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1 Global Breweries Global Breweries Fundamental Analysis and Recommendations Cyrus Cheung Ervinna Jeff November 17, 2004.

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1 1 Global Breweries Global Breweries Fundamental Analysis and Recommendations Cyrus Cheung Ervinna Jeff November 17, 2004

2 Global Breweries 2 Overview of Presentation Industry Overview  History & Background  Product  Industry  Consumers  Growth Area  Key Success Factors Company Analysis and Recommendations:  Anheuser-Busch : Cyrus Cheung  Heineken : Erivnna  Molson : Jeff

3 3 Global Breweries Industry Overview

4 Global Breweries 4 History & Background Ancient History:  There is evidence that beer was elaborated by the Babylonian, Assyrian, Egyptian (for medical purposes), Hebrew, Chinese, and Inca cultures.  55 BC Roman legions introduce beer to Northern Europe.  AD the first half of the Middle Ages, brewing begins to be practiced in Europe, shifting from family tradition to centralized production in monasteries and convents (hospitality for traveling pilgrims).  1200 AD beer making is firmly established as a commercial enterprise in Germany, Austria, and England.  1420 German brewers develop the lager method of brewing.  1489 Germany's first brewing guild, Brauerei Beck, was established. Source:

5 Global Breweries 5 History & Background Renascence History :  1553 Beck's Brewery founded & still brewing today.  1587 the first beer brewed in New World at Sir Walter Raleigh's colony in Virginia.  1612 the first commercial brewery opened in New Amsterdam (NYC, Manhattan).  1786 Molson brewery is founded in what is today Canada. Source:

6 Global Breweries 6 History & Background Modern History:  In the mid-19th Century (1850's) German immigrant brewers introduced cold maturation lagers to the US (Anheuser-Busch, Miller, Coors, Stroh, Schlitz, and Pabst roots begin here).  The modern era of brewing in the US began in the late 1800's with commercial refrigeration (1860), automatic bottling, pasteurization (1876), and railroad distribution.  1880 there were approximately 2,300 breweries in the US only 160 breweries survive Prohibition (see below).  1920 Prohibition (U.S) Starts for beer, even though some regions started as early as 1846, e.g. Maine. Prohibition focused more on whiskey and other distilled products. (Prohibition ends in April 7, 1933) Source:

7 Global Breweries 7 History & Background Interesting Facts:  Historians speculate that prehistoric nomads may have made beer from grain & water before learning to make bread.  Most Expensive Beer in the World: “Tutankhamen” - US$52  Country with the most individual brands: Belgium with 400  Average American annually consumes 23.1 gallons of beer, more than milk or juice.  Cenosillicaphobia is the fear of ….. an empty glass. Source:

8 Global Breweries 8 Product Highly mature and standardized product  Firms try to distinguish themselves by differentiation Quality, Innovation, and marketing Highly segmented market  Traditional Beers: Sub-premium Premium Malt liquor segments Super premium* Light* Ice* Dry*  S pecialty Beers: Fastest growing segment (10-15% since 1990) They are perceived as higher quality by consumers

9 Global Breweries 9 Product - Brewing process: 1. Milling 2. Mashing 3. Boiling 4. Cooling 5. Fermenting 6. Filtering 7. Conditioning 8. Pasteurizing 9. Packaging Main Ingredients:  Malt  Hops  Yeast  Rice  Water Highly standardized and automated process.

10 Global Breweries 10 Industry Global market share of top 20 brewers is increasing  1990 – 51%  2000 – 65% Industry remains fragmented  5 largest account for approx. 44% of total volume  Compare this to the cigarette industry - 5 largest, 60% share Home market dependence

11 Global Breweries 11 Industry Current trends in the industry  Consolidation led by major international brewers Interbrew and Heineken  Volume growth in developing market China, Eastern Europe, Russia  Big gets bigger

12 Global Breweries 12 Industry

13 Global Breweries 13 Industry Development of the Top 10 brewers and the World Market (in millions of hl)

14 Global Breweries 14 Industry Global Beer Consumption

15 Global Breweries 15 Modern US Beer industry: Oldest company date back to the 17 th century Industry dynamics traced back to the repeal of prohibition in Following the repeal of Prohibition, legislative changes required the industry to be divided into 3 distinct parts: 1. Brewers 2. Wholesale Distributors 3. Retailers

16 Global Breweries 16 Modern US Beer industry: Business model: High transportation cost to be offset by high quality price premium as company seek to differentiate themselves and reach larger markets. Maturing industry highly concentrated as the result of Mergers and acquisitions ( scale economies in operation and marketing)

17 Global Breweries 17 Modern US Beer industry: Share of Total Beverage Alcohol Retail Dollar Sales Share of Total Beverage Alcohol Consumption

18 Global Breweries 18 US Market During the 3rd Quarter (Volume)

19 Global Breweries 19 US Market

20 Global Breweries 20 US Market

21 Global Breweries 21 US Market Taxation: Highly regulated by each state Beer Excise Tax (tax for each barrel of beer sold) Federal ($0.58/gallon) State (average: $0.25/gallon)

22 Global Breweries 22 Product Segments: Super Premium  Imports, microbreweries, specialty ( low carbs) Premium  National brand, light beer Sub Premium  Malt Liquor, popular priced( cheap) 2003 US Market

23 Global Breweries 23 Consumers & Trends

24 Global Breweries 24 Consumers & Trends

25 Global Breweries 25 Consumers & Trends

26 Global Breweries 26 Consumers & Trends Health Conscious Consumers  Rise of the low Carb diets, light beers Changing Taste  Looking for more sweet taste Fads in the market:  Cider, Wine cooler, microbreweries… Latest : “Malternatives” ___%growth  Non malt based alcoholic beverages (ie: coolers, hard lemonade, spirit based and others)

27 Global Breweries 27 Consumers & Trends

28 Global Breweries 28 Global Expansions Potential markets: Growing middle class South America  High Consumption  Concentrated market ( Brazil (65%), Argentina (80%), East Europe  Switching from spirit Asia ( China)  China has the largest Beer consumption by volume  One of the world most competitive market

29 Global Breweries 29 Key Success Factors Low Cost Structure ( efficient Scale) Effective Marketing & Advertising Strategy Successful Brand loyalty Product Innovation Distribution Global player

30 Global Breweries 30 Anheuser-Busch Companies Inc.

31 Global Breweries 31 Presentation Overview : Company Background Management Core Business Business Strategy Value Drivers Financial Statements Analysis Stock Price Performance Recent News Analyst Recommendation My Recommendation

32 Global Breweries 32 Established in 1864 St. Louis Based company Currently control by 5 th generation of Busch Family  August A. Busch III – Chairman  August A. Busch IV – President of Anheuser Busch, Inc. (Domestic brewing) Incorporated in 1979, is the holding company parent of Anheuser- Busch Parent corporation to a number of subsidiaries  Principle business: Production/Distribution of beer, Packaging and Entertainment Sources: Anheuser Busch Companies: At a glance (Anheuser Busch Companies, 2003) Company Overview : Company Overview

33 Global Breweries 33 Management Team Management Team : NamesAgeOfficer SinceTitle Busch III, August A Chairman of the Board Stokes, Patrick T611981President, Chief Executive Officer, Director Baker, W. Randolph571982Chief Financial Office, Vice President Jacob, John E691994Executive Vice President – Global Communication, Director Kasen, Keith M President and Chairman of the Board of Busch Entertainment Corp. Busch IV, August A Vice President and Group Executive; President of Anheuser-Busch, Inc. Gonzales, Carlos F Director; “Grupo Modello” Forese, James J Director; Americas Most Powerful People Knight, Charles F Director; Americas Most Powerful People Source:

34 Global Breweries 34 Compensation package: Top 5 Executives For Fiscal Year Ending 12/31/2003 NamesTotal Annual Compensation All OtherFiscal Year Total Options Total Exercised Stokes, Patrick T $4.91 M$0.15 M$5.06 M$46.21 M$6.56 M Busch III, August A. $2.14 M$0.11 M$2.24 M$46.10 M$6.41M Busch IV, August A. $1.81 M$0.07M$1.88 M$8.34 M$1.32 M Baker, W. Randolph $1.24 M$0.06M$1.30 M$28.34 M$2.26 M Lambright, Stephen K. $1.18 M$0.07M$1.25 M$13.66M$2.87 M Source:

35 Global Breweries 35 Core Business Segment Segmented in 3 main areas:  Production/Distribution of beer 2 nd Largest Brewer in the world (130 M barrel/year)  New “King of Beer” is InBev (161M barrel/year), the result of the merger between Belgium’s Intervew and Brazilian beer in late August Has 49.6% of U.S. market and about 10% of global market operating 14 breweries, 12 (in U.S.) and two overseas (UK and China) 2/3rds of volume delivered by wholesalers who only carry Anheuser-Busch (A-B)  Packaging one of the largest U.S. manufacturers of aluminum beverage containers and the world's largest recycler of aluminum beverage containers.  Entertainment Formed in 1979, consists of nine distinctive park Sources: Anheuser Busch Companies: At a glance (Anheuser Busch Companies, 2003)

36 Global Breweries 36 Subsidiaries & Satellites A-B Packaging: Recycling, Printing/ Packaging, Aluminum Production Busch Entertainment: Sea World, Busch Gardens Busch Agricultural Resources Inc Manufacturers Railway Company 50% Share in Grupo Modelo: Corona (93-98) 27% Share in Tsingtao: China’s largest brewer (13% of china market) 29% Share in Harbin Beer Co: China regional brewer (prevented SABMiller’s takeover bid) 20% Share in Cervecerias: Chile’s largest brewer *JUST SOLD* Distribution partnerships: Labatt & Kirin (Japan) Sources: Anheuser Busch Companies 2003 Annual Report

37 Global Breweries 37 Income contribution of each segment For Fiscal Year Ending 12/31/2003 Sources: Anheuser Busch Companies 2003 Annual Report

38 Global Breweries 38 Beer Products The company currently brews approximately 30 beers for sale in the United States World’s No.1 and No.2 brand: Budweiser & Bud Light  Budweiser – about 3% of world market Bud light has 19.5% of U.S. market Other Brands:  Budweiser Family: Bud Dry, Bud Ice, Bud Ice Light  Michelob Family: Michelob, Michelob Ultra, etc  Busch Family: Busch, Busch Light, etc  Specialty Beers: World Select, etc  Nonalcohol Brews: O’Doul’s, etc  Natural Family: Natural Light, etc  Malt Liquors: Hurricane, etc  Specialty Malt Beverags: Bacardi Silver Limon, etc Sources: Anheuser Busch Companies: At a glance (Anheuser Busch Companies, 2003)

39 Global Breweries 39 Business Strategy Missions  Be the world's beer company  Enrich and entertain a global audience  Deliver superior returns to our shareholders Objectives / Strategies  Increasing domestic beer segment volume and per barrel profitability Economies of Scale  Increasing international beer segment profit growth. Made significant marketing investments to build brand recognition outside the United States and owns and operates breweries in China  Continued growth in profit and free cash flow in the packaging and entertainment segments. Provide significant efficiencies, cost savings and quality assurance for domestic beer operations Sources: Anheuser Busch Companies 2003 Annual Report

40 Global Breweries 40 Value Drivers Home market dominance (49.6% market share)  Twice as large as nearest competitors  Economies of scale Extensive exclusive distribution  2/3rds of volume delivered by wholesalers who only carry Anheuser-Busch (A-B) Brand recognition and Innovation  First to introduce low carb beers Marketing and manufacturing efficiency  Leverage 49.6% market share into 75% of markets operating profit Sources: Anheuser Busch Companies 2003 Annual Report

41 Global Breweries 41 Consolidated Balance Sheet

42 Global Breweries 42 Invested $200 Million in Bonds & Loans with Tsingtao Brewery in China Net Increase to Debt $682.2 Million with US Dollar Notes and Commercial Paper 11% Decrease in Shareholders Equity Balance Sheet Analysis IndustryS&P 500 Quick Ratio Current Ratio Lt Debt / Equity Return on Assets 12.05%13.7%12.2%10.83%7.38% ROE72.0%54.4%41.6%64.01%20.05%

43 Global Breweries 43 Debt Analysis

44 Global Breweries 44 Consolidated Statement of Income

45 Global Breweries 45 9% Increase in Revenues 7% Increase in COGS 18% Increase in Operating Income 22% Increase in Net Income Advertising and promotional activities are a key component of A-B’s Strategy  Advertising Costs were $806.7 Million  Promotional Costs were $511.8 Million Income Statement Analysis Dollar in millions except per share IndustryS&P 500 Net Sales$14,146.7$13,566.8$12,911.0N/A Net Income$2,075.9$1,933.8$1,704.5N/A Earnings/Share (diluted)$2.48$2.20$1.89N/A Dividend Yield Annual Dividend$0.83$0.75$0.69N/A Profitability Ratios Gross Margin40.16%40.1%38.4%39.84%46.76% Profit Margin12.25%14.3%13.2%11.08%13.99%

46 Global Breweries 46 Income Statement Analysis – cont. REVENUE Quarters MAR3,044,2003,136,6003,280,6003,477,000 JUN3,452,0003,626,1003,770,2004,010,000 SEP3,522,2003,706,2003,880,5004,080,100 DEC2,893,1003,097,5003,215,400 Totals12,911,50013,566,40014,146,70011,567,100 Note: Units in Thousands of U.S. Dollars EARNINGS PER SHARE Quarters MAR JUN SEP DEC Totals Note: Units in U.S. Dollars

47 Global Breweries 47 Consolidated Statement of Cash Flow

48 Global Breweries 48 Cash Flow Analysis 1.82 Billion in Free Cash Flow Acquired almost $2 Billion in Treasury Stock Paid $652 Million in Debt However, increased Debt by $1.4 Billion Issued $685.4 Million in Dividends Continue to acquire businesses and invest in packaging and related operations Future Cash may be directed towards China Focus on share repurchase

49 Global Breweries 49 Impact of Stock Options on Net Income Impact of Pension Plan Reached 5 year agreement with Union Reached 5 year agreement with Union Pension Increases of 14% Pension Increases of 14% $7.5 Million signing bonus $7.5 Million signing bonus Pension plans cover substantially all regular employees Pension plans cover substantially all regular employees Employee Stock Ownership Plan (ESOP) deferred 45.4 million shares for purchase Employee Stock Ownership Plan (ESOP) deferred 45.4 million shares for purchase

50 Global Breweries 50 Financial Analysis Summary GROWTH RATES 1 Year3 Years5 Years Sales % EPS % Dividend % Financial Strength CompanyIndustrySectorS&P 500 Quick Ratio (MRQ) Current Ratio (MRQ) LT Debt to Equity (MRQ) Total Debt to Equity (MRQ) Interest Coverage (TTM)

51 Global Breweries 51 Financial Analysis Summary Profitability Ratios (%)CompanyIndustrySectorS&P 500 Gross Margin - 5 Yr. Avg EBITD - 5 Yr. Avg Operating Margin - 5 Yr. Avg Pre-Tax Margin - 5 Yr. Avg Net Profit Margin - 5 Yr. Avg Effective Tax Rate - 5 Yr. Avg Profitability Ratios RATIO COMPARISON Valuation RatiosCompanyIndustrySectorS&P 500 P/E Ratio (TTM) P/E High - Last 5 Yrs P/E Low - Last 5 Yrs Price to Sales (TTM) Price to Book (MRQ) Price to Tangible Book (MRQ) Price to Cash Flow (TTM) Price to Free Cash Flow (TTM) Valuation Ratios

52 Global Breweries 52 Stock Price Summary As of 11/16/04 4:00 PM Traded on NYSE  Symbol: BUD.N  790,067,968 units outstanding  Market Capitalization of $ Billions US  Instit. Ownership $467.2 Million (58.3%) Current Price: Change: Open: High: Low: Volume: 1,251,900 Percent Change: -0.41% Yield: 1.90% P/E Ratio: Week Range: to Sources:

53 Global Breweries 53 Stock Price Performance: One Year Chart Sources:

54 Global Breweries 54 Stock Price Performance Vs. Dow Jones Industrial Avg.: One Year Chart Sources:

55 Global Breweries 55 Stock Price Performance Vs. Dow Jones Industrial Avg.: Five Year Chart Sources:

56 Global Breweries 56 Valuation Model Gordon’s Growth Model  Good for stable companies  Paying dividends that grow Stock Price = Ex (Div/Share) (k – g) 2001= = = Ex (Div/Share) = 0.82 g = 6% over last 3 years k = Two valuations using expected dividends vs. indicated dividends Expected: $54.67 Actual: $50.73

57 Global Breweries 57 Recent News Nov 12, 2004  The company sold its 20 percent stake in Chile's biggest brewer CCU for $299 million in an auction on the Santiago Stock Exchange Nov 9, 2004  The compnay expects 2004 profit to grow at a previously forecast rate of 10 percent to 11 percent, which would result in earnings per share of $2.73 to $2.75, excluding a 1.5 cent gain from a commodity hedge. Jun 3, 2004  Anheuser-Busch Companies Proceeds with Tender Offer for China's Harbin Brewery; SABMiller Withdraws Bid Sources:

58 Global Breweries 58 Analyst Recommendations and Revisions Consensus Recommendation Company Fiscal Year End Month Last Updated OUTPERFORMDecember15-Nov-04 Analyst Recommendations and Revisions 1-5 Linear ScaleCurrent 1 Month Ago 2 Months Ago 1 Year Ago (1)BUY3455 (2)OUTPERFORM3456 (3)HOLD11986 (4)UNDERPERFORM0001 (5)SELL0000 No Opinion0000 Mean Rating Sources:

59 Global Breweries 59 My recommendation Analysis:  Sound Management  Favourable treatment of stockholders  Dominant Domestic Market Share  Distribution competitive advantage  Strong International growth potential  Dividend model value $54.67  Intense International competition  Slowing growth in the Domestic Market  Questionable International Investment

60 Global Breweries 60 My recommendation Conclusion Buy

61 61 Global Breweries Heineken N.V. “Respect, Enjoyment, Passion for quality.”

62 Global Breweries 62 Company Overview History:  Originated in Amsterdam, Netherlands (Head Office)  1873: Heineken Breweries (HBM) is incorporated (Gerard Heineken is appointed President)  1980s: Start global expansion  International brewing groups (over 170 countries with 61,000 employees.) Facts:  The fourth largest market share in the world  The largest production in Europe  The second largest imported beer in US market

63 Global Breweries 63 Company Overview The largest production in Europe Output of the largest breweries in Europe (million hl) Brewery2003 Heineken73 Interbrew/Ambev66 Carlsberg56 S & N49 SABMiller33 Radeberger Gruppe18 Coors12 Anadolou Group11 Mahou S.A.10 Bitburger9 Total337 Total all breweries500 Sources: Brauwelt 2004/22 p. 645 Note: the figures only include beer produced in Europe

64 Global Breweries 64 Company Overview BRANDSUPPLIER COUNTRY OF ORIGI N p %Change%Change Corona ExtraBarton/GambrinusMexico74,00085, % HeinekenHeineken USANetherlands54,00058,0007.4% Labatt BlueLabatt USACanada14,10615,2698.2% TecateLabatt USAMexico11,02412,0269.1% Guinness StoutGuinness UDVIreland10,03510,6906.5% Foster's LagerMiller BrewingCanada8,95610, % Beck'sBeck's North AmericaGermany7,9388,1352.5% Amstel LightHeineken USANetherlands7,1008, % Bass AleGuinness UDVUK7,3387,6904.8% Modelo EspecialBarton/GambrinusMexico52506, % TOTAL LEADING BRANDS199,747221, % OTHERS77,60379,4272.3% TOTAL IMPORTED BEER277,350301,1508.6% Leading Imported Beer Brands ( Gallon Cases) The second largest imported beer in US market

65 Global Breweries 65 Company Overview Investment Snapshot:  Major Shareholder: Heineken Holding NV (50.005% of Heineken NV) Heineken Family (50.005% of Heineken Holding NV)  Traded in US OTC under symbol HINKY or HINKY.PK  Number of shares outstanding: 489,974,594  Average daily trade: 1.8 millions  Market capitalization: billions

66 Global Breweries 66 Company Overview Management:  Executive Board: A. Ruys, Chairman (since 2000). Joined in M.J. Bolland, Executive Board (since 2001). Joined in J.F.M. van Boxmeer, Executive Board (since 2001). Joined in D.R.H. Graafland, Executive Board (since 2002). Joined in  Supervisory Board: J.M. de Jong, Chairman (since 2002) M. Das, Supervisory Board and Chairman of Management Board (since 1994) H. de Ruiter, Supervisory Board (since 1993) M.R. de Carvalho, Supervisory Board (since 1996) A.H.J. Risseeuw, Supervisory Board (since 2000) J.M. Hessels, Supervisory Board (since 2001) C.J.A. van Lede, Supervisory Board (since 2002)

67 Global Breweries 67 Operation Product:  80% beer, 10% soft drinks, 3% spirits and wines.  International: Heineken (premium) Amstel (main stream)  National and regional brands Tiger (China), Primus (Africa), Guinness (Africa), Kaiser (Brazil), Murphy’s Irish (Europe), etc.  Limited in low-price segment  International and local include lagers, specialty beers, light beers, and alcohol free beers

68 Global Breweries 68 Operation Segmentation by region:  Europe: Western: market leader in Netherlands, Spain, Italy, and Greece Central and Eastern: 31% increase in sales due to the acquisition in 2003 of BBAG  Americas: United States: modest growth (Amstel Light) Canada: 9% increase in sales as imported beer South America: interest in CCU (Chile and Argentina), 20% interest in Kaiser (Brazil) Central America: alliance with FIFCO and 25% interest in Cervecaria (Costa Rica) Caribbean: has 5 breweries in the region

69 Global Breweries 69 Operation Segmentation by region:  Africa/Middle East: Amstel beer is brewed in some countries Produce and market soft drinks Heineken and Diageo together acquired a 28% stake in Namibia Breweries Consolidation with Al Ahram Beverages Company (Egypt)  Asia/Pacific: Joint venture with Fraser & Neave (Singapore) 43.9% indirect interest in HAPBC (China market)

70 Global Breweries 70 Operation Distribution:  Alliances with independent distributors  Has its own beverage wholesalers Partnership and Acquisitions:  Gain market share in innovation, production, distribution and marketing  2002/2003: Bravo International (Russia), Kaiser (Brazil), Al Ahram (Egypt), Florida Bebidas (Costa Rica), Karlsberg (Germany), CCU (Chile), NBL (Namibia)

71 Global Breweries 71 Operation Partnership and Acquisitions:  Recent: Combine operations with APB in China Introduce “BeerTender” (drought beer system used at home) with Krups Joint venture with Lion Nathan (Australia) Joint venture with Diageo and Namibia Breweries (South Africa) Combine operations with FEMSA in US market Acquire Sobol Beer, Shikhan and Volga Breweries (Rusia) Acquire Furstenbergische Brauerei KG and Brewery Hoepfner (Germany)

72 Global Breweries 72 Objectives Company’s goal:  Remain one of the top global brewers  Being more profitable per hectolitre than other international brewers  Building the most valuable brand portfolio, with Heineken as the international flagship brand  Remain independent

73 Global Breweries 73 Business Strategy Maintain strong local market position, a good sales mix and an efficient cost structure by combining the sale and distribution of the international Heineken premium brand with that of strong local brands Fulfill its corporate social responsibility Segment Leadership:  Acquire and combine strong brands into a new, larger company  In the market that is already in the hands of other brewers, promote the premium sector and specialty beers (e.g. US market)

74 Global Breweries 74 Key Success Factor Strong brand name (internationally well-known) Consolidation with strong local brands (gain market share and distribution channel) Low cost structure (through joint venture) Innovation and new marketing strategy (new packaging)

75 Global Breweries 75 Financial Analysis Financial Statements:  Balance Sheet Balance Sheet  Income Statement Income Statement  Cash Flow Statement Cash Flow Statement

76 Global Breweries 76 Financial Analysis RATIO COMPARISON Valuation RatiosCompanyIndustrySectorS&P 500 P/E Ratio (TTM) P/E High - Last 5 Yrs.NA P/E Low - Last 5 Yrs.NA Beta Price to Sales (TTM) Price to Book (MRQ) Price to Tangible Book (MRQ) Price to Cash Flow (TTM) Price to Free Cash Flow (TTM) % Owned Institutions Valuation Ratios

77 Global Breweries 77 Financial Analysis Dividend (in US Dollar) DividendsCompanyIndustrySectorS&P 500 Dividend Yield Dividend Yield - 5 Year Avg Dividend 5 Year Growth Rate Payout Ratio (TTM)

78 Global Breweries 78 Financial Analysis Growth Rates Growth Rates(%)CompanyIndustrySectorS&P 500 Sales (MRQ) vs Qtr. 1 Yr. Ago Sales (TTM) vs TTM 1 Yr. Ago Sales - 5 Yr. Growth Rate EPS (MRQ) vs Qtr. 1 Yr. Ago EPS (TTM) vs TTM 1 Yr. Ago EPS - 5 Yr. Growth Rate Capital Spending - 5 Yr. Growth Rate

79 Global Breweries 79 Financial Analysis Financial Strength CompanyIndustrySectorS&P 500 Quick Ratio (MRQ) Current Ratio (MRQ) LT Debt to Equity (MRQ) Total Debt to Equity (MRQ) Interest Coverage (TTM)NM

80 Global Breweries 80 Financial Analysis Profitability Ratios Profitability Ratios (%)CompanyIndustrySectorS&P 500 Gross Margin (TTM) Gross Margin - 5 Yr. Avg EBITD Margin (TTM) EBITD - 5 Yr. Avg Operating Margin (TTM) Operating Margin - 5 Yr. Avg Pre-Tax Margin (TTM) Pre-Tax Margin - 5 Yr. Avg Net Profit Margin (TTM) Net Profit Margin - 5 Yr. Avg Effective Tax Rate (TTM) Effective Tax Rate - 5 Yr. Avg

81 Global Breweries 81 Financial Analysis Management Effectiveness Management Effectiveness (%)CompanyIndustrySectorS&P 500 Return On Assets (TTM) Return On Assets - 5 Yr. Avg Return On Investment (TTM) Return On Investment - 5 Yr. Avg Return On Equity (TTM) Return On Equity - 5 Yr. Avg

82 Global Breweries 82 Financial Analysis Efficiency CompanyIndustrySectorS&P 500 Revenue/Employee (TTM)199,967589,989432,367699,010 Net Income/Employee (TTM)16,04166,92047,19796,653 Receivable Turnover (TTM) Inventory Turnover (TTM) Asset Turnover (TTM)

83 Global Breweries 83 Stock Price Analysis Symbol: HINKY Price: (Today) 52–week High: –week Low: EPS: P/E Ratio: 24.64

84 Global Breweries 84 5 years Performance Stock Price Analysis

85 Global Breweries 85 Stock Price Analysis 1 Year Performance

86 Global Breweries 86 Valuation Gordon model: DPS/ (k-g) DPS= 0.42 g= 5% k= Value of stock = Actual = 32.10

87 Global Breweries 87 Analyst Recommendation 1-5 Linear ScaleCurrent 1 Month Ago 2 Months Ago 1 Year Ago (1)BUY0000 (2)OUTPERFORM0000 (3)HOLD2222 (4)UNDERPERFORM0000 (5)SELL1111 No Opinion0000 Mean Rating3.67

88 Global Breweries 88 Conclusion Tight competition in global market (InBev and A-B) US economy slowdown Flat growth in total beer volume Operating profit is decreased Long-term debt is increased Employment cost is increased No new strategy to expand in Asia (the current fastest growth market) Recommendation: HOLD

89 Global Breweries 89

90 Global Breweries 90 Molson

91 Global Breweries 91 Molson:Company Overview Founded in 1786 by John Molson who establish his first brewery in Montreal. Incorporated in 1930 Became a public corporation in 1945: Molson's Brewery Limited Canada's oldest consumer brand names North America's oldest beer brand Today:  Canada’s largest brewer  headquartered in Montreal  3,800 employees  Five breweries across Canada: Vancouver, Edmonton, Toronto, Montreal and St. John’s  Operations in Canada, Brazil, and the United States  Global gross sales of $3.5 billion  Traded on TSX : MOL.A-T & MOL.B-TMOL.A-T MOL.B-T

92 Global Breweries 92 Molson: Senior Management Daniel J. O'Neill ( Joined Molson in 1999 as CEO) President and Chief Executive Officer (2004: Salary $983,333 bonus $ 1,008,167) Brian Burden ( Joined Molson in 2003) Executive Vice President and Chief Financial Officer (2004: Salary $408,333 bonus $154,202) Kevin T. Boyce ( Joined Molson in 2004) President and Chief Operating Officer, North America Robert Coallier( Joined Molson in 2000) President and Chief Executive Officer, Cervejarias Kaiser & Executive VP, Molson Inc. (2004: salary $ 459,375) Raynald H. Doin ( Joined Molson in 1997) Senior Vice-President Strategy and Integration, Human Resources (2004: Salary $311,583 bonus $128,807) Marie Giguère ( Joined Molson in 1999) Senior Vice President, Chief Legal Officer and Secretary Peter L. Amirault ( Joined Molson in 2002) Senior Vice-President Business Development and Innovation Les Hine ( Joined Molson in 2003) Chief Marketing Officer

93 Global Breweries 93 Molson: Board of Directors

94 Global Breweries 94 Molson: Operations

95 Global Breweries 95 Molson: Operations North America Brazil

96 Global Breweries 96 Molson: Vision & Objectives “Molson’s vision is to regain a position as one of the top performing brewers in the world as measured by long-term shareholder value. To realize this vision,Molson must deliver annual EBIT,volume andmarket share targets in Canada,Brazil and the United States.” the longer term objectives:

97 Global Breweries 97 Molson: Vision & Objectives 1) Growing Operating Profits: Revenue Growth EBIT (i) remained virtually unchanged compared to fiscal 2003 and did not reach the stated EBIT growth target of 14.5% as a result of lower than expected volumes in Canada and Brazil. Going forward, the EBIT target is double-digit growth. by growing revenue and saving costs Cost Saving In Canada: September 2003: announced The target of $125 million in cost savings for fiscal 2004 to 2006 At the end of fiscal 2004, $45 million of the objective was in place In Brazil: cost savings program exceeded expectations in the first year targeting R$200 million in cost savings for the fiscal 2003 to 2005 period. Two years into this program, R$152 million in savings had been implemented.

98 Global Breweries 98 Molson: Vision & Objectives 2) Grow Market Share Canada Total market share in Canada decreased by 0.6% from 44.4% to 43.8% Customers’ preference for core owned brands (increase in share by 0.9%) lead to a rebalancing in Molson’s brand portfolio in favour of owned brands Strengthen the CANADIAN brand in the premium segment Redesigned packaging : including new label for bottles, New look for cans, Refreshed outer case By building brand equity and innovating: Brazil Market share decreased from 14.6% to 12.4% The flagship brand, KAISER PILSEN, was reformulated and launched a new advertising campaign US Market erosion of GOLDEN and MOLSON ICE Molson used print, radio and outdoor advertising to win the young adult consumer Use of Molson Twin Labels

99 Global Breweries 99 Molson: Vision & Objectives 3) Grow Volume Volume by Geographic Regions: by developing markets and strengthening sales Molson volume over fiscal 2004 : Grew slightly in Canada (by 0.7% while industry up 2%) Virtually flat in the United States Decreased substantially in Brazil. (by 17.5% while industry drop by only 3.4%)

100 Global Breweries 100 Molson: Vision & Objectives 4) Organizational Renewal New structure of an integrated but decentralized sales force connected to local markets. Brazil: hiring of more than 1,200 experienced sales people in six regional sales centres Leadership Development and Succession Planning Production Leadership Program New program for development of talent in strategic marketing function Optimal Work Environment philosophy by leveraging and developing talent:

101 Global Breweries 101 Molson: Vision & Objectives 5) Improve Quality Molson made great strides in fiscal 2004 toward the achievement of best-in-class brewer status in all performance measures. Molson is evaluating investments in brewing capabilities, improved maintenance practices, additional line upgrades, reduced utilities consumption, and, as always, improved quality and a safer workplace.

102 Global Breweries 102 Molson: Financial Income statement P/E Price to Sales 1.22 Price to Book 3.50 Dividend Per Share 0.56 Book Value Per Share 9.57 Revenue Per Share Quick Ratio 0.25 Current Ratio 0.42 Debt to Equity 0.65 Return on Equity (ROE) 25.1% Return on Assets (ROA) 6.03% Return on Invested Capital (ROIC) 10.7% Balance Sheet Cash Flow statement Operating Activities Investing Activities (73.1) Financing Activities (125.8) Net 21.2 Greatest expenditure :Operating Activities Investing Activities, Molson has been investing in newer equipment Financing Activities, repayment of long term debt was greater than refinancing Latest quarter

103 Global Breweries 103 Molson : In the News November 8, 2004 Molson to Build New $35 Million Brewery in New Brunswick Cost of $35 million Located in Moncton, New Brunswick Completed by January 2007 Capacity of 6 million 12 packs annually Implementation of distribution system $3.5 million forgivable loan

104 Global Breweries 104 Molson : In the News Molson and Coors Announce Merger of Equals to Create “World's Fifth Largest Brewer“

105 Global Breweries 105 Molson : In the News Transaction Summary:

106 Global Breweries 106 Molson : In the News Nov 5 th : Molson and Coors Announce Agreement to Pay Special Dividend to Molson Shareholders Molson to Build New $35 Million Brewery in New Brunswick As part of Molson and Coors merger Pentland ( owned by will forego special dividend As a result, dividend will be $3.26 rather than $3.00 Both Molson Class A non-voting and Class B common shareholders, excluding Pentland, will receive C$ 3.26 per share, or a total of approximately C$ 381 million (US$ 316 million), payable as part of the plan of arrangement to Molson shareholders of record as of the last trading day immediately prior to the date of closing of the merger transaction. Assuming these approvals, and approval by the Quebec Superior Court, the companies expect to close the transaction later this year or early next year. Molson Inc. Coors shareholders of record at the close of business on Monday, November 22, 2004, will be entitled to notice of the special meeting and to vote on the proposal. The date of the special meeting has not been set.

107 Global Breweries 107 Molson: Stock Price 106.9M shares A – Non-Voting Public 100% Market Capitalization of approximately $4121 million

108 Global Breweries 108 Molson : Stock Price 22.4M shares B – Voting Public 45%

109 Global Breweries 109 Molson : Shareholder Return Molson Shareholder Return Since April 2001

110 Global Breweries 110 Molson : Recommendation Analyst Recommendation: Our Recommendation: Hold : Wait for more info on Brazil Too early to tell the benefits of merger * Dividend capture opportunity

111 Global Breweries 111

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