1 global breweries global breweries fundamental analysis and recommendations cyrus cheung ervinna...

1Global Breweries

Global BreweriesFundamental Analysis and Recommendations

Cyrus Cheung

Ervinna

Jeff

November 17, 2004

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

3Global Breweries

Industry Overview

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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. 500-1000 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: http://www.beermachine.com/files/beer-science-history.htm

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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.


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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. 1935 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)


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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: http://www.beermachine.com/files/beer-trivia.htm

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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*

Specialty Beers: Fastest growing segment (10-15% since 1990) They are perceived as higher quality by consumers

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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.

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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

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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

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Industry

Global Market Share 2004 (in volume)

Heineken7%Carlsberg

5%

InBev13% Anheuser-

Busch10%

SABMiller9%others

56%

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IndustryDevelopment of the Top 10 brewers and the World Market (in millions of hl)

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IndustryGlobal Beer Consumption

CountryShare(2001)

Per Capita Consumption

(in liters)US 16.4 83.1

China 14.3 15.8Germany 7.3 123.1

Brazil 5.8 46.7UK 4.1 97.1

Japan 3.6 40Mexico 3.5 48.6

Russian Federation 3.1 30Poland 1.7 60.5France 1.5 35.9

Czech Republic 1.2 158.1

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Modern US Beer industry:

Oldest company date back to the 17th century Industry dynamics traced back to the repeal of

prohibition in 1933. Following the repeal of Prohibition, legislative changes

required the industry to be divided into 3 distinct parts:

1. Brewers

2. Wholesale Distributors

3. Retailers

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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)

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Share of Total Beverage Alcohol Retail Dollar Sales

Share of Total Beverage Alcohol Consumption

Wine15%

Spirits31%

Beer54%

Wine8%

Spirits5%

Beer87%

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US Market During the 3rd Quarter (Volume)

4.0

11.4

6.1

49.8

18.3

10.4

Miller

Coors

Market Share (%) Chg

-0.1

+0.5

-0.4

-0.2

+0.3

-0.1

Pabst

Others

Pts

Pts

Imports

% ChangeShipments

+0.9

+4.0

-2.9

-4.6

+4.0

-0.7

+1.1Total

Anheuser-Busch

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Market Share by Brewer

Source: A-B Internal

0

1 0

2 0

3 0

4 0

5 0

6 0

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

Ma

rke

t S

ha

re (

Inc

lud

ing

Ex

po

rts

) %

Anheuser-Busch

SABMiller (excludes Foster’s, Pilsner Urquell & Presidente)

Pabst (includes Stroh, etc.)

Coors (including Molson)Imports

Micros & Regionals

US Market

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US Market

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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)

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Product Segments:

Super Premium Imports, microbreweries,

specialty ( low carbs) Premium

National brand, light beer Sub Premium

Malt Liquor, popular priced( cheap)

Premium56.3%

Super Premium

18.2%

Sub Premium

25.5%

2003 US Market

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Consumers & Trends

-9.1%

3.6%

-0.8%

1.6%

0.5%

10.5%

-0.6%

0.7%

0.3%

0.7%

4.8%

Soft Drinks

Coffee

Milk

Beer

Bottled Water

Tea

Juices

Powdered Drinks

Wine

Distilled Spirits

Cider

U.S. All Beverages: Total Beverage Consumption (Gallon Basis)

Total Beverages Trend: +1.6%

CHANGE IN CONSUMPTION 2003 v. 2002

Source: Adams Beverage Group 2004, Ranked on Volume (Gallons)

The Growth of Beer Consumption Slowed in 2003

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Beer Consumer Demographic Profile

0 20 40 60 80 100

$65,000 +

$50,000 - $64,999

$35,000 - $49,999

$25,000 - $34,999

$15,000 - $24,999

Under $15,000

Other

Married

Single

Other

Hispanic

Blacks

Whites

Not Employed

Grey Collar

White Collar

Blue Collar

Not in Labor Force

Retired

Part Time

Full Time

Total US Beer Consumer

Source: Anheuser-Busch, Inc. Eagle Eye, Beer Poll

Beer Consumers skew towards Male, Younger, Low to Moderate Educated, Blue Collar, and Moderate Income Households.

0 20 40 60 80 100

College Grad.

Some College

High School Grad.

Some High School

Grade School

65 years +

55 - 64 years

45 - 54 years

35 - 44 years

25 - 34 years

21 - 24 years

Females

Males

Six Persons +

Five Persons

Four Persons

Three Persons

Two Persons

One Person

Consumers & Trends

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The Number of Core Beer Consumers Is Expected to Continue Growing, Generating Greater Category Sales

After Bottoming Out in the Late 1990’s, a Core Beer Consumer Demographic Will Grow by 16% over the Next 6 Years

Source: U.S. Census

23

24

25

26

27

28

29

'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10

Po

pu

lati

on

(M

illi

on

s)

Growth Rate: +16%

Age 21 - 27

Consumers & Trends

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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)

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Consumers & Trends(000 2.25 Gallon Cases)

Brand Supplier 2000 2001 2002

Smirnoff I ce Diageo 310 19,880 22,450

Mike's Hard Lemonade Mike's Hard Beverage 6,800 11,000 11,500

Skyy Blue SAB Miller/Skyy Spirits - - - - 7,000

Bacardi Silver Anheuser-Busch/Bacardi - - - - 6,000

Zima Coors Brewing 8,400 6,900 5,240

Tequiza Anheuser-Busch 3,600 2,750 2,600

Doc Otis Anheuser Busch 2,500 2,550 2,400

Hooper's Hooch US Beverage 2,300 2,200 1,500

Two Dogs Next Generation Mktg. 1,060 1,100 950

Rick's Spiked Lemonade US Beverage 1,000 900 900

Vibe Coors Brewing - - - - 690

J ed's Hard Lemonade Matt Brewing 500 520 450

Source: Adams Handbook Advance 2003

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Global ExpansionsPotential 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

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Key Success Factors

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

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Anheuser-Busch Companies Inc.

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

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Established in 1864 St. Louis Based company Currently control by 5th 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 OverviewCompany Overview

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Management Team Management Team

Management Team :Names Age Officer Since Title

Busch III, August A. 66 1974 Chairman of the Board

Stokes, Patrick T 61 1981 President, Chief Executive Officer, Director

Baker, W. Randolph 57 1982 Chief Financial Office, Vice President

Jacob, John E 69 1994 Executive Vice President – Global Communication, Director

Kasen, Keith M. 60 2003 President and Chairman of the Board of Busch Entertainment Corp.

Busch IV, August A. 39 2000 Vice President and Group Executive; President of Anheuser-Busch, Inc.

Gonzales, Carlos F. 37 1994 Director; “Grupo Modello”

Forese, James J. 68 2003 Director; Americas Most Powerful People

Knight, Charles F. 68 1987 Director; Americas Most Powerful People

Source: http://yahoo.investor.reuters.com/Officers.aspx?ticker=BUD.N&target=executiveofficers%2flist

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Compensation package: Top 5 ExecutivesFor Fiscal Year Ending 12/31/2003

Names Total Annual Compensation

All Other Fiscal 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: http://yahoo.investor.reuters.com/OfficersComp.aspx?ticker=BUD.N&target=executiveofficers%2fbasiccompensation

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Core Business Segment Segmented in 3 main areas:

Production/Distribution of beer 2nd 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


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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

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Income contribution of each segment For Fiscal Year Ending 12/31/2003

89%

5%2% 4%Domestic Beer

InternationalBeerPackaging

Entertainment


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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


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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 operationsSources: Anheuser Busch Companies 2003 Annual Report

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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


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Consolidated Balance Sheet

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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

2003 2002 2001 Industry S&P 500

Quick Ratio 0.54 0.46 0.45 0.66 1.31

Current Ratio 0.96 0.8 0.9 1.37 1.80

Lt Debt / Equity 2.99 2.16 1.47 2.34 0.63

Return on Assets

12.05% 13.7% 12.2% 10.83% 7.38%

ROE 72.0% 54.4% 41.6% 64.01% 20.05%

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Debt Analysis

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Consolidated Statement of Income

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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

2003 2002 2001 Industry S&P 500

Net Sales $14,146.7 $13,566.8 $12,911.0 N/A N/A

Net Income $2,075.9 $1,933.8 $1,704.5 N/A N/A

Earnings/Share (diluted) $2.48 $2.20 $1.89 N/A N/A

Dividend Yield 1.92 1.4 1.5 1.86 2.02

Annual Dividend $0.83 $0.75 $0.69 N/A N/A

Profitability Ratios

Gross Margin 40.16% 40.1% 38.4% 39.84% 46.76%

Profit Margin 12.25% 14.3% 13.2% 11.08% 13.99%

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Income Statement Analysis – cont.REVENUE

Quarters 2001 2002 2003 2004

MAR 3,044,200 3,136,600 3,280,600 3,477,000

JUN 3,452,000 3,626,100 3,770,200 4,010,000

SEP 3,522,200 3,706,200 3,880,500 4,080,100

DEC 2,893,100 3,097,500 3,215,400

Totals 12,911,500 13,566,400 14,146,700 11,567,100

Note: Units in Thousands of U.S. Dollars

EARNINGS PER SHARE

Quarters 2001 2002 2003 2004

MAR 0.430 0.510 0.570 0.670

JUN 0.580 0.660 0.750 0.830

SEP 0.620 0.710 0.800 0.850

DEC 0.260 0.320 0.360

Totals 1.890 2.200 2.480 2.350

Note: Units in U.S. Dollars

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Consolidated Statement of Cash Flow

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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

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Impact of Stock Options on Net Income

Impact of Pension Plan

Reached 5 year agreement with UnionReached 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 Pension plans cover substantially all regular employeesregular employees Employee Stock Ownership Plan Employee Stock Ownership Plan (ESOP) deferred 45.4 million shares for (ESOP) deferred 45.4 million shares for purchasepurchase

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Financial Analysis SummaryGROWTH RATES

1 Year 3 Years 5 Years

Sales % 4.28 4.21 4.70

EPS % 12.73 13.71 14.41

Dividend % 10.67 9.63 8.98

Financial Strength

Financial Strength Company Industry Sector S&P 500

Quick Ratio (MRQ) 0.54 0.66 0.68 1.31

Current Ratio (MRQ) 0.96 1.37 1.23 1.80

LT Debt to Equity (MRQ) 2.99 2.34 0.85 0.63

Total Debt to Equity (MRQ) 2.99 2.36 1.07 0.80

Interest Coverage (TTM) 8.02 8.81 19.33 12.81

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Financial Analysis Summary

Profitability Ratios (%) Company Industry Sector S&P 500

Gross Margin - 5 Yr. Avg. 38.71 38.81 45.54 46.18

EBITD - 5 Yr. Avg. 27.37 24.25 19.45 20.38

Operating Margin - 5 Yr. Avg. 21.00 18.73 16.16 18.07

Pre-Tax Margin - 5 Yr. Avg. 18.41 16.40 15.07 17.10

Net Profit Margin - 5 Yr. Avg. 11.21 10.07 9.86 11.31

Effective Tax Rate - 5 Yr. Avg. 39.11 38.41 35.09 34.


RATIO COMPARISON

Valuation Ratios Company Industry Sector S&P 500

P/E Ratio (TTM) 18.86 19.19 20.28 22.25

P/E High - Last 5 Yrs. 28.79 28.27 42.58 45.90

P/E Low - Last 5 Yrs. 20.97 18.63 18.24 16.40

Price to Sales (TTM) 2.82 2.48 2.45 3.26

Price to Book (MRQ) 14.59 11.51 7.45 4.16

Price to Tangible Book (MRQ) 25.25 22.91 16.14 7.56

Price to Cash Flow (TTM) 15.17 14.91 15.50 16.03

Price to Free Cash Flow (TTM) 35.14 32.17 35.75 26.26

Valuation Ratios

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Stock Price SummaryAs of 11/16/04 4:00 PM

Traded on NYSE Symbol: BUD.N 790,067,968 units outstanding Market Capitalization of $40.246 Billions US Instit. Ownership $467.2 Million (58.3%)

Current Price:

50.73

Change:

-0.21

Open: 50.92

High: 51.09

Low: 50.70

Volume: 1,251,900

Percent Change: -0.41%

Yield: 1.90%

P/E Ratio: 18.74

52 Week Range: 49.42 to 54.74

Sources: Globeinvestor.com

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Stock Price Performance: One Year Chart

Sources: http://yahoo.investor.reuters.com

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Stock Price Performance Vs. Dow Jones Industrial Avg.: One Year Chart


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Stock Price Performance Vs. Dow Jones Industrial Avg.: Five Year Chart


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Valuation Model Gordon’s Growth Model

Good for stable companies Paying dividends that grow

Stock Price = Ex (Div/Share)(k – g)

2001= 614.1 2002= 649.5 2003= 685.4 Ex (Div/Share) = 0.82 g = 6% over last 3 years k = 0.075 Two valuations using expected dividends vs. indicated

dividends Expected: $54.67 Actual: $50.73

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


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Analyst Recommendations and RevisionsConsensus

RecommendationCompany Fiscal Year

End MonthLast

Updated

OUTPERFORM December 15-Nov-04

Analyst Recommendations and Revisions

1-5 Linear Scale Current1 Month

Ago2 Months

Ago1 YearAgo

(1)BUY 3 4 5 5

(2)OUTPERFORM 3 4 5 6

(3)HOLD 11 9 8 6

(4)UNDERPERFORM 0 0 0 1

(5)SELL 0 0 0 0

No Opinion 0 0 0 0

Mean Rating 2.47 2.29 2.17 2.17


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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

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My recommendation

Conclusion

Buy

61Global Breweries

Heineken N.V.

“Respect, Enjoyment, Passion for quality.”

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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

Global Breweries 63

Company Overview

The largest production in Europe

Output of the largest breweries in Europe (million hl)

Brewery 2003

Heineken 73

Interbrew/Ambev 66

Carlsberg 56

S & N 49

SABMiller 33

Radeberger Gruppe 18

Coors 12

Anadolou Group 11

Mahou S.A. 10

Bitburger 9

Total 337

Total all breweries 500

Sources: Brauwelt 2004/22 p. 645

Note:the figures only include beer produced in Europe

Global Breweries 64

Company Overview

BRAND SUPPLIER

COUNTRY OF ORIGIN

2000 2001p

% Change

Corona Extra Barton/Gambrinus Mexico 74,000 85,061 14.9%

Heineken Heineken USA Netherlands 54,000 58,000 7.4%

Labatt Blue Labatt USA Canada 14,106 15,269 8.2%

Tecate Labatt USA Mexico 11,024 12,026 9.1%

Guinness Stout Guinness UDV Ireland 10,035 10,690 6.5%

Foster's Lager Miller Brewing Canada 8,956 10,196 13.9%

Beck's Beck's North America Germany 7,938 8,135 2.5%

Amstel Light Heineken USA Netherlands 7,100 8,000 12.7%

Bass Ale Guinness UDV UK 7,338 7,690 4.8%

Modelo Especial Barton/Gambrinus Mexico 5250 6,656 26.8%

TOTAL LEADING BRANDS 199,747 221,723 11.0%

OTHERS 77,603 79,427 2.3%

TOTAL IMPORTED BEER 277,350 301,150 8.6%

Leading Imported Beer Brands (000 2.25-Gallon Cases)

The second largest imported beer in US market

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: 15.73 billions

Global Breweries 66

Company Overview

Management: Executive Board:

A. Ruys, Chairman (since 2000). Joined in 1993. M.J. Bolland, Executive Board (since 2001). Joined in 1986. J.F.M. van Boxmeer, Executive Board (since 2001). Joined in 1984. D.R.H. Graafland, Executive Board (since 2002). Joined in 1981.

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)

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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

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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

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)

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)

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)

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

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)

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)

Global Breweries 75

Financial Analysis

Financial Statements: Balance Sheet Income Statement Cash Flow Statement

Global Breweries 76

Financial Analysis

RATIO COMPARISON

Valuation Ratios Company Industry Sector S&P 500

P/E Ratio (TTM) 24.69 19.19 20.28 22.25

P/E High - Last 5 Yrs. NA 28.27 42.58 45.90

P/E Low - Last 5 Yrs. NA 18.63 18.24 16.40

Beta 0.11 0.04 0.22 1.00

Price to Sales (TTM) 1.28 2.48 2.45 3.26

Price to Book (MRQ) 3.78 11.51 7.45 4.16

Price to Tangible Book (MRQ) 8.21 22.91 16.14 7.56

Price to Cash Flow (TTM) 14.19 14.91 15.50 16.03

Price to Free Cash Flow (TTM) 15.75 32.17 35.75 26.26

% Owned Institutions 0.66 55.92 54.14 63.55

Valuation Ratios

Global Breweries 77

Financial Analysis

Dividend (in US Dollar)

Dividends Company Industry Sector S&P 500

Dividend Yield 0.91 1.86 2.44 2.02

Dividend Yield - 5 Year Avg. 1.30 1.36 2.34 1.52

Dividend 5 Year Growth Rate 9.50 8.59 7.03 7.37

Payout Ratio (TTM) 35.06 28.60 39.55 27.95

Global Breweries 78

Financial Analysis

Growth Rates

Growth Rates(%) Company Industry Sector S&P 500

Sales (MRQ) vs Qtr. 1 Yr. Ago 11.26 6.32 8.27 16.43

Sales (TTM) vs TTM 1 Yr. Ago 12.05 7.45 10.90 15.01

Sales - 5 Yr. Growth Rate 8.09 6.90 5.26 9.50

EPS (MRQ) vs Qtr. 1 Yr. Ago -26.72 20.76 9.35 17.42

EPS (TTM) vs TTM 1 Yr. Ago -22.32 14.26 13.86 25.92

EPS - 5 Yr. Growth Rate -2.16 14.16 12.20 12.64

Capital Spending - 5 Yr. Growth Rate 10.34 5.50 -1.09 4.38

Global Breweries 79

Financial Analysis

Financial Strength

Financial Strength Company Industry Sector S&P 500

Quick Ratio (MRQ) 0.72 0.66 0.68 1.31

Current Ratio (MRQ) 0.98 1.37 1.23 1.80

LT Debt to Equity (MRQ) 0.84 2.34 0.85 0.63

Total Debt to Equity (MRQ) 0.84 2.36 1.07 0.80

Interest Coverage (TTM) NM 8.81 19.33 12.81

Global Breweries 80

Financial Analysis


Profitability Ratios (%) Company Industry Sector S&P 500

Gross Margin (TTM) 40.89 39.84 45.25 46.76

Gross Margin - 5 Yr. Avg. 75.71 38.81 45.54 46.18

EBITD Margin (TTM) 20.41 25.51 19.59 21.56

EBITD - 5 Yr. Avg. 18.12 24.25 19.45 20.38

Operating Margin (TTM) 12.59 20.11 16.82 21.68

Operating Margin - 5 Yr. Avg. 12.70 18.73 16.16 18.07

Pre-Tax Margin (TTM) 11.31 17.86 16.08 18.06

Pre-Tax Margin - 5 Yr. Avg. 12.42 16.40 15.07 17.10

Net Profit Margin (TTM) 8.02 11.08 11.30 13.99

Net Profit Margin - 5 Yr. Avg. 8.75 10.07 9.86 11.31

Effective Tax Rate (TTM) 29.04 37.50 30.33 29.99

Effective Tax Rate - 5 Yr. Avg. 29.64 38.41 35.09 34.23

Global Breweries 81

Financial Analysis

Management Effectiveness

Management Effectiveness (%) Company Industry Sector S&P 500

Return On Assets (TTM) 7.33 10.83 11.23 7.38

Return On Assets - 5 Yr. Avg. 10.58 9.96 10.38 6.63

Return On Investment (TTM) 10.57 12.75 15.96 11.19

Return On Investment - 5 Yr. Avg. 15.20 11.88 15.33 10.70

Return On Equity (TTM) 15.95 64.01 34.27 20.05

Return On Equity - 5 Yr. Avg. 24.51 39.78 32.88 19.00

Global Breweries 82

Financial Analysis

Efficiency

Efficiency Company Industry Sector S&P 500

Revenue/Employee (TTM) 199,967 589,989 432,367 699,010

Net Income/Employee (TTM) 16,041 66,920 47,197 96,653

Receivable Turnover (TTM) 5.74 14.29 12.28 10.15

Inventory Turnover (TTM) 6.30 11.37 6.55 12.28

Asset Turnover (TTM) 0.91 0.98 1.08 0.95

Global Breweries 83

Stock Price Analysis

Symbol: HINKY Price: 32.10 (Today) 52–week High: 47.36 52–week Low: 23.64 EPS: 1.303 P/E Ratio: 24.64

Global Breweries 84

5 years Performance


Global Breweries 85


1 Year Performance

Global Breweries 86

Valuation

Gordon model: DPS/ (k-g) DPS= 0.42 g= 5% k= 0.5109 Value of stock = 38.53 Actual = 32.10

Global Breweries 87

Analyst Recommendation

1-5 Linear Scale Current1 Month

Ago2 Months

Ago1 YearAgo

(1)BUY 0 0 0 0

(2)OUTPERFORM 0 0 0 0

(3)HOLD 2 2 2 2

(4)UNDERPERFORM 0 0 0 0

(5)SELL 1 1 1 1

No Opinion 0 0 0 0

Mean Rating 3.67 3.67 3.67 3.67

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

Global Breweries 89

Global Breweries 90

Molson

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-T

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

Global Breweries 93

Molson: Board of Directors

Composition of the Board

For fiscal 2005 the Board is composed of 9 Directors*: 5 unrelated independent Directors:

1. Dr. Francesco Bellini,O.C.

2. John E. Cleghorn

3. Daniel W. Colson 4. David P. O’Brien 5. H. Sanford Riley

1 related Director:

6. Daniel J. O'Neill President and Chief Executive Officer ( member of management) 3 Un-independent Directors:

7. Eric H. Molson ( Chairman) 8. Stephen T. Molson

(two shareholders of a corporation that owns 44.68% of the Molson's voting shares)

9. Luc Beauregard - CEO of National Public Relations servicing Molson *in 2004 the Board Sharked by one-third

Global Breweries 94

Molson: Operations

Global Breweries 95

Molson: Operations

North America

Brazil

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:

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 expectationsin 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.

Global Breweries 98

Molson: Vision & Objectives 2) Grow Market ShareCanadaTotal 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:

BrazilMarket share decreased from 14.6% to 12.4% The flagship brand, KAISER PILSEN, was reformulated and launched a new advertising campaign

USMarket erosion of GOLDEN and MOLSON ICEMolson used print, radio and outdoor advertising to win the young adult consumerUse of Molson Twin Labels

Global Breweries 99

Molson: Vision & Objectives 3) Grow VolumeVolume 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%)

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:


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.


Molson: Financial Income statementP/E 17.99P/E 17.99Price to Sales 1.22Price to Sales 1.22Price to Book 3.50Price to Book 3.50Dividend Per Share 0.56Dividend Per Share 0.56Book Value Per Share 9.57Book Value Per Share 9.57Revenue Per Share 27.34Revenue Per Share 27.34

Quick Ratio 0.25Quick Ratio 0.25Current Ratio 0.42Current Ratio 0.42Debt to Equity 0.65Debt to Equity 0.65Return on Equity (ROE) 25.1%Return on Equity (ROE) 25.1%Return on Assets (ROA) 6.03%Return on Assets (ROA) 6.03%Return on Invested Capital (ROIC) 10.7%Return on Invested Capital (ROIC) 10.7%

Balance Sheet

Cash Flow statementOperating Activities 216.4Operating Activities 216.4Investing Activities (73.1)Investing Activities (73.1)Financing Activities Financing Activities (125.8)(125.8)Net 21.2Net 21.2

Greatest expenditure :Operating Activities Greatest expenditure :Operating Activities Investing Activities, Molson has been investing Investing Activities, Molson has been investing in newer equipmentin newer equipmentFinancing Activities, repayment of long term debt Financing Activities, repayment of long term debt was greater than refinancingwas greater than refinancing

Latest quarter


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



Molson and Coors Announce Merger of Equals to Create “World's Fifth Largest Brewer“

Volume (M hl)

17Foster’s 17Foster’s

21Molson 21Molson

39Coors 39Coors

42Grupo Modelo 42Grupo Modelo

60Molson Coors 60Molson Coors

54Carlsberg(1) 54Carlsberg(1)

109Heineken 109Heineken

116SABMiller 116SABMiller

152A-B 152A-B

215InterbrewAmBev 215InterbrewAmBev

25FEMSA

50Scottish &Newcastle

50Scottish &Newcastle

23Kirin

36Asahi

33Tsingtao

Merger of equals unlocks three phases of value creation:

• Phase 1 – Estimated US$175M in potential synergies leading to near-term value creation for shareholders:

– Cost savings primarily through procurement and network optimizat ion

– Expected to be accretive to earnings in year 1 for shareholders

– 50% of synergy capture within 18 months

• Phase 2 – Funding generated by synergies to allow for additional support in key markets on critical brands to grow revenue

• Phase 3 – Operating and financial scale to become a consolidator:

– ‘Top 5’ by volume with 60M hl

– Strong cash flow and balance sheet to support future plans

• Creates top-5 brewer with the operational scale to succeed in the global brewing industry

– Strong market positions in some of the world’s largest beer markets

– Broader geographic base provides diversified sources of revenue, profit and cash

• Experienced management team to ensure smooth integration and capitalize on growth opportunities

– 126 years of consumer industry experience

– Proven integration skills

• Natural strategic and cultural fit

– Complementary product lines and operational geography

– Existing strong working relationships

– Common values, operating philosophies and heritages



Transaction Summary:

Company to adopt current Molson dividend policy currently US$0.44 per Molson share, or US$1.21 per Molson Coors share

Dividend Policy

Listing of Molson Coors A and B shares on NYSE; listing of exchangeable A and B shares on TSX

Stock Listings

Recommended unanimously by Molson and Coors Board of Directors

Subject to approval by 2/3 of each class of Molson shareholders and by a majority of each class of Coors shareholders

Subject to regulatory approvals

Required Approvals

Molson Coors Brewing CompanyCompany Name

Stock-for-stock exchange (tax-free to holders of Molson in Canada and to holders of Coors in US)

Consideration

Fall 2004Expected Closing

Both families agree to vote in favor of transactionShareholder Support

.360 Coors voting/non-voting shares per Molson voting/non-voting shareExchange Ratio

Combination of Molson and Coors through a merger-of-equals transaction

Transaction Overview

Company to adopt current Molson dividend policy currently US$0.44 per Molson share, or US$1.21 per Molson Coors share

Dividend Policy

Listing of Molson Coors A and B shares on NYSE; listing of exchangeable A and B shares on TSX

Stock Listings

Recommended unanimously by Molson and Coors Board of Directors

Subject to approval by 2/3 of each class of Molson shareholders and by a majority of each class of Coors shareholders

Subject to regulatory approvals

Required Approvals

Molson Coors Brewing CompanyCompany Name

Stock-for-stock exchange (tax-free to holders of Molson in Canada and to holders of Coors in US)

Consideration

Fall 2004Expected Closing

Both families agree to vote in favor of transactionShareholder Support

.360 Coors voting/non-voting shares per Molson voting/non-voting shareExchange Ratio

Combination of Molson and Coors through a merger-of-equals transaction

Transaction Overview



Nov 5th: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 As part of Molson and Coors merger Pentland ( owned by will forego special dividend As a result, dividend will be $3.26 rather than $3.00dividend 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.


Molson: Stock Price

106.9M shares

A – Non-VotingA – Non-Voting

Public100%

Molson MOL.A-T Last Trade:Nov 17, 2004 16:20 EST Last: C$ 34.050

Net Change: C$ 0.450

% Change: 1.34%

Open 33.500 Bid 34.050

High 34.350 Ask 34.100

Low 33.500 EPS 0.28 Volume 1,042,800 P/E 121.60

52-Week High 36.800 Indicated Annual Div.

0.60

52-Week Low 28.500 Yield 1.79

Market Capitalization of approximately $4121 millionMarket Capitalization of approximately $4121 million


Molson : Stock Price

22.4M shares

B – VotingB – Voting

Public45%

Molson MOL.B-T Last Trade:Nov 17, 2004 12:46 EST Last: C$ 34.230 Net Change: C$ 0.530 % Change: 1.57%

Open 34.230 Bid 33.800

High 34.230 Ask 34.490

Low 34.230 EPS 0.28

Volume 500 P/E 122.20

52-Week High 36.780 Indicated Annual Div.

0.60

52-Week Low 28.950 Yield 1.78


Molson : Shareholder Return Molson Shareholder Return Since April 2001


Molson : Recommendation

Analyst Recommendation:

Current Recommendation Company Symbol

Consensus Mean Industry # of Brokers

7 Days Ago Mean

30 Days Ago Mean

60 Days Ago Mean

Molson MOL.A-T Hold 3.5 2.7 13 3.5 3.4 3.2

Our Recommendation:

Hold : Wait for more info on BrazilToo early to tell the benefits of merger

* Dividend capture opportunity

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