: Assistant Vice President and Human Resources and Business Affairs and Communications Head (2007) and Compensation and Benefits Manager, Human Resources Division (2006-2007), and Human Resources and Administration Manager for San Miguel Beer Division, Visayas (1997-2005). Term of Office Pursuant to the Company’s By-Laws, the directors are elected at each annual stockholders' meeting by stockholders entitled to vote. Each director holds office until the next annual election and his successor is duly elected, unless he resigns, dies or is removed prior to such election. Under the Company’s By-Laws, the annual stockholders’ meeting of the Company is held on the last Tuesday of May. The change in the date of the annual stockholders’ meeting of the Company from first Tuesday of May to last Tuesday of May was approved by the SEC on June 9, 2010. Independent Directors

The independent directors of the Company are as follows:

1. Atty. Alonzo Q. Ancheta 2. Carmelo L. Santiago

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On June 9, 2010, the SEC approved the amendment to the Amended Articles of Incorporation of the Company to increase the number of its directors from nine to 11. Significant Employees The Company has no employee who is not an executive officer but who is expected to make a significant contribution to the business. Family Relationships There are no family relationships up to the fourth civil degree either by consanguinity or affinity among the Company’s directors, executive officers or persons nominated or chosen by the Company to become its directors or executive officers. Involvement in Certain Legal Proceedings None of the directors, nominees for election as director, executive officers, underwriters or control persons of the Company have been involved in any legal proceeding, including without limitation being the subject of any (a) bankruptcy petition, (b) conviction by final judgment, (c) order, judgment or decree, or (d) violation of a securities or commodities law, for the past five (5) years up to the latest date, that is material to the evaluation of his ability or integrity to hold the relevant position in the Company.

Item. 10. Executive Compensation The aggregate compensation paid or incurred during the last two (2) fiscal years and estimated to be paid in the ensuing fiscal year to the Chief Executive Officer and senior executive officers of the Company are as follows:

NAME YEAR SALARY BONUS OTHERS TOTAL Total Compensation of the Chief Executive Officer (President) and the senior executive officers other than the President5

2011 (estimated) 2010 2009

P 71.2 Million P 63.1 Million P 41.8 Million




All other officers and directors as a group unnamed

2011 (estimated) 2010 2009


P 34.6 million P 41.7 Million P 16.9 Million



5 The President and senior executive officers of the Company for 2011 and 2010 are: Roberto N. Huang, Carlos Antonio M. Berba, Minerva Lourdes B. Bibonia, Mercy Marie J. L. Amador, Rosabel Socorro T. Balan, Debbie D. Namalata, Rebecca S. Flores, Rene T. Ceniza and Enrico E. Reyes. For 2009: Roberto N. Huang, Mercy Marie J. L. Amador, Minerva Lourdes B. Bibonia, Debbie D. Namalata, Rebecca S. Flores, Rene T. Ceniza, Enrico E. Reyes and Nelson M. Makalintal.

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NAME YEAR SALARY BONUS OTHERS TOTAL Total 2011

(estimated) 2010 2009





By resolution of the Board of Directors, each director shall receive a reasonable per diem allowance for his attendance at each board meeting. The Company provides each director with reasonable per diem of P20,000 and P10,000 for each Board and Board Committee meeting, respectively, attended by such director. Other than these per diem amounts, there are no standard arrangements pursuant to which the directors of the Company are compensated, or are to be compensated, directly or indirectly, by the Company for services rendered by such directors. There are no outstanding warrants or options held by the Company’s President, named executive officers and all directors and officers as a group. There are no other arrangements pursuant to which the directors of the Company are compensated, or are to be compensated, directly or indirectly, by the Company for services rendered by such directors. There are no employment contracts between the Company and its executive officers. There is no compensatory plan nor arrangement with respect to an executive officer which results or will result from the resignation, retirement or any other termination of such executive officer’s employment with the Company, or from a change-in-control of the Company, or a change in an executive officer’s responsibilities following a change-in-control of the Company. Item 11. Security Ownership of Certain Beneficial Owners and Management Owners of record of more than 5% of the Company’s voting securities as of December 31, 2010 were as follows: Title of Class Name, Address

of Record Owner and

Relationship with Issuer

Name of Beneficial Owner and Relationship

with Record Owner

Citizenship Number of Shares Held

Percent

Common San Miguel Corporation, 40 San Miguel Avenue, Mandaluyong City 1550 Philippines, parent company6

San Miguel Corporation

Filipino 7,859,344,2707 51.00%

6 The Board of Directors of SMC authorizes any one Group A signatory or any two Group B signatories to act and vote in person or by proxy, shares held by SMC in other corporations. The Group A signatories of SMC are Eduardo M. Cojuangco, Jr., Ramon S. Ang, Ferdinand K. Constantino, Ma. Belen C. Buensuceso, Sergio G. Edeza,

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Title of Class Name, Address of Record

Owner and Relationship with Issuer

Name of Beneficial Owner and Relationship

with Record Owner

Citizenship Number of Shares Held

Percent

Common Kirin Holdings Company, Limited 10-1 Shinkawa, 2-Chome, Chuo-Ku, Tokyo, Japan

Kirin Holdings Company, Limited

Japanese 7,456,879,8808 48.39%

The following are the number of common shares comprising the Company’s capital stock (all of which are voting shares) owned of record by the directors and key executive officers of the Company, as of December 31, 2010:

Title of Class Name of Record Owner

Name of Beneficial Owner and

Relationship of Record Owner

Amount and Nature of Beneficial Ownership

Citizenship % Common

Ramon S. Ang

SMC, nominee

5,000 (Indirect)

Filipino

0.00%

Common Roberto N. Huang SMC, nominee 5,000 (Indirect) Filipino 0.00% Common Ferdinand K. Constantino SMC, nominee 5,000 (Indirect) Filipino 0.00% Common Keisuke Nishimura Kirin, nominee 5,000 (Indirect) Japanese 0.00% Common Motoyasu Ishihara* Kirin, nominee* 5,000 (Indirect) Japanese 0.00% Common Yoshinori Isozaki Kirin, nominee 5,000 (Indirect) Japanese 0.00% Common Carmelo L. Santiago Carmelo L.

Santiago 5,000 (Direct) Filipino 0.00%

Common Alonzo Q. Ancheta Alonzo Q. Ancheta 10,000 (Direct) Filipino 0.00% Common Carlos Antonio M. Berba SMC, nominee

Carlos Antonio M. Berba

5,000 (Indirect) 13,000 (Direct)

Filipino 0.00%

Common Takahiro Kobayashi Kirin, nominee 5,000 (Indirect) Japanese 0.00% Common Virgilio S. Jacinto Kirin, nominee 5,000 (Indirect) Filipino 0.00% *Mr. Motoyasu Ishihara was replaced by Mr. Teruyuki Daino as Director on April 12, 2011.

Joseph N. Pineda and Virgilio S. Jacinto. The Group B signatories of SMC are David S. Santos, Bella O. Navarra, Cecile Caroline U. de Ocampo, Manuel M. Agustin, and Virgilio S. de Guzman. 7 Inclusive of shares held by its five nominee directors of 5,000 shares each. 8 Inclusive of shares held by its four nominee directors of 5,000 shares each.

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The aggregate number of shares owned of record by the Chairman and President, key officers and directors as a group as of December 31, 2010 is 73,000 shares or approximately 00.0% of the Company’s outstanding capital stock. The aggregate number of shares owned of record by all officers and directors as a group as of December 31, 2010 is 73,000 shares or approximately 0.00% of the Company’s outstanding capital stock. There is no person holding more than 5% of the Company’s voting securities under a voting trust or similar agreement. Since the beginning of the last fiscal year, there were no arrangements, which resulted in a change in control of the Company. Item 12. Certain Relationships and Related Transactions See Note 27 (Related Party Disclosures) of the Audited Consolidated Financial Statements attached hereto as Annex “F” and discussion under Transactions with and/or dependence on related parties in Item 1. Business and General Information of this report. There were no transactions with directors, officers or any principal stockholders (owning at least 10% of the total outstanding shares of the Company) not in the ordinary course of business. The Company observes an arm’s length policy in its dealings with related parties.

PART IV – CORPORATE GOVERNANCE

Item 13. Corporate Governance

The evaluation by the Company to measure and determine the level of compliance of the Board of Directors and top level management with its Manual of Corporate Governance is vested by the Board of Directors in the Compliance Officer. The Compliance Officer is mandated to monitor compliance by all concerned with the provisions and requirements of the Manual of Corporate Governance (“Manual”). The Compliance Officer has certified that for 2010, the Company has substantially adopted all the provisions of the Manual. Amendments to the Company’s Manual were approved by the Board on March 25, 2010 and March 11, 2011 in compliance with the Revised Code of Corporate Governance of the SEC. Pursuant to its commitment to good governance and business practice, the Company continues to review and strengthen its policies and procedures, giving due consideration to developments in the area of corporate governance which it determines to be in the best interests of the Company and its stockholders.

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PART V – EXHIBITS AND SCHEDULES

Item 14. Exhibits and Reports on SEC Form 17-C

(a) Exhibits

The 2010 Consolidated Audited Financial Statements of the Company are attached as Annex “F” and the Supplementary Schedules are attached as Annex “G” hereto. The other Schedules as indicated in the Index to Schedules are either not applicable to the Company or require no answer.

(b) Reports on Form 17-C

A summary list of the reports on Form 17-C filed during the last six month period covered by this report is attached as Annex “H”.

ANNEX “A”

LIST OF PRODUCTS As of December 31, 2010 1. San Miguel Pale Pilsen 2. San Mig Light 3. San Mig Strong Ice 4. San Miguel Super Dry 5. San Miguel Premium All-Malt 6. Red Horse 7. Gold Eagle 8. Cerveza Negra 9. Oktoberfest Brew 10. Cali 11. San Miguel Alcoholic Malt Beverage 12. San Miguel Dark Beer 13. San Miguel Premium Lager 14. Valor 15. Blue Ice 16. Dragon 17. Super Cool 18. Blue Star 19. W1N Bia (Bia Hoi) 20. Dzo 21. Anker 22. Kuda Putih 23. Sodaku 24. Soda Ice BREWED UNDER LICENSING AGREEMENT 1. Carlsberg 2. Guang’s Pineapple IMPORTED / DISTRIBUTED 1. Kirin Ichiban 2. Samuel Adams 3. Stella Artois 4. Hoegaarden 5. Beck's 6. Lowenbrau 7. Boddington's 8. James Boag’s

ANNEX “B”

TOP SUPPLIERS FOR RAW MATERIALS AND PACKAGING SUPPLIES

A. Malt and Hops Joe White Maltings Pty. Ltd. Malteurop MalteriesSoufflet Barrett Burston Malting Co. Pty. Ltd. Kirin Australia Pty. Ltd

Taiwan Hon Chuan Enterprise Co. Ltd. Boortmalt N.V.

Cofco Malt (Dalian) Co. Ltd. Guangzhou Malting Co., Ltd Malteurop (Baoding) Malting Co. Ltd Wugang Malt Co.Ltd.

Bohemia Hop , a.s. Gansu Tianma Hops Co., Ltd. HVG Hopfenverwertungsgenossenschaf HVG-Germany

Simon H. Steiner, Hopfen, GmbH Zhuhai Steiner Trade Co., Ltd

John Haas, Inc.

B. Corn Grits/Tapioca/Rice/ Cagayan Corn Products

Sugar Northern Star Rice Chaodee Starch (2004) Co. Ltd. Udtong Agrarian Reform Beneficiaries Multipurpose Cooperative RJJ Enterprises Limketkai Manufacturing Corporation Heindrich Trading A. Hernal Enterprises C.P.Food Store Co.,Ltd.

Costimex S.A. CtyCp My Tuong DNTN TOAN DAO FoshanGaoming Co. Ltd

HefeiLongjieCo.Ltd

Hefei Longjie Grain & Oil Com. Ltd. SinarUnigrainIndonesia SuizhouYinxing Trade Co., Ltd TeguhwibawaBhaktipersada, PT TonghuaBuayai (1994) Co.,Ltd.

Cty Duong KhanhHoa

Cty TM ThanhThanh Cong Fengpu Industrial Co.Ltd.

FoshanQiaobai.Co.Ltd

Tai Koo Sugar Ltd.

C. Packaging Materials San Miguel Yamamura Packaging Corporation San Miguel Yamamura Asia

Health Keepers Leasing Co. Inc. Printwell, Inc.

Cong Ty TNHH Co KhiBao Bi Lam Hung Cong Ty TNHH LD Bao Bi United Ditsorn Containers Co.,Ltd. Fo Shan Shi NanHaiHuaXiang Packing Co.,Ltd.

Guang Dong ManchangKeyi Materials Co.,Ltd. High Win Industrial Ltd. Karya Indah Multiguna, PT SCA (Baoding) Packaging Co.,Ltd TristarMakmurKartonindo, PT Constantia CM Label Sdn. Bhd. CtyCp Minh Phuc Dwi Indah, PT Guangdong Man Cheong Packaging Printing Co.,Ltd. H&N (Suzhou) Packaging materials limited Haendler&Natermann GmbH HaiLiBaoColour Printing Co.,Ltd.

JiaxingHaoneng Packing Co.,Ltd. Altinex, PT Citra MandiriMetalindo, PT CPMC (Tianjin) Co., Ltd. Crown Seal Public Company Limited GuangzhongNewspring Packaging Co.,Ltd.

Shenyang Ziquan Packaging Co.,Ltd. Shijiazhuang Shengyi Packaging Co.,Ltd. CangzhouCangshun Glass Co.,Ltd. Fangyuan Glass Co.,Ltd.（Qinhuandao/Huailai) Farma East Jaya, PT GuandongHuaxing Glass Co. Ltd. GuandongHuaxing Glass Co. Ltd. Guangdong OI Glass Co.,Ltd. Qingdao Laoshan Glass Co.,Ltd. Shandong Lianxing Glass Co.,Ltd. Tianjin OI Glass Container Co.,Ltd. Yantai NBC Glass Packaging Co.,Ltd. Ball Asia Pacific Shenzhen Metal Bangkok Can Manufacturing Co.,Ltd. BAP Beijing Metal Container Limited Conpac, PT Crown Bevcan and Closures (Thailand) Co.,Ltd.

Crown Beverage Cans Beijing Limited Foshan Crown Can Co.,Ltd.

Fountain Can Corporation Huizhou Crown Can Company Limited

Pacific Can (ZhangZhou) Company Ltd.

Thai Beverage Can Ltd. Vinacan

San Miguel Brewery Inc. Annex "C"Collective Bargaining Agreements as of December 31, 2010

Member No. of

ECONOMIC REPRESENTATION CBAs

1 GMA Dailies Union - SMB June 30, 2010 June 30, 2009 Concerned Workers of SMC - Polo Brewery (CWSPB) 229 1

CBA was renegotiated and concluded last November 11, 2010.

Expiration of Economic is June 30, 2013 and the Representation is

June 30,2014.

2 GMA Monthlies Union -SMB June 30, 2010 June 30, 2009 SMC Employees Union (SMCEU) - PTGWO 83 1

CBA was renegotiated and concluded last November 11, 2010.

Expiration of Economic is June 30, 2013 and the Representation is

June 30, 2014.

3 SFB - Monthlies Union Dec. 31, 2010 Dec. 31, 2009 San Fernando Complex Monthly-Paid Emp. Union IBM No. 48 95 1

CBA was renegotiated and concluded last March 8, 2011. Expiration of

Economic is December 31, 2013 and the Representation is December

31, 2014.

4 GMA Sales Force Union Jan. 31, 2011 Jan. 31, 2010 New San Miguel Corporation Sales Force Union 78 1

Representation aspect was expired but no Certification Election(CE)

was conducted. Existing union is still the bargainging agent. CBA to be

renegotiated starting April, 2011.

5 SFB - Dailies Union Feb. 15, 2011 Feb. 15, 2010Ilaw at Buklod ng Manggagawa (IBM) Local No. 42-San

Fernando Beer Bottling Plant Chapter263 1

CBA was renegotiated and concluded last March 11, 2011. Expiration

of Economic is February 15, 2014 and the Representation is February

15, 2015.

6 Mandaue Dailies Union Dec. 31, 2011 Dec. 31, 2010 Ilaw at Buklod ng Manggagawa (IBM)-Mandaue Chapter 130 1 CBA to be renegotiated

7 Davao Dailies Union Nov. 30, 2009 Nov. 30, 2012 San Miguel Davao Brewery Employees Independent Union 77 1

CBA was renegotiated and concluded last March 25, 2010 Expiration

of Economic is Movember 30, 2012 and the Representation is

November 30, 2012.

8 Bacolod Dailies Union July 31, 2010 Apr. 27, 2014 San Miguel Bacolod Brewery Employees Union-Independent 63 1

CBA was renegotiated and concluded last September 24, 2010.

Expiration of Economic is July 31, 2013 and the Representation is April

27, 2014.

9 Bacolod Monthlies Union Oct. 31, 2010 Oct. 31, 2013 Phil. Agricultural, Commercial and Industrial Workers Union 43 1

CBA was renegotiated and concluded last December 2, 2010.

Expiration of Economic is October 31, 2013 and the Representation is

October 31,, 2013.

UNION Remarks

INSTALLATION / DESCRIPTIONEXPIRATION

San Miguel Brewing International Limited and Subsidiaries

Collective Labor Agreements as of December 31, 2010

Date of Expiration

Start Expiration Trade Union

Vietnam San Miguel Brewery Vietnam Limited

SMBVL Trade Union is

under the supervision of

Trade Union of the Khan

Hoa Industrial & Economic

Zone, Khan Hoa Province,

Vietnam

1 2 yrs January 01, 2011 December 31, 2012

ThailandSan Miguel Marketing Thailand Limited &

San Miguel Beer Thailand Limitedn/a n/a n/a n/a n/a n/a

No Trade Union but there is an Employee

Welfare Committee composed of Employer

Representatives and Employee

Representative. The Employee

Representatives are selected by Employees.

The Company Rules & Regulations

(equivalent name of CLA in Indonesia) of PT

Delta Djakarta Tbk is a result of the

negotiation between the employees

represented by the committee IKKA Delta

and the Management.

The Company Rules & Regulations is

registered yearly with the Department of

Labor & Transmigration, Bekasi, Indonesia.

China/ HK San Miguel Brewery Hongkong Ltd. n/a n/a - -

Guangzhou San Miguel Brewery Co. Ltd. 1 2 yrs Jan 4, 2010 January 03, 2012

San Miguel Guangdong Brewery Co. 1 3 yrs June 26, 2010 June 25, 2013

San Miguel Baoding Brewery Co. Ltd. 1 3 yrs July 1, 2010 June 30, 2013- All employees are part of the Labor Union

The Trade Union

Committee Heads are

replaced every 3 or 5

years, next election in

Aug. 2011 or Aug 2013.

SMBB Trade Union

Committee

- All employees are part of the Labor UnionThe Trade Union

Committee Heads are



2012 or 2014.

SMGB Trade Union

Committee

COUNTRY REMARKS

- All employees are part of the Labor Union

INSTALLATION

NAME OF UNION/ORG

REPRESENTING

EMPLOYEES

No. of CLAs

Period of CLA

Cycle

2 yrs January 01, 2003 December 31, 2010

The Trade Union

Committee Heads are



2012 or 2014.

Indonesia

Trade Union Committee of

Guangzhou San Miguel

Brewery Co. Ltd.

1PT Delta Djakarta Tbk.

Ikatan Keluarge Karyawan-

Employee Family Bond

(IKKA Delta)

ANNEX “D” PROPERTIES

OWNED PROPERTIES The Group owns land, land improvements, buildings, machinery, transportation, office equipment, tools and/or furniture for its breweries, offices and warehouses located in the Philippines and abroad. Breweries The Group has 11 breweries in the following locations: Polo Brewery

Marulas, Valenzuela City, Metro Manila San Fernando Brewery

Brgy. Quebiawan, San Isidro, San Fernando, Pampanga Bacolod Brewery

National Road, Brgy. Granada, Sta. Fe, Bacolod City, Negros Occidental Mandaue Brewery

National Highway, Brgy.Tipolo, Mandaue City Davao Brewery

Brgy. Darong, Sta. Cruz, Davao del Sur

San Miguel Beer (Thailand) Ltd. 89 Moo2, Tivanon Rd., Bann Mai, Muang , Pathumtani 12000

PT. Delta Djakarta Tbk Inspeksi Tarum Barat Desa Setia Darma Tambun Bekasi

San Miguel Brewery Hong Kong Limited (SMBHK) 22 Wang Lee St. Yuen Long Industrial Estate Yuen Long, New Territories, Hong Kong

San Miguel (Guangdong) Brewery Co.,Ltd (SMGB) San Miguel Road 1#, Longjiang Town, Shunde District, Guangdong Province, China

San Miguel (Baoding) Brewery Co. Ltd. (SMBB) Shengli street, Tianwei West Road, Baoding City ,Hebei Province, China

San Miguel Brewery Vietnam Ltd.

Quoc Lo 1 , Suoi Hiep , Dien Khanh , Khanh Hoa

Sales/Area Offices and Warehouses Central North Luzon Area

SMC Complex, Brgy. Quebiawan, McArthur Highway, San Fernando, Pampanga

Carmen East, Rosales, Pangasinan

Caranglaan Dist., Dagupan City, Pangasinan

Naguilian Road, San Carlos Heights, Brgy. Irisan, Baguio City, Benguet

Pennsylvania Ave., Brgy. Madayegdeg, San Fernando, La Union

Brgy. San. Fermin, Cauayan, Isabela

National Road, Brgy. Mabini, Santiago City, Isabela

San Andres St., San Angelo Subdivision, Sto. Domingo, Angeles City, Pampanga

Maharlika Road, Bitas, Cabanatuan City, Nueva Ecija

Brgy. 22, San Guillermo, San Nicolas, Ilocos Norte

Greater Manila Area North

Cagayan Valley Rd., Brgy. Sta. Cruz, Guiguinto, Bulacan

Gapan-Olongapo Rd., Poblacion San Isidro, Nueva Ecija

A. Cruz St., Brgy. 96, Caloocan City

Honorio Lopez Blvd., Guidote St., Tondo, Manila

Brgy. Mangga, Cubao , Quezon City

Bldg. 23 Plastic City Cpd., #8 T. Santiago St., Brgy. Canumay, Valenzuela City, Metro Manila

Quirino Highway, Novaliches, Quezon City, Metro Manila

Greater Manila Area South

Brgy. 425, Zone 43, Sampaloc District, Manila

M. Carreon St., Brgy. 864, Sta. Ana District, Manila

Manila East Rd., Brgy. Dolores, Taytay, Rizal

No. 100 Bernabe Subd., Brgy. San Dionisio, Sucat, Parañaque City, Metro Manila

Mercedes Ave., Pasig City, Metro Manila South Luzon Area

Silangan Exit, Canlubang, Calamba City, Laguna

Maharlika Highway, Brgy. Isabang, Lucena City, Quezon

Maharlika Highway, Brgy. Villa Bota, Gumaca, Quezon

Maharlika Highway, Brgy. Concepcion Grande Pequeña, Naga City, Camarines Sur

Brgy. Mandaragat, Puerto Princesa City, Palawan

Aurora Quezon and Calderron St., Brgy. Labangan, San Jose, Occidental Mindoro

Brgy. Lankaan II, Governor’s Drive, Dasmariñas, Cavite

National Rd., Brgy. Balagtas, Batangas City, Batangas

Ayala Highway, Brgy. Balintawak, Lipa City, Batangas

Corner Gogon and Patricio Streets, Bgy. Cruzada, Legaspi City, Bicol

Tirona Highway, Habay, Bacoor, Cavite

T. de Castro St., Zone 2, Bulan, Sorsogon

Matungao, Tugbo, Masbate City

Brgy. Pagsawitan, Sta. Cruz, Laguna Negros

Brgy. Granada, Sta. Fe, Bacolod City, Negros Occidental

Muelle Loney St., Brgy. Legaspi, Iloilo City

National Hi-way, Brgy. 4, Himamaylan City, Negros Occidental

Flores St., Brgy. Sum-Ag, Bacolod City, Negros Occidental

Brgy., Camansi Norte, Numancia, Aklan

Brgy. Libas, Roxas City, Capiz

Brgy. Pulang Tubig, Dumaguete City

Visayas

National Highway, Brgy. Tipolo, Mandaue City

Access Rd., Fatima Village, Brgy. 73 (formerly part of Brgy. Sagcahan), Tacloban City, Leyte

Graham Ave., Tagbilaran City, Bohol

San Bartolome St., Catbalogan, Samar

Mindanao

Brgy. Darong Sta. Cruz, Davao del Sur

Ulas Crossing, Ulas, Davao City

National Highway, Brgy. Magugpo, Tagum City

Sergio Osmeña, Brgy. Poblacion, Koronadal City

National Highway, Brgy. Lagao, Gen. Santos City

National Highway, Brgy. Luyong Bonbon, Opol, Misamis Oriental

R.T. Lim Blvd., Baliwasan, Zamboanga City

Fort Poyohan, Molave St., Butuan City, Agusan del Norte

Brgy. Mangangoy, Bislig City, Surigao del Sur (building only)

Brgy. Bongtod, Tandag City, Surigao del Sur

J.P. Rizal Ave., Poblacion, Digos City

National Highway, Sta. Felomina, Dipolog City

Pandan, Sta. Filomena, Iligan City

Baybay, Liloy, Zamboanga del Norte

San Miguel Brewery Hong Kong Limited

9th Floor, Citimark Building , No.28 Yuen Shun Circuit, Siu Lek Yuen, Shatin, NT,

Hong Kong

San Miguel Industrial Building, Nos. 9-11 Shing Wan Road, Tai Wai, Shatin, NT, Hong Kong

Guangzhou San Miguel Brewery

Shantou Sales Office

Room 803 and Room 804, Underground Parking, Huamei Garden, Shantou City

San Miguel (China) Investment Co.Ltd. 1-7A Parkview tower Chaoyang DistrictBeijing 100027 , China

1-11A Parkview tower Chaoyang DistrictBeijing 100027 , China

1-12A Parkview tower Chaoyang DistrictBeijing 100027 , China

1-9C Parkview tower Chaoyang DistrictBeijing 100027 , China

1-7C Parkview tower Chaoyang DistrictBeijing 100027 , China

Power Plant San Miguel Baoding Utility Shengli Street, Tianwei West Road, Baoding City ,Hebei Province, China Terminal Bataan Malt Terminal, Mariveles, Bataan (building, machineries and equipment, furniture and fixtures only).

LEASED PROPERTIES OF THE COMPANY

Location Leased Asset Description

Monthly Rental –net of VAT (P)

Expiration Date

Terminal

Bataan Malt Terminal *average

Mariveles, Bataan Land 460,000.00* 12/16/2013

Head Office

Head Office 40 San Miguel Ave., Mandaluyong City

Office Space 3,499,167 12/31/2011

Greater Manila Area North

Tondo S.O. Guidote St., Tondo, Manila

Land 46,606.05 10/15/2011

Valenzuela S.O. Bldg. 23 Plastic

City Cpd., #8 T. Land & Land Improvement

266,932.05 04/30/2013

Location

Leased Asset Description


Expiration Date

Santiago St., Brgy. Canumay, Valenzuela City

Novaliches S.O. Quirino Highway,

Novaliches, Quezon City

Land & Buildings

619,290.00 12/31/2012

Bottle Segregation Site Maysilo, Malabon Open Space 100,000.00 02/28/2011 Bottle Segregation Site Potrero, Malabon Open Space 171,000.00 02/28/2011 Greater Manila Area South

Pasig S.O. Mercedes Ave., Pasig City, Metro Manila

Land & Warehouse

664,453.10 7/31/2011

Central North Luzon Cabanatuan S.O.

No. 140, Bitas, Cabanatuan City

Land & Building

70,153.65 03/31/2012

South Luzon Area Legazpi S.O.

Corner Gogon and Patricio Streets, Bgy. Cruzada, Legaspi City, Bicol

Land & Land Improvements

264,000.00

12/31/2013

Dasmarinas S.O. Brgy. Langkaan II Governors Drive, Dasmarinas, Cavite

Warehouse 260,115.43 02/29/2012

Bacoor S.O. Tirona Highway,

Habay 1, Bacoor, Cavite

Warehouse 173,992.60 03/31/2011

Bulan S.O. T. de Castro St.,

Zone 2, Bulan, Sorsogon

Warehouse 44,642.86 01/31/2012

Masbate S.O. Magtungao, Tugbo,

Masbate City Warehouse 77,142.86 01/31/2012

Sta. Cruz S.O. Brgy. Pagsawitan, Sta. Cruz, Laguna

Warehouse 74,685.47 03/31/2011

Sta. Rosa Bottling Plant – under construction

Sta. Rosa Industrial Complex, Bgy. Pulong, Sta.Cruz, Sta.Rosa City, Laguna

Land 775,200.00 05/31/2017

Negros

Samar Region Office San Bartolome St., Catbalogan, samar

Office Space 25,000.00 11/30/2011

Location

Leased Asset Description


Expiration Date

Dumaguete Region Office

Brgy. Pulang Tubig, Dumaguete City

Land Improvement

41,368.16 01/31/2015

Dumaguete S.O. Brgy. Pulang Tubig, Dumaguete City

Warehouse 67,641.42 09/30/2012

Tagbilaran S.O. Graham Ave.,

Tagbilaran City Warehouse 50,000.00 02/29/2012

Mindanao

Butuan Region Office

Fort Poyohan, Molave St., Butuan City, Agusan del Norte

Land & Land Improvement

80,408.99 05/31/2015

Ozamis Region Office Bonifacio St., Lam-

an, Ozamis City, Misamis Occidental

Land & Building

42,000.00 01/31/2012

Iligan S.O.

Pandan, Sta. Filomena, Iligan City

Warehouse

70,000.00

09/30/2012

Liloy, S.O. Baybay, Liloy,

Zamboanga del Norte

Warehouse 50,000.00 09/30/2012

Dipolog S.O. Sta. Felomina,

Dipolog City Warehouse 57,000.00 09/30/2012

Parking Space National Highway,

Brgy. Darong, Sta. Cruz, Davao

Parking Space 50,000.00 10/31/2011

All of the Company’s existing lease contracts contain a provision that the contract is renewable upon agreement by the parties. Investment Properties

HAD Flora St. Brgy. Estefania, Bacolod City

No. 31 Rosario St., Brgy. Granada, Bacolod City

Brgy. Penabatan, Pulilan, Bulacan

L26 B11, Brgy. Sto.Domingo, Sta.Rosa, Laguna

Guangzhou San Miguel Brewery

Room 302, Haitao Building, Marine Fisheries Pier, North Binhai Avenue, Haikou City

Guangzhou San Miguel Brewery 1th -4th Floor, Xianda Building, Shuichan Pier, North Binhai Avenue, Haikou City

San Miguel Beer (Thailand) Ltd

369/1 the corner of Pracharat Sai 2 Road and Chao Phraya River, Bangsue Sub-district, Bangsue District, Bangkok

1

Annex “E”

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND PERFORMANCE

INTRODUCTION This discussion summarizes the significant factors affecting the financial performance, financial position and cash flows of San Miguel Brewery Inc. (the “Company”) and its subsidiaries (collectively referred to as the “Group”) for the year ended December 31, 2010, 2009 and 2008. The following discussion should be read in conjunction with the attached audited consolidated statements of financial position of the Group as of December 31, 2010 and 2009, and the related statements of income, changes in equity and cash flows for the years ended December 31, 2010, 2009 and 2008. All necessary adjustments to present fairly the Group’s financial position as of December 31, 2010 and 2009 and the financial performance and cash flows for the years ended December 31, 2010, 2009 and 2008, have been made. I. BASIS OF PREPARATION

Basis of Measurement The consolidated financial statements of the Group have been prepared on a historical cost basis of accounting, except for the following:

derivative financial instruments are measured at fair value; available-for-sale (AFS) financial assets are measured at fair value; and defined benefit asset is measured as the net total of the fair value of the plan assets,

less unrecognized actuarial gains and the present value of the defined benefit obligation.

Functional and Presentation Currency The consolidated financial statements are presented in Philippine peso, which is the Company’s functional currency. All values are rounded off to the nearest million (P000,000), except when otherwise indicated. Statement of Compliance The consolidated financial statements as at and for the years ended December 31, 2010 and 2009 refer to the consolidated accounts of the Group while the financial statements as at and for the year ended December 31, 2008 refer to the accounts of the Company. The financial statements have been prepared in compliance with Philippine Financial Reporting Standards (PFRS). PFRS includes statements named PFRS and Philippine Accounting Standards (PAS) and Philippine Interpretations from International Financial Reporting Interpretations Committee (IFRIC), issued by the Financial Reporting Standards Council (FRSC). Significant Accounting Policies

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, except for the changes in accounting policies as explained below.

2

Adoption of New or Revised Standards, Amendments to Standards and Interpretations The FRSC approved the adoption of a number of new or revised standards, amendments to standards, and interpretations (based on IFRIC Interpretations) as part of PFRS. Accordingly, the Group changed its accounting policies in the following areas:

Adopted Effective January 1, 2010

Revised PFRS 3, Business Combinations (2008), effective for annual periods beginning

on or after July 1, 2009, incorporates the following changes that are likely to be relevant to the Group’s operations:

- The definition of a business has been broadened, which is likely to result in more

acquisitions being treated as business combinations. - Contingent consideration will be measured at fair value, with subsequent changes

therein recognized in profit or loss. - Transaction costs, other than share and debt issue costs, will be expensed as

incurred. - Any pre-existing interest in the acquiree will be measured at fair value with the

gain or loss recognized in profit or loss. - Any non-controlling interest will be measured at either fair value, or at its

proportionate interest in the identifiable assets and liabilities of the acquiree, on a transaction-by-transaction basis.

The Group has applied Revised PFRS 3 (2008) in the acquisition of SMBIL and BPI (Note 10).

Revised PAS 27, Consolidated and Separate Financial Statements (2008), effective for annual periods beginning on or after July 1, 2009, requires accounting for changes in ownership interests by the Group in a subsidiary, while maintaining control, to be recognized as an equity transaction. When the Company loses control of a subsidiary, any interest retained in the former subsidiary will be measured at fair value with the gain or loss recognized in profit or loss. The adoption of revised PAS 27 did not have a material effect on the consolidated financial statements.

Philippine Interpretations IFRIC 17, Distributions of Non-cash Assets to Owners, provides guidance on the accounting for non-reciprocal distributions of non-cash assets to owners acting in their capacity as owners. It also applies to distributions in which the owners may elect to receive either the non-cash asset or a cash alternative. The liability for the dividend payable is measured at the fair value of the assets to be distributed. The interpretation is effective for annual period beginning on or after July 1, 2009. The adoption of this Philippine Interpretation did not have a material effect on the consolidated financial statements.

Improvements to PFRSs 2009 contain 15 amendments to 12 standards. The improvements

are generally effective for annual periods beginning on or after January 1, 2010. The following are the said improvements or amendments to PFRSs, none of which has a significant effect on the consolidated financial statements of the Group:

- PAS 38, Intangible Assets. The amendments clarify that: (i) an intangible asset that is

separable only together with a related contract, identifiable asset or liability is recognized separately from goodwill together with the related item; and (ii) complementary intangible assets with similar useful lives may be recognized as a single asset. The amendments also describe valuation techniques commonly used by

3

entities when measuring the fair value of intangible assets acquired in a business combination for which no active market exists.

- Philippine Interpretations IFRIC 9, Reassessment of Embedded Derivatives. The International Accounting Standards Board (IASB) amended the scope of IFRIC 9 so that embedded derivatives in contracts acquired in business combinations as defined in PFRS 3 (2008), joint venture formations and common control transactions remain outside the scope of IFRIC 9.

- PFRS 8, Operating Segments. The amendments clarify that segment information with respect to total assets is required only if such information is regularly reported to the chief operating decision maker.

- PAS 1, Presentation of Financial Statements. The amendments clarify that the classification of the liability component of a convertible instrument as current or noncurrent is not affected by terms that could, at the option of the holder of the instrument, result in settlement of the liability by the issue of equity instruments.

- PAS 7, Statement of Cash Flows. The amendments clarify that only expenditures

that result in the recognition of an asset can be classified as a cash flow from investing activities.

- PAS 17, Leases. The IASB deleted guidance stating that a lease of land with an indefinite economic life is normally classified as an operating lease, unless at the end of the lease term title is expected to pass to the lessee. The amendments clarify that when a lease includes both the land and building elements, an entity should determine the classification of each element based on paragraphs 7 - 13 of PAS 17, taking account of the fact that land normally has an indefinite economic life.

- PAS 36, Impairment of Assets. The amendments clarify that the largest unit to which goodwill should be allocated is the operating segment level as defined in PFRS 8 before applying the aggregation criteria of PFRS 8.

- PAS 39, Financial Instruments: Recognition and Measurement. The amendments (i) provide additional guidance on determining whether loan prepayment penalties result in an embedded derivative that needs to be separated; (ii) clarify that the scope exemption in PAS 39 paragraph 2(g) is restricted to forward contracts, i.e. not options, between an acquirer and a selling shareholder to buy or sell an acquiree that will result in a business combination at a future acquisition date within a reasonable period normally necessary to obtain any required approvals and to complete the transaction; and (iii) clarify that the gains or losses on a cash flow hedge should be reclassified from other comprehensive income to profit or loss during the period that the hedged forecast cash flows impact profit or loss.

Additional disclosures required by the revised standards and improvements were included in the consolidated financial statements, where applicable.

II. MAJOR DEVELOPMENTS IN 2010

On January 29, 2010, the Company’s acquisition of the international beer and malt-based

beverage business of San Miguel Corporation (SMC), through the purchase by the Company of the shares of San Miguel Holdings Limited (SMHL), a wholly-owned subsidiary of SMC, in San Miguel Brewing International Limited (SMBIL) (SMBIL Shares), was completed.

4

The SMBIL Shares, which comprise 100% of the outstanding capital stock of SMBIL, were acquired by the Company for a price of US$302 million, after adjustments pursuant to the terms of the Share Purchase Agreement (SPA) among the Company, SMC and SMHL executed on December 18, 2009. As a result of the acquisition, SMBIL became a wholly-owned subsidiary of the Company.

On January 28, 2010, the Company entered into a US$300 million unsecured loan facility agreement to finance the acquisition of SMBIL. The loan will mature five (5) years from agreement date.

On November 10, 2010, the Company and SMC executed a Deed of Absolute Sale for the purchase of all the shares of SMC in Brewery Properties Inc. (BPI) corresponding to 40% of the outstanding capital stock of BPI (BPI Shares), at the aggregate purchase price of P6,829 million. BPI, and its wholly-owned subsidiary, Brewery Landholdings, Inc. (BLI), are the companies to which SMC transferred the parcels of land where the production facilities and sales offices used by the Company in its domestic beer operations are located. On the same day, the Company paid P=6,629 million, corresponding to the appraised value of the 128 land titles transferred in the name of BPI. The balance will be paid upon the transfer of the remaining eight (8) land titles in the name of BPI.

III. FINANCIAL PERFORMANCE 2010 vs. 2009 The financial performance for the year 2010 already reflects the consolidated transactions of the Company, Iconic Beverages, Inc. (IBI, acquired in 2009), BPI and SMBIL and their subsidiaries. SMBIL and its subsidiaries are responsible for the international beer operations of the Group. The Company accelerated growth in 2010 owing to the strong economic recovery, election-related spending, an improving cost environment and stepped-up consumption-generating programs despite volume declines from its international operations. With the consolidation of international operations, consolidated sales revenue for the year amounted to P=67,575 million, P=55,835 million of which came from domestic operations and US$262 million or P=11,788 million from international operations. Cost of sales amounted to P=34,505 million while operating expenses amounted to P=14,519 million. Operating income amounted to P=18,551 million, with domestic operations accounting for P=18,563 million while international operations suffered US$.41 million or P=12 million in losses. The loss was due to lower volumes and write-off of certain receivables, inventories and prepaid expenses amounting to US$3.4 million or P=146 million of its San Miguel Hong Kong (SMBHK) and San Miguel Guangdong (SMGB) breweries.

Interest expense and other financing charges increased primarily due to the additional financing cost of the US$300 million loan. Interest income also increased due to consolidation of international operations’ balances and increased short-term money market placements for domestic operations. The increase in other income is primarily due to appreciation of local currencies against the US Dollar.

Despite higher financing charges and impairment loss of SMBHK’s and SMGB’s noncurrent assets amounting to P=3,694 million which was offset by the income from acquisition of assets at fair value, consolidated net income amounted to P=10,373 million, an improvement of 3.4% from last year. The income from acquisition of assets at fair value is the excess of the net identifiable assets including non-controlling interests over the consideration paid.

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The operating and financial highlights of each business segment are as follows:

Domestic Beer Operations

Total domestic beer volumes reached an all-time high level of 183.6 million cases, representing a growth of 5.2% versus year-ago levels. The Company maintained its lead of the growing beer market, directly attributable to the Company’s outlet conversion and occasion-creation programs and improved frequency of call and SRP (suggested retail price) campaigns. Comprehensive brand-building and offtake-generating programs also strengthened preference and consumption of beer brands. To capture the growing ranks of entry-point and female drinkers, the Company introduced San Miguel Alcoholic Malt Beverage in lemon and apple flavors through a soft launch in mid-December 2010. The new products have lower alcohol content relative to regular beers and are available in 330ml bottles. All together, this robust performance generated stronger financial results in 2010. Net sales revenue grew by 9.5% due to higher volumes and a price increase implemented in November 2009. Cost of sales increased by only 3.4% despite the increase in volume due to lower cost of imported raw materials. Operating expenses increased by 15.8% due to higher advertising and promotional activities, purposive replacement of containers and higher pension expense. Operating income continued to grow, closing the year with a 15.9% increase over last year owing to higher revenues and contained costs, while net income posted a 14.3% growth versus last year, notwithstanding higher interest expense.

An important milestone for the Company included the acquisition of a 100% stake in SMBIL in February 2010. In SMBIL, the Company has acquired a platform for its beer business in Southeast Asia and China. By integrating both the domestic and international beer businesses, the Company will improve the growth and returns of the business as a whole and broaden the Company’s geographic participation, strengthening its brands and presence in the region. International Beer Operations

SMBIL’s Exports business as well as San Miguel brands in Vietnam and Thailand performed strongly, with volumes significantly higher compared to 2009. These gains however were not enough to offset volume losses suffered in South China, Hong Kong and Indonesia. As a result, consolidated volumes for SMBIL fell by 11% behind last year. Beer export volumes surged by 15% versus 2009 fueled by incremental volumes from new markets as well as sustained on-premise promotional activities in existing major markets. In Vietnam, San Miguel brands continued their growth momentum in 2010 as a result of outlet coverage expansion and strong sales of draught beer. Despite the political unrest in Thailand during the first half of 2010, domestic volumes grew by 18% in the last seven months of the year driven by increased outlet penetration and yield. Volumes in North China were slightly ahead versus 2009 due to improvements in wholesaler channel management. In South China, sales remained sluggish due to aggressive trade offers of competitors and lower volumes from base markets Dongguan and Foshan, which continue to suffer from the lingering effects of the global recession. Hong Kong’s domestic volumes continued to be weighed down by intense competition. Sales in Indonesia were adversely affected by the beer tax restructuring

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in the country, with the decline in Anker brands offsetting double-digit growth of San Miguel Pale Pilsen and San Mig Light. Consequently, cost of sales decreased by 3%. However, operating expenses increased by 23.2% due to the full-year impact in 2010 of the acquisition of San Miguel Marketing Thailand Limited (SMMTL) in 2009 and write-off of certain receivables and inventories amounting to US$3.4 million. With lower volumes and higher operating costs, international operations suffered an operating loss of US$.41 million. Subsequently, net loss amounting to US$92.3 million was incurred primarily due to impairment of SMBHK and SMGB noncurrent assets amounting to US$95.8 million. 2009 vs. 2008

The financial performance for the year ended 2009 pertains to the consolidated financial performance of the Company and Iconic Beverages, Inc. while 2008 pertains to the financial performance of the Company only. The Company ended 2009 with sales volumes reaching a record high of 175.8 million cases, representing a growth of 0.8% versus 2008. The Company’s favorable performance was driven by on-going efforts to stimulate volumes through comprehensive and integrated implementation of its advertising and promotional initiatives, improving cost efficiencies as well as managing fixed costs.

Net sales increased by 5% from P=48,787 million in 2008 to P=51,009 million in 2009, reflecting improvement in beer volumes and the price increase effective November 1, 2009.

Cost of sales increased by 6% from P=24,800 million in 2008 to P=26,261 million in 2009 mainly due to the 8% hike in excise taxes effective January 1, 2009.

Operating expenses increased by 4% from P=8,366 million in 2008 to P=8,737 million in 2009 as a result of higher business taxes and distribution cost due to higher volumes and purposive replacement of containers. Income from operating activities, however, still increased from P=15,621 million in to P=16,011 million in 2009 due to higher revenues.

Despite the P=2,600 million financing cost for the issuance of its fixed-rate bonds (Bonds), net income remained flat at P=10,033 million in 2009 from P=10,042 million in 2008. This is mainly due to lower income tax rate of 30% effective January 1, 2009 from 35% in 2008, and the offsetting effect of the interest earned on the remaining proceeds from the Bonds issuance that is earmarked for the purchase of SMC’s interests in BPI.

IV. FINANCIAL POSITION

2010 vs. 2009

The statement of financial position for 2010 already reflects the consolidated assets, liabilities and equity of both domestic and international operations, while the 2009 statement of financial position only reflects the financial position of the Company and IBI.

Cash and cash equivalents amounted to P=15,076 million in 2010 compared to P=13,563 million in 2009 primarily due to consolidation of international operations’ cash amounting to P=3,855 million. Domestic operations’ cash balance decreased by P=2,342 million primarily due to the purchase of the BPI shares amounting to P=6,629 million.

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Trade and other receivables amounted to P=4,366 million compared to P=3,311 million in 2009. Receivables from domestic operations decreased by P=993 million basically due to higher cash sales. International operations accounted for P=2,267 million after reflecting an impairment loss of other receivables in SMGB and SMBHK amounting to P=47 million.

Inventories increased to P=3,557 million in 2010 as against P=3,246 million in 2009 mainly due to consolidation of international operations’ inventory balance. Domestic operations’ inventories decreased by P=462 million primarily due to lower materials and supplies and containers on hand. International operation’s inventory accounted for P=773 million. SMGB and SMBHK posted impairment loss in materials and supplies and containers amounting to P=45 million.

Prepaid expenses and other current assets increased by P496 million to P=1,149 million in 2010 mainly due to the consolidation of international operations’ assets. International operations prepaid expenses decreased by P=55 million this year mainly due to impairment loss in SMBHK and SMGB amounting to P=54 million.

Investments pertain to investment in shares of stocks and other club shares of international operations.

Property, plant and equipment increased from P=5,765 million in 2009 to P=19,635 million in 2010 primarily due to the consolidation of the international operations’ and BPI’s fixed assets. With the addition of BPI’s land assets, domestic operations’ property, plant and equipment increased by P=7,053 million to P=12,818 million. Meanwhile, international operations’ fixed assets decreased by US$91 million this year primarily due to the impairment loss of SMBHK and SMGB’s fixed assets amounting to P=3,848 million.

Intangible assets increased by P=4,116 million from P=32,020 million in 2009 to P=36,136 million in 2010 primarily due to the addition of international operations’ brands and licenses. International operations intangible assets posted a decrease of P=346 million this year mainly due to impairment loss of SMBHK and SMGB’s goodwill and land use rights amounting to P=291 million.

Deferred tax assets amounted to P=68 million in 2010 from P=232 million in 2009. The balance pertains to international operations only as domestic operations’ gain from revaluation of long- term debt and marked-to-market gains resulted in a deferred tax liability.

Other noncurrent assets amounted to P=5,620 million in 2010 from P=5,300 million in 2009 primarily due to the consolidation of international operations’ balance of P=607 million after reflecting an impairment loss of deferred containers in SMGB and SMBHK amounting to P=43 million.

Drafts and loans payable pertain to short-term loans of international operations.

Accounts payable and accrued expenses increased to P=6,833 million in 2010 from P=4,077 million in 2009 due to consolidation of international operations’ payable balances.

Income and other taxes payable amounted to P=2,263 million in 2010 as against P=1,679 million in 2009. Taxes payable from domestic operations increased by P=447 million to P=2,126 million due to higher fourth quarter net income as compared to the last quarter of 2009. International operations’ taxes payable accounted for P=137 million of the total amount.

Long-term debt increased by P=12,948 million from P=38,416 million in 2009 primarily due to the US$300 million loan availed of by the Company for the purchase of the SMBIL shares.

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Deferred tax liabilities amounting to P=89 million is the result of domestic operations’ gain from revaluation of long-term debt and marked-to-market gains on embedded derivatives, and to international operations amounting to P=46 million temporary taxable differences.

Other noncurrent liabilities pertain to international operations’ pension liability accruals.

Cumulative translation adjustments of P=542 million is basically the foreign currency translation adjustment of international operations’ accounts.

Non-controlling interests pertain to the share of the non-controlling stockholders in the assets and liabilities of P.T. Delta Djakarta Tbk., San Miguel Holdings Thailand Limited, SMBHK and BPI.

2009 vs. 2008

The financial position for the year ended 2009 pertains to the consolidated financial position of the Company and Iconic Beverages, Inc. while 2008 pertains to the financial position of the Company only.

The Group’s consolidated total assets as of December 31, 2009 amounted to P=64,090 million, P=39,456 million higher than 2008 basically due to the acquisition of IBI, which owns the domestic beer and malt-based beverages brands and other intellectual property rights and know-how (IP Rights), and the remaining proceeds from the Bonds issuance that will be used to purchase SMC’s interests in BPI.

Cash and cash equivalents increased by 124.5% from P=6,041 million in 2008 to P=13,563 million in 2009 primarily due to the proceeds from the issuance of the Bonds, net of the acquisition of SMC’s interests in IBI.

The 9.6% decrease in trade and other receivables is brought about by effective collection measures and continued conversion of credit dealers to cash.

Prepaid expenses and other current assets increased by P=194 million primarily due to the advance contribution made to the Company’s retirement fund.

The increase in intangible assets is attributed to the acquisition of the IP Rights from SMC.

Deferred tax assets decreased by 45.7% mainly due to the effect of recognition of deferred income tax on the maturity of free-standing fuel derivatives in 2009 and the write-off of reserve for inventory losses.

Other noncurrent assets increased by 8.3% brought about by the purchase of new bottles and shells.

Accounts payable and accrued expenses increased by 35.9% from P=3,000 million in 2008 to P4,077 million in 2009 mainly due to accrual of interest expense on the Bonds.

Income and other taxes payable decreased by P906 million due to lower income tax expense as compared to the same period last year as a result of lower income tax rate, from 35% to 30% in 2009.

Long-term debt – net of debt issue costs pertains to the Bonds issued in April 2009.

Other noncurrent liabilities decreased by 100% due to the reversal of the accrual of 10% escalation clause on the lease liability to SMC that was terminated in 2009.

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Cumulative translation adjustments decreased by 100% due to maturity of free-standing fuel derivatives in December 2009. The increase (decrease) in equity is due to:

Group For the year

Ended December 31,

2010

Group For the year

Ended December 31,

2009

Company For the year

Ended December 31,

2008 Income during the period P 11,768 P 10,033 P 10,042 Issuance of capital stock - - 592 Non-controlling interests from acquisition of a subsidiary 2,152 - - Effect of translation adjustments Cash dividends

(542) (8,475)

45 (9,170)

(45) (9,222)

P 4,903 P 908 P 1,367 V. SOURCES AND USES OF CASH A brief summary of cash flow movements is shown below:

Group For the year

Ended December 31,

2010

Group For the year

Ended December 31,

2009


Ended December 31,

2008 Net cash flows provided by operating activities P 14,912 P 12,024 P 10,994 Net cash flows used in investing activities (17,746) (33,645) (1,604) Net cash flows provided by financing activities 4,584 29,147 (8,603)

Net cash flows from operations basically consist of income for the period and changes in noncash current assets, certain current liabilities and others. Net cash flows used in investing activities included the following:

Group For the year

Ended December 31,

2010

Group For the year

Ended December 31,

2009


Ended December 31,

2008 Acquisition of subsidiaries, net of cash received (P16,464) (P32,000) P - Increase in intangibles and other noncurrent assets (1,033) (1,559) (973) Additions to property and equipment (956) (626) (934) Interest received 694 535 259 Proceeds from sale of property and equipment 13 5 44

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Major components of cash flow provided by (used in) financing activities are as follows:

Group For the year

Ended December 31,

2010

Group For the year

Ended December 31,

2009


Ended December 31,

2008 Proceeds from long-term debt P 13,469 P38,356 P - Cash dividends paid (8,475) (9,170) (9,222) Dividends paid to non-controlling interests (300) - - Increase (decrease) in other noncurrent liabilities (83) (39) 27 Payments of short-term borrowings, net of availments (27) - - Proceeds from issuances of capital stock - - 592

The effect of exchange rate changes on cash and cash equivalents amounted to P=237 million, (P=4) and (P=8) million as of December 2010, 2009 and 2008 respectively. VI. KEY PERFORMANCE INDICATORS The following are the major performance measures that the Group uses. Analyses are employed by comparisons and measurements based on the financial data on the periods indicated below:

December 31 2010 2009 Liquidity: Current Ratio 2.25 3.61 Solvency: Debt to Equity Ratio 2.51 2.22 Interest-bearing Debt to Equity

2.16 1.93 Ratio Profitability: Return on Average Equity 55.3% 51.5% Domestic Operations Operating Efficiency: Volume Growth 5.2% 0.8% Revenue Growth 9.5% 4.6% Operating Margin 33.2% 31.4%

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The manner by which the Group calculates the above indicators is as follows:

KPI Formula Current Ratio Current Assets

Current Liabilities Debt to Equity Ratio Total Liabilities (Current + Noncurrent)

Equity Interest-bearing Debt to Equity Ratio

Total Interest-bearing Debt Equity

Return on Average Equity

Net Income Average Equity

Volume Growth Current Period Sales Volume

Prior period Sales Volume Revenue Growth Current period Net Sales

Prior Period Net Sales Operating Margin Income from Operating Activities

Net Sales VII. OTHER MATTERS

a) Cash Dividends

On March 11, 2011, the Company’s Board of Directors declared cash dividends of P 0.14 per share payable on April 11, 2011 to all stockholders of record as of March 25, 2011.

b) Commitments

The outstanding purchase commitments of the Group as of December 31, 2010 and 2009 amounted to P 4,272 million and P 2,141 million, respectively.

Amounts authorized but not yet disbursed for capital projects as of December 31, 2010 and 2009 is approximately P 1,980 million and P 707 million, respectively.

c) Foreign Exchange Rates The foreign exchange rates used in translating the US dollar accounts of foreign subsidiaries to Philippine peso in 2010 were closing rates of P 43.84 and average rates of P 45.12 for income and expense accounts.

d) There are no unusual items as to nature and amount affecting assets, liabilities, equity, net income or cash flows, except those stated in Management’s Discussion and Analysis of Financial Position and Performance.

e) There were no material changes in estimates of amounts reported in prior interim periods of the current year or changes in estimates of amounts reported in prior financial year.

f) There were no known trends, demands, commitments, events or uncertainties that will have a material impact on the Group’s liquidity.

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g) There were no known trends, events or uncertainties that have had or that are reasonably

expected to have a favorable or unfavorable impact on net sales or revenues or income from continuing operation.

h) There were no known events that will trigger direct or contingent financial obligation that is material to the Group, including any default or acceleration of an obligation, other than those disclosed in the Management’s Discussion and Analysis and the Audited Consolidated Financial Statements.

i) There were no material off-statements of financial position transactions, arrangements, obligations (including contingent obligations), and other relationship of the Group with unconsolidated entities or other persons created during the reporting period.

AS OF DECEMBER 31, 2010

TYPE OF ACCOUNTS RECEIVABLE TOTAL CURRENT 1 - 30 DAYS 31 - 60 DAYS OVER 60 DAYS

DOMESTIC P 2,246,800,333 2,003,903,075 53,965,949 1,454,971 187,476,339

INTERNATIONAL 1,924,466,306 1,276,259,266.66 169,624,470 204,810,487.31 273,772,082

TOTAL 4,171,266,639

ALLOWANCE FOR DOUBTFUL ACCOUNTS (926,064,561)

NET P 3,245,202,078

SAN MIGUEL BREWERY INC. AND SUBSIDIARIESACCOUNTS RECEIVABLE - TRADE

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