Presentation on theme: "Leon Chung Jorge Cruz Darren Devine Cameron McLeod"— Presentation transcript:
1 Leon Chung Jorge Cruz Darren Devine Cameron McLeod BreweriesLeon ChungJorge CruzDarren DevineCameron McLeod
2 Breweries“All right, brain. You don't like me and I don't like you, but let's just do this and I can get back to killing you with beer” (Simpson, 1999).
3 Outline Introduction Valuation: Industry Analysis: Bud Coors Molson History of the international and North American beer industry.The Global Industry.The North American Market.Valuation:BudCoorsMolson
4 Industry Overview: History Ancient History:Historians speculate that prehistoric nomads may have made beer from grain & water before learning to make bread.4300 BC, Babylonian clay tablets detail recipes for beer.Beer around the world: There is evidence that beer was elaborated by the Babylonian, Assyrian, Egyptian (for medical purposes), Hebrew, Chinese, and Inca cultures.Romans brewed "cerevisia" (Ceres the goddess of agriculture & vis meaning strength in Latin).55 BC Roman legions introduce beer to Northern Europe.23 BC Chinese brewed beer called "kiu“
5 Industry Overview: History Ancient History: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.
6 Industry Overview: History 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.1602 Dr. Alexander Nowell discovers that ale can be stored longer in cork sealed, glass bottles.1612 the first commercial brewery opened in New Amsterdam (NYC, Manhattan).1674 Harvard College has its own brew-house.1680 William Penn (founder of Pennsylvania) operated a commercial brewery.1786 Molson brewery is founded in what is today Canada.
7 Industry Overview: History 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.1870's Adolphus Busch pioneers the use of double-walled railcars, a network of icehouses to make Budweiser the first national brand.
8 Industry Overview: History Modern History:1876 Pasteur unraveled the secrets of yeast in the fermentation process, and he also developed pasteurization to stabilize beers 22 years before the process was applied to milk.1880 there were approximately 2,300 breweries in the US.1890s Pabst was the first US brewer to sell over 1 million barrels in a year.1914 commercial competition drove the number of operating breweries down to 1,400.
9 Industry Overview: History Modern History:1919 House of Representatives Bill No. 6810, establishing the apparatus for the enforcement of prohibition. The bill was passed October 10, vetoed by President Wilson on October 27. The veto was subsequently overridden by Congressional vote.1920 Prohibition Starts for beer, even though some regions started as early as 1846, e.g. Maine. Prohibition focused more on whiskey and other distilled products.1920s Near beers brewed during prohibition: Pablo by Pabst, Famo by Schlitz, Vivo by Miller, Lux-O by Stroh and Bevo by Anheuser-Busch.1933 Prohibition ends for beer (April 7).1935 only 160 breweries survive Prohibition.Source:
10 Industry Overview: History Modern History:1935 the beer can is introduced (American Can Co. & Kreuger Brewing).1966 Budweiser is the first brand to sell 10 million barrels in a year.1976 New Albion is the first in the rebirth of brewpubs and microbreweries in the US first opening in California.First half of the 1900's beer was associated with men, blue-collar workers, college students, and mainstream sports enthusiasts.Late 1900's beer had a different image and cultural function, with growth in popularity among a more diverse share of the population.Source:
11 The Brew ProcessMalted barley is cracked in the Roll Mill turning into grist and then stored in the grist case.The grist drops into the mash lauter tun and mixes with hot water provided by the hot liquor tank producing a sugary liquid called wort.The wort travels to the brew kettle where it's heated to a rolling boil. Hops are added to provide bitterness, flavor, and aroma.The hopped wort passes through the heat exchanger cooling to the right temperature for fermentation.The now chilled, hopped wort meets up with the yeast in the fermenter to begin the fermentation process. Once completed, the liquid referred to as wort is now called beer.The beer enters a filter designed to help remove yeast and haze producing compounds.PASTEURISATION: This is a process of heating and rapid cooling which prolongs shelf-life and destroys any bacteria or other organisms in the beer.The finished beer exits the filter and enters the serving tank ready to be dispensed.
12 Industry Overview: General Characteristics Beer is a Mature Product.It is the largest seller in the alcohol drinks sector.Sales are related to:Weather (summer months)Holidays: Christmas and the 4th of July in the USThe first and fourth quarters historically are the slowest with the rest of the year typically demonstrating stronger salesConsumer base: heavily male dominated.Source: The Brewers’ Handbook (http://www.beer-brewing.com/)
14 Global Beer Market: General Characteristics Beer is one of the smallest global consumer goods.Although globalization is a general trend in many industries, the brewing industry has long been lagging behind and has remained very fragmented.Globalization in the beer industry has proceeded at a much slower pace than in many similar industries (e.g. tobacco).
15 Global Beer Market: Recent Trends Consolidation led by major international brewers.During recent years brewers like Heineken and Interbrew have started internationalizing their activities.Volume growth in developing marketsChina: Second largest market (by sales) and growing. Largest market in total volume.Eastern Europe and RussiaBig gets bigger:According to various studies aggregate volume of the world’s top 10 brewers has grown at more than four times the pace of total industry volume since the mid-1990s.Source: Ludwig Theuvsen and Oliver Ebneth (2004).International Food and Agribusiness Management Association (IFAMA).
16 Development of the Top 10 Brewers and the World Market (in millions of hl*) hl = hectoliter, measure used in the brewing industry equivalent to 100 liters.Source: International Food and Agribusiness Management Association (IFAMA).
17 Top 10 Global Brewers (2003) (57% Market Share)* * Volume of the world beer market in 2003: billion hl.Source: International Food and Agribusiness Management Association (IFAMA).
18 Above Average Growth of the 5 largest brewing companies over the last 5 years Source: International Food and Agribusiness Management Association (IFAMA).
20 Global Beer Market Reasons for global expansion: Growth potentialExpansion in view of saturated home markets.Source: Ludwig Theuvsen and Oliver Ebneth (2004).International Food and Agribusiness Management Association (IFAMA).Global market share of top 20 brewers is increasing%%Industry remains fragmented5 largest account for approximately 30% of total volumeCompare this to the cigarette industry – 5 largest, 60% shareHome Market Dependence.
21 Global Beer Market According to Theuvsen and Ebneth (2004) “consolidation in the brewing sector is far from ending and the internationalization process has just begun to pick up speed”Source: Ludwig Theuvsen and Oliver Ebneth (2004).International Food and Agribusiness Management Association (IFAMA).
22 Global Beer Market Internationalization Process: According to Kutschker et al. (1997) the process can be classified into three categories:international evolutioninternational episodesinternational epochsAccording to Theuvsen and Ebneth (2004) in the brewing industry we could identify an international epoch over the last five years, which is characterized bya broad scopehigh speedlong duration of changeThey also predict that “during the following years, consolidation and integration will be the overall pattern”.
23 Global Beer MarketSource: International evolution, international episodes, and international epochs--implications for managing internationalization. Michael Kutschker, Iris Baurle, Stefan Schmid. Management International Review. Wiesbaden: 1997.Vol.37, Iss. 2; pg. 101, 24 pgs
24 The Internationalization Matrix Source: Ludwig Theuvsen and Oliver Ebneth (2004).International Food and Agribusiness Management Association (IFAMA).
25 The North American Market: General Characteristics 3 basic levels of brewing according to annual production:High-volume (shipments of over 15 million barrels):They account for around 80% of total production.All of them are owned by the 3 largest brewing companies in the US (Anheuser-Busch Inc., Miller Brewing Co., and Adolph Coors Co.)Regional (15,000 – 15M barrels):They account for 15% of total productionUsually focused on local distributionMany micro-breweries have grown into this category in the last 5 years.Examples: Stroh Brewery Co., Pabst Brewing Co., Genessee Brewing Co.Small Breweries (less than 15,000 barrels):They account for 5% or less of total production.Microbreweries and brewpubs (also restaurant-breweries or “craft brewers”).They started in the late 1970sSource: Goldammer (2000) - The Brewers Handbook
26 The North American Market: Market Segments Domestic, imported and specialty beers:Domestic BeersSub-premiumPremiumMalt liquor segmentsSuper premium*Light*Ice*Dry** They are the result of high price competition during the 1970s and 1980s. They are priced high and their purpose is to reclaim some of the revenue lost during the “price wars”.
27 The North American Market: Market Segments Imports: They’re growing steadily (around 5-8% since 1990s). Reasons for growth:Expanding economyConsumer interest in ‘higher-quality’ (higher-priced) beer.Growth of the Hispanic community in the US.Most importantly, corporate partnerships/ownerships of foreign breweries that allow foreign brands to access the local distribution networks.Since 1995 the No. 1 import is Corona Extra from Cerveceria Modelo.Source: Goldammer (2000) - The Brewers Handbook
28 The North American Market: Market Segments Specialty Beers:Fastest growing segment (10-15% since 1990).They are perceived as higher quality by consumers.Subcategories include:large breweriesregional breweriescontract brewing companiesmicrobreweriesbrewpubsSource: Goldammer (2000) - The Brewers Handbook
29 The North American Market: Industry Structure Flat consumption trends: only some international markets and the micro-brewing segment show growing opportunities.The Western and the Southern regions have accounted for most of the growth (around 1.4% in 2002).Highly Concentrated: The industry includes more than 300 breweries but is dominated by three producers who command a nearly 80 percent market share:Anheuser-Busch (45%)Miller Brewing (23%)Adolph Coors (10%)The market leaders have expanded their respective market shares at the expense of other national brewers like Strohs Brewery.The industry as a whole has stable and relatively predictable CFs.Source: Department of Employment and Economic Development of Minnesota (2004)Goldammer (2000) - The Brewers Handbook
30 The North American Market: Industry Structure Source: Poitras (2003) – US Breweries: Anheuser-Busch
31 The North American Market: Industry Structure Market Leadership:For any consumer product company and for brewers in specific, ML is very important as it gives benefits over their rivals (i.e. production, distribution and advertising economies of scale).Distribution:Expensive to ship: beer has low value relative to weight.Therefore, several breweries are needed for successful distribution.This sometimes explains why large breweries take over small ones.The importance of good distribution networks.The importance of branding and pricing:Price elasticity of demand.Premium PricingSources:Department of Employment and Economic Development of Minnesota (2004)Poitras (2003) – US Breweries: Anheuser-Busch
32 The North American Market: Industry Structure The industry’s niche markets are very fragmented, but some are growing:From 1990 – 1995 smaller brewers increased their MS from 7.1 to 8%.The number of U.S. brewing establishments has nearly doubled since 1990 (from ) but nearly all of the establishment growth occurred in firms employing fewer than 20 employees.Virtually all new entrants to the beer industry are niche players that pursue specialized, often regional but sometime national tastes.Source: Department of Employment and Economic Development of Minnesota (2004)
33 The North American Market: Industry Structure The fastest growing market segment in the US is the smaller microbrews which are often brewed by regional brewers.Characteristics of the microbrews market segment:High barriers to entry (i.e. legal, manufacturing and distribution costs)Small consumer market with less consumer price differentiation (i.e. low price elasticity) than for major brands.Due to the high costs of entry microbrews rely on regional brewers to produce their products under contract (e.g. Minnesota Brewing, Samuel Adams)Source: Department of Employment and Economic Development of Minnesota (2004)
34 The North American Market: Demographics Beer consumption is overwhelmingly male-dominated; men account for more than 80% of the volume consumed.The largest group of male consumers are white and they favor domestic light beer.African American drinkers make up about 10% of the beer market overall, and they are the biggest consumers of malt liquors, followed by ice beer.Women beer drinkers are more attracted to specialty micro-brewed beers than they are to the big brands, due to their greater variety.Craft-beer is more appealing to white beer drinkers than to African Americans.Source: Goldammer (2000) - The Brewers Handbook
35 The North American Market: Market Trends Consolidation (e.g. mergers and acquisitions) due to:Flat consumption trendsRegulatory burdensHigh TaxationThe market is mature with flat consumption trends due to:Increased alcohol awareness.Slow population growth.Aging population (young [male] adults are the largest beer consumers).Source: Department of Employment and Economic Development of Minnesota (2004)
36 The North American Market: Market Trends As competitors fight to maintain market shares, competitive pricing could result in decreases in industry-wide pricing levels and ultimately decreased operating margins.Price competition combined with increasing vertical integration (i.e. Anheuser-Busch) and the inherent production economies of the market leaders makes it very difficult for an inefficient major brewer to compete on a national scale.Source: Standard & Poors Industry Surveys as quoted by theDepartment of Employment and Economic Development of Minnesota (2004)
37 The North American Market: Market Trends Changes in tastesShift to “light beer” (started by Miller in 1972 – Miller Light).Affected companies:SchiltzPabstStrohLight beer segment grew from 0% to 23% of US beer consumption since 1972.A-B has deterred Miller’s leadership in this segment. In 2001 Bud Light became the top selling beer overall.Source: Standard & Poors Industry Surveys as quoted by theDepartment of Employment and Economic Development of Minnesota (2004)
38 The North American Market: Market Trends Distribution:Increasing number of independent (multi-brand) wholesalers.More wholesalers going out of their home-states.However, the total number of wholesalers is decreasing.Due to consolidation.The number of wholesalers has declined from more than 5,000 nationwide in 1970 to fewer than 2,500 today.Retailing:Traditional stores (mom-and-pop operations) account for a significant amount of sales but national retail chains are accounting for more sales.While independently owned taverns, restaurants, and night clubs account for a sizeable share of beer sales, national restaurant/hotel chains are growing in importance.Consequences:More competitive pricingDistribution networks have become more important.Source: Goldammer (2000) - The Brewers Handbook
39 The North American Market: Market Trends Internationalization through:Exports (i.e. Miller)Joint Ventures.Equity Purchases of foreign brewers and distributors (i.e. Anheuser-Busch and Grupo Modelo).Ethical InvestmentSource: Standard & Poors Industry Surveys as quoted by theDepartment of Employment and Economic Development of Minnesota (2004)
40 The North American Market: Regulations Regulations focus on:DistributionLabelingAdvertisingCreditContainer characteristicsAlcoholic contentTax ratesLitter assessments.Source: Goldammer (2000) - The Brewers Handbook
41 The North American Market: Regulations Subject to regulation at the 3 levels:Federal:Formerly issued by the Bureau of Alcohol, Tobacco, and Firearms (BATF), which was established by the Federal Alcohol Administration (FAA) Act.On November 25, 2002, the Homeland Security Act of 2002 split the agency into two different agencies.The Department of JusticeThe Alcohol and Tobacco Tax and Trade Bureau (TTB) (kept within the United States Department of the Treasury).Source: Goldammer (2000) - The Brewers Handbook
42 The North American Market: Regulations Federal:TTB responsibilities:Enforce the compliance of provisions for the formulation and labeling of alcoholic beverages, as required by the Internal Revenue Code and the FAA ActTaxes, distribution and advertising.International trade regulationsLab testing (approval of brewing formulas and equipment)Source: Goldammer (2000) - The Brewers Handbook
43 The North American Market: Regulations State:After Prohibition, state governments were given considerable authority over the production, importation, distribution, sale, and consumption of beer within their borders.Regulations vary across states (i.e. Minnesota requires that the beer label show the alcohol content, while Michigan does not permit the label to show alcohol content).Other regulations include:Max – Min alcohol contentMax – Min size of containersCredit salesAdvertisingProduction, distribution and retailingTaxesSource: Goldammer (2000) - The Brewers Handbook
44 The North American Market: Regulations Local:Many states permit local jurisdictions to regulate and separately tax beer sales, and even to prohibit the sale of beer within their jurisdiction.Georgia, Illinois, Louisiana, Maryland, New York, and Ohio have cities or counties that impose local beer taxes.Jurisdictions in which the sale of alcoholic beverages is prohibited are called “dry”.about 4.3% of the U.S. population live in dry countiesSource: Goldammer (2000) - The Brewers Handbook
45 The North American Market: Regulations Other consequences of Prohibition:‘Three-tier’ system: the industry is required to be divided intoBrewers and ImportersWholesalersExclusive (often partially owned by the brewery).Independent or multi-brand: Unlike wine and spirits wholesalers, which are generally multi-state operators, beer wholesalers tend to operate within the boundaries of a single stateRetailersSource: Goldammer (2000) - The Brewers Handbook
46 The North American Market : Regulations Taxes:44% tax of beer retail price in US (2001).taxes equal 31.7% of final sales of all products (GNP) in the U.S. (approx. 20% at the federal level and 12% at the state-local level)BrewersBeer Excise TaxSource: Dawson, Havis (2002). Stir. Beverage World; Dec 15, 2002; 121, 1721; ABI/INFORM Global pg. 38
47 The North American Market Threats of new entrants:Barriers to entry:Capital IntensiveDistribution networksRegulationsEconomies of scale in marketing, production and distribution.
48 The North American Market Rivalry (price competition has been decreasing):Increasing competition from imported beers (however, national brewers own part of these breweries).2,200 wholesalers.560,000 retail establishments.Growing popularity of micro-breweries and other craft-beers.Alternative: expansion to super-premium beers and other segments with lower demand elasticity.
49 The North American Market Substitutes (Growing):Growth in:Premixed drinks.Alternative malt beverage.Alternative non-alcoholic drinks (from juices to mineral water).However, beer remains the largest drink sector.
50 The North American Market Buyer’s Bargaining Power:It changes from segment to segment, but in general:Low switching costsPrice competitionIncreasing health conscience.However, for craft-beers, which are perceived as having higher quality, these characteristics may not always hold.
51 The North American Market Suppliers’ Bargaining Power (Low):Most supplies come from competitive industries which are more fragmented than the beer industry:FarmersLabor (the case of unionized labor)The more consolidated supplier is that one supplying bottles/cans.
52 The North American Market Key elements for improving operating margins for national breweries:Expanded market share.Low cost structure.Price increases and premium pricing (low demand elasticity).Improved production efficiencies (packaging and automation).International expansion to countries with increasing consumption trends.Connection between branding and pricing.Distribution Networks (wholesalers’ loyalty).Sources: Department of Employment and Economic Development of Minnesota (2004)Poitras (2003) – US Breweries: Anheuser-Busch
53 Molson – Leon Chung Coors - Cameron McLeod Bud - Darren Devine VALUATIONSMolson – Leon ChungCoors - Cameron McLeodBud - Darren Devine
55 Company Overview Founded in 1786 by John Molson 3,800 employees 5 breweries located in Vancouver, Edmonton, Toronto, Montreal and St. John’sOldest beer brand in N. AmericaOperations in Canada, Brazil, and the United States
56 Company Overview Canada’s largest brewer In 2001, Molson repurchased 100% of Molson brands in the US and has 50.1% interest in Molson USAPursuing the fast growing Brazilian marketGlobal gross sales of $3.5 billion
57 Senior ManagementDaniel J. O'Neill* President and Chief Executive OfficerBrian Burden* Executive Vice President and Chief Financial OfficerKevin T. Boyce* President and Chief Operating Officer, North AmericaRobert Coallier* President and Chief Executive Officer, Cervejarias Kaiser and Executive Vice President, Molson Inc.Raynald H. Doin* Senior Vice-President Strategy and Integration, Human ResourcesMarie Giguère* Senior Vice President, Chief Legal Officer and SecretaryPeter L. Amirault* Senior Vice-President Business Development and Innovation
58 Portfolio of Brands Core Brands Canadian, Canadian Light, Carling Black Label, Exlight, Export, Golden, Marca Bavaria, Kaiser, Molson Dry, and Rickard’sMolson’s PartnersCoors Light, Corona, Heineken, and MGD
59 Challenges in 2003 Faced same challenges in US as Coors did In Canada, Alberta and Ontario faced strong discount activity and Molson had a hard time respondingIn Brazil, market share decreased by over 2% due to increased competition
60 Plans for the Future Five Key Objectives Grow operating profit Grow market shareGrow volumeOrganizational renewalImprove quality
62 1) Grow Operating Profit Revenue growth– through both pricing and product mix improvementCost savingsProject 125Capacity utilization savings are expected to reach $41 million through improved brewery assets usage and equipment modernization.Best-in-class practices and materials sourcing aim at procurement savings of $35 million.Costs savings of $40 million for distribution are anticipatedthrough capital investment, productivity and supply chain integration.Savings in organizational costs of $9 million are planned.
63 Segmentation of Canadian Beer Market 2) Grow Market ShareSegmentation of Canadian Beer Market
64 2) Grow Market Share Canada Total market share in Canada decreased by 0.6% from 44.4% to 43.8% - however, 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 brandsStrengthen the CANADIAN brand in the premium segmentRedesigned packaging including a customized die-cut label for bottlesNew look for cansRefreshed outer case
65 2) Grow Market Share Brazil Market share decreased from 14.6% to 12.4% in BrazilThe flagship brand, KAISER PILSEN, was reformulated the liquid and launched a new advertising campaign
66 2) Grow Market Share United States Market erosion of GOLDEN and MOLSON ICEMolson used print, radio and outdoor advertising to win the young adult consumerUse of Molson Twin Labels
69 3) Grow volumeCanadaVolume grew by 0.7% but was slower than industry which moved up 2.0%Product innovations and new packaging are and will be biggest drivers of volumeNew products such as COLD SHOTS, CANADIAN LIGHT, and MOLSON ULTRA should increase volume in fiscal 2005
70 3) Grow volumeBrazilBrazilian operations experienced volume drop of 17.5% over fiscal year while industry only declined by 3.4%Have hired key sales leadership with beer sales experienceCreated Kaiser-managed sales teams to work with Coca-Cola distributorsThese and other measures lessened and even reversed the negative trend in some geographic areas
71 3) Grow volume United States Molson USA grew by 1.4% Aligned itself with Coors distributors which accounted for 85% of Molson USA’s distributorsImproved results and leveraged Coors market infrastructureContinue to build on strength of CANADIAN trademark and use innovative packaging
72 4) Organizational Renewal Organizational DesignNew structure of an integrated but decentralized sales force connected to local marketsBrazil: hiring of more than 1,200 experienced sales people in six regional sales centresLeadership Development and Succession PlanningProduction Leadership ProgramNew program for development of talent in strategic marketing functionOptimal Work Environment philosophyOptimal Work Environment
73 5) Improve quality Renaissance in Brewing initiative Quality Safety Incoming raw materialsConversion in the breweryConsumer and customer satisfactionSafetyFrequency of down time declined by 16%Severity of accidents resulting in down time declined by 11%
74 Events in the NewsMolson and Coors Announce Merger of Equals to Create World's Fifth Largest BrewerMolson and Coors Announce Agreement to Pay Special Dividend to Molson Shareholders Molson to Build New $35 Million Brewery in New Brunswick
75 Molson and Coors Announce Merger Pentland agrees to forego participation in special dividendMolson Coors Brewing Company will be fifth largest in worldCombined total of 60 million hectolitresManagement structure and board compositionChairman: Eric H. Molson (Molson)CEO: Leo Kiely III (Coors)Vice Chairman: Daniel J. O’Neill (Molson)CFO: Timothy V. Wolf (Coors)
76 Special Dividend to Molson Shareholders Announced on Nov. 5thAs part of Molson and Coors mergerPentland will forego special dividendAs a result, dividend will be $3.26 rather than $3.00Pentland is owned by Chairman Eric Molson and Director Stephen Molson
77 New Brewery Cost of $35 million Located in Moncton, New Brunswick Completed by January 2007Capacity of 6 million 12 packs annuallyImplementation of distribution system$3.5 million forgivable loan
83 Cash Flow Analysis Operating Activities 216.4 Investing Activities (73.1)Financing Activities (125.8)NetOperating Activities is greater than other expendituresInvesting Activities, Molson has been investing in newer equipmentFinancing Activities, repayment of long term debt was greater than refinancing
84 Stock Price Summary Traded the TSX Symbol: MOL.A P Price: 33.460 52 week high: $36.8052 week low: $28.50Market Capitalization of approximately $4121 million
89 Company Overview Adolph Coors company was founded in 1873 World’s 9th largest brewer with $4 billion in annual salesPrincipal subsidiary is the Coors Brewing Company, which is the 3rd largest brewer in the U.S.Also owns Coors Brewers Limited in the U.K., which is the U.K.’s 2nd largest brewerPrimary product in the U.S. is Coors light and in the U.K. their flagship is Carling. They rank #3 and #1 respectively in sales per marketTraded on the NYSE, ticker symbol (RKY)
90 Company Overview Con’t Corporate headquarters and primary brewery are located in Golden, ColoradoThe Coors Golden brewery is the world's largest on a single site. Coors owns a second brewery in Memphis, Tenn., and a packaging facility in Virginia's Shenandoah Valley, near the town of Elkton, Va.Coors products are available in over 30 international markets
91 Portfolio of Brands Coors has a wide array of brands including: Coors Light, Coors Original, Aspen Edge, Killian’s, Blue Moon, Keystone Ice, Keystone Premium, Coors NA, Extra Gold, Zima XXX Hard Lemon Lime, Zima XXX Hard Black Cherry, Zima XXX Hard Orang
92 Flagship BrandsCarling is the #1 selling beer in the U.K. and Coors Brewing Limited is ranked #2 for total market share with 21%Coors Light is the #3 selling beer in the U.S. and Coors Brewing Company is ranked #3 in total market share with 11%
93 Brewing BitsCoors uses an all-natural brewing process and the finest ingredients: ideal brewing water, hops, cereal grains (rice and refined corn starches), and barley. Coors has developed special strains of barley it malts itself to ensure product quality. Nothing artificial is in Coors beers.On average, Coors takes 55 days to brew, age, finish and package its lagers—about twice as long as its major competitors. The result is a naturally aged, stable and smooth product.
94 Challenges in 2003Continued weakness in the US economy during 2003 and, specifically, high unemployment levels among the key 21- to 24-year-old male consumer population,Unfavorable weather, particularly in the Northeast, for a significant part of the peak summer selling season,The popularity of low-carbohydrate diets that softened demand for beer,The rise in popularity of distilled spirits and other alternative beverages, particularly among 21- to 29-year olds, andA grocery store strike in California that likely impacted sales in the largest beer state.
95 Plans For The FutureThey are striving to capture an increasing share of each new generation of legal-drinking-age beer drinkers in order to gain their brand loyalty for the long-termThey intend to seek publicity through both new products and brands, or product developments with existing brands, such as Coors Light and CarlingStrengthen their access to retail by creating a solid distribution network with wholesalers and retailersLower the cost structure in order to grow profits and afford the investments needed to grow and succeed
96 Sales VolumeHas risen dramatically with the acquisition of Coors Brewers Limited
98 Financial ReviewHave become globalized and diversified. In 2003, CBL performance in the U.K. and Coors Light in Canada showed the advantages of becoming more than a one-brand, one-market company.Continued cost reduction and productivity despite difficulties. Improved upon costs and productivity, in spite of challenges, particularly in the U.S. market.Reducing debt ahead of schedule. In just two years, they reduced debt by nearly a third through an emphasis on cash generation and disciplined capital management.
100 After Tax Income Figures are in millions of dollars Coors has seen steady growth in incomeLarge increase in 02 is due to the acquisition of Coors Brewing Limited (U.K.)
101 Financial In BriefAdolph Coors Company is ranked among the 500 largest publicly traded corporations in the U.S., based on annual sales. The company is the world's 9th largest brewer.In 2003, Coors sales volume was 32.7 million barrels (1 U.S. barrel equals 31 gallons).Net sales for 2003 totaled $4.0 billion net income was $174.7 million, up 8.0 percent from 2002.
102 Merger With MolsonCoors is planning on merging with Molson in December, 2004It will become the 5th largest brewing company in the worldGoals are to increase penetration into new marketsAllows the company’s to compete with the “superpower’s” of the brewing industry
105 Income Statement Analysis Increased sales due to U.K. and Canadian successHigh interest expense due to the $1.6 billion investment in CBLSteady increase in net income even with a highly competitive U.S. marketP/E:Price to Cash Flow Ratio:Price To Sales:Price To Book:Dividend Per Share:Book Value Per Share:Revenue Per Share:
108 Balance Sheet Analysis Only has $0.53 cash on hand per shareQuick Ratio:Current Ratio:LT Debt to Equity:Total Debt to Equity:Return on Equity (ROE) Per Share: 18.0Return on Assets (ROA):Return on Invested Capital (ROIC): 9.07
116 Overview Established in 1864 Largest Brewer in the world Budweiser is #1 brand of beer in the worldBeer Production, Entertainment, Packaging, Real Estate Development & TransportationAlmost 50% domestic market share
117 Operations 12 US Breweries 2 International Breweries (China/ UK) Produced 111 Million Barrels of Beer6th consecutive year with double digit growth in earnings per share$16 Billion in Sales
118 Competitive Advantage Three divisions: Brewers, Wholesalers & Retailers2/3rds of volume delivered by wholesalers who only carry Anheuser-Busch (A-B)Loyalty of wholesalers is compensated by large profit marginsLeverage 49.8% market share into 75% of markets operating profit through Procurement, Manufacturing efficiency and Marketing
119 Products Budweiser & Bud Light Michelob and Michelob Ultra Busch and Busch LightHurricane and Malt liquorsBacardi Silver & Mike’s Hard LemonadeO’doul’s & non-alcoholic beverages
120 Subsidiaries & Satellites A-B Packaging: Recycling, Printing/ Packaging, Aluminum ProductionBusch Entertainment: Sea World, Busch Gardens50% Share in Grupo Modelo: Corona (93-98)27% Share in Tsingtao: China’s largest brewer20% Share in Cervecerias: Chile’s largest brewerDistribution partnerships: Labatt & Kirin (Japan)
121 Executives August A Busch III Chairman of the Board (29 Years) Patrick T. Stokes President & CEO (20 Years)W. Randolph Baker CFO & Vice President (8 Years)John E Jacob Director of Global Communications (14 Years)Carlos F Gonzales Director “Grupo Modello”(8 Years)James J Forese Director (26 Years) Americas Most Powerful PeopleCharles F Knight Director (21 Years) Americas Most Powerful People
125 Balance Sheet Analysis Invested $200 Million in Bonds & Loans with Tsingtao Brewery in ChinaNet Increase to Debt $682.2 Million with US Dollar Notes and Commercial PaperCurrent Ratio .8811% Decrease in Shareholders Equity
128 Income Statement Analysis 9% Increase in Revenues7% Increase in COGS18% Increase in Operating Income22% Increase in Net Income
129 Income Statement ContAdvertising and promotional activities are a key component of A-B’s StrategyAdvertising Costs were $806.7 MillionPromotional Costs were $511.8 MillionA-B is able to gain a competitive advantage through their advertising
131 Cash Flow Statement Analysis 1.82 Billion in Free Cash FlowAcquired almost $2 Billion in Treasury StockPaid $652 Million in DebtHowever, increased Debt by $1.4 BillionIssued $685.4 Million in DividendsContinue to acquire businesses and invest in packaging and related operationsFuture Cash may be directed towards China
132 Cash Flow Statement Cont Reached 5 year agreement with UnionPension Increases of 14%$7.5 Million signing bonus100 Million executive stock options yet to be exercisedPrice equal to price on option issue dateEmployee Stock Ownership Plan (ESOP) deferred 45.4 million shares for purchase
134 DerivativesDerivatives used to mitigate the company’s exposure to volatility in commodity prices, interest rates and foreign currency.Hedges only with derivatives that have high correlation with the underlying transaction pricingCompany policy is not to speculate in the derivatives market
135 Employee Pension Plans Defined contribution plansPension plans cover substantially all regular employeesBased on negotiated labour contracts
136 Financial Statement Analysis Cont. VALUATION MEASURES- Nov 12Market Cap40.34BEnterprise Value (12-Nov-04)48.14BTrailing P/E18.86Forward P/E17.19PEG Ratio (5 yr expected)1.85Price/Sales2.71Price/Book14.49Enterprise Value/Revenue3.26Enterprise Value/EBITDA11.3Profitability- Nov 12-04Profit Margin (ttm):0.1235Operating Margin (ttm):0.226Management EffectivenessReturn on Assets (ttm):0.1205Return on Equity (ttm):0.8121Dividend Yield0.02
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