Global Breweries Fundamental Analysis and Recommendations

1
Global BreweriesFundamental Analysis and
Recommendations

• Cyrus Cheung
• Ervinna
• Jeff

November 17, 2004
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
Industry Overview
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.
• 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-scie
  nce-history.htm

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 http//www.beermachine.com/files/beer-scie
  nce-history.htm

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. 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)
• Source http//www.beermachine.com/files/beer-scie
  nce-history.htm

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 -
  US52
• 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-triv
  ia.htm

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

9
Product - Brewing process

• Milling
• Mashing
• Boiling
• Cooling
• Fermenting
• Filtering
• Conditioning
• Pasteurizing
• Packaging
• Main Ingredients
• Malt
• Hops
• Yeast
• Rice
• Water

• Highly standardized and automated process.

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
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
Industry
13
Industry

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

14
Industry

• Global Beer Consumption

15
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
• Brewers
• Wholesale Distributors
• Retailers

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
Modern US Beer industry

• Share of Total Beverage Alcohol Retail Dollar
  Sales

Share of Total Beverage Alcohol Consumption
18
US Market During the 3rd Quarter (Volume)
19
US Market
20
US Market
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
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
Consumers Trends
24
Consumers Trends
25
Consumers Trends
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
Consumers Trends
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
Key Success Factors

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

30
Anheuser-Busch Companies Inc.
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
Company Overview
Company Overview
Company Overview

• 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)

33
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/Officer
  s.aspx?tickerBUD.Ntargetexecutiveofficers2flis
  t

34
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/Officers
  Comp.aspx?tickerBUD.Ntargetexecutiveofficers2f
  basiccompensation

35
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 Belgiums
  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
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 Chinas largest brewer
  (13 of china market)
• 29 Share in Harbin Beer Co China regional
  brewer (prevented SABMillers takeover bid)
• 20 Share in Cervecerias Chiles largest brewer
  JUST SOLD
• Distribution partnerships Labatt Kirin (Japan)

Sources Anheuser Busch Companies 2003 Annual
Report
37
Income contribution of each segment For Fiscal
Year Ending 12/31/2003
Sources Anheuser Busch Companies 2003 Annual
Report
38
Beer Products

• The company currently brews approximately 30
  beers for sale in the United States
• Worlds 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 ODouls, 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
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
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
Consolidated Balance Sheet
42
Balance Sheet Analysis

• 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

2003 2002 2001 Industry SP 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
43
Debt Analysis
44
Consolidated Statement of Income
45
Income Statement Analysis

• 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-Bs Strategy
• Advertising Costs were 806.7 Million
• Promotional Costs were 511.8 Million

Dollar in millions except per share 2003 2002 2001 Industry SP 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
46
Income Statement Analysis cont.
47
Consolidated Statement of Cash Flow
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
Impact of Stock Options on Net Income
Impact of Pension Plan

• Reached 5 year agreement with Union
• Pension Increases of 14
• 7.5 Million signing bonus
• Pension plans cover substantially all regular
  employees
• Employee Stock Ownership Plan (ESOP) deferred
  45.4 million shares for purchase

50
Financial Analysis Summary
51
Financial Analysis Summary
Valuation Ratios
 
52
Stock Price SummaryAs of 11/16/04 400 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
Current Price 50.73 Percent Change -0.41 Yield  1.90 P/E Ratio  18.74 52 Week Range  49.42 to 54.74 52 Week Range  49.42 to 54.74
Sources Globeinvestor.com
53
Stock Price Performance One Year Chart
Sources http//yahoo.investor.reuters.com
54
Stock Price Performance Vs. Dow Jones Industrial
Avg. One Year Chart
Sources http//yahoo.investor.reuters.com
55
Stock Price Performance Vs. Dow Jones Industrial
Avg. Five Year Chart
Sources http//yahoo.investor.reuters.com
56
Valuation Model

• Gordons 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

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 http//yahoo.investor.reuters.com
58
Analyst Recommendations and Revisions
Sources http//yahoo.investor.reuters.com
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
My recommendation

• Conclusion
• Buy

61
Heineken N.V.

• Respect, Enjoyment, Passion for quality.

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
Company Overview
Output of the largest breweries in Europe (million hl) 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. 645Notethe figures only include beer produced in Europe Sources Brauwelt 2004/22 p. 645Notethe figures only include beer produced in Europe

• The largest production in Europe

64
Company Overview
Leading Imported Beer Brands (000 2.25-Gallon
Cases)
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 TOTAL LEADING BRANDS TOTAL LEADING BRANDS 199,747 221,723 11.0
OTHERS OTHERS OTHERS 77,603 79,427 2.3
TOTAL IMPORTED BEER TOTAL IMPORTED BEER TOTAL IMPORTED BEER 277,350 301,150 8.6
The second largest imported beer in US market
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

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)

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), Murphys Irish
  (Europe), etc.
• Limited in low-price segment
• International and local include lagers, specialty
  beers, light beers, and alcohol free beers

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
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
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
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
Objectives

• Companys 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
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
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
Financial Analysis

• Financial Statements
• Balance Sheet
• Income Statement
• Cash Flow Statement

76
Financial Analysis

• Valuation Ratios

RATIO COMPARISON RATIO COMPARISON RATIO COMPARISON RATIO COMPARISON RATIO COMPARISON
Valuation Ratios Company Industry Sector SP 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
77
Financial Analysis

• Dividend (in US Dollar)

Dividends Company Industry Sector SP 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
78
Financial Analysis

• Growth Rates

Growth Rates() Company Industry Sector SP 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
79
Financial Analysis

• Financial Strength

Financial Strength Company Industry Sector SP 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
80
Financial Analysis

• Profitability Ratios

Profitability Ratios () Company Industry Sector SP 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
81
Financial Analysis

• Management Effectiveness

Management Effectiveness () Company Industry Sector SP 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
82
Financial Analysis

• Efficiency

Efficiency Company Industry Sector SP 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
83
Stock Price Analysis

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

84
Stock Price Analysis

• 5 years Performance

85
Stock Price Analysis

• 1 Year Performance

86
Valuation

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

87
Analyst Recommendation
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

90
Molson
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
• Canadas largest brewer
• headquartered in Montreal
• 3,800 employees
• Five breweries across Canada Vancouver,
  Edmonton, Toronto, Montreal and St. Johns
• Operations in Canada, Brazil, and the United
  States
• Global gross sales of 3.5 billion
• Traded on TSX MOL.A-T MOL.B-T

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)

93
Molson Board of Directors
94
Molson Operations
95
Molson Operations
North America
Brazil
96
Molson Vision Objectives

• Molsons 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
Molson Vision Objectives 1) Growing Operating
Profits

• by growing revenue and saving costs

• 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.

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 R200
million in cost savings for the fiscal 2003 to
2005 period. Two years into this program, R152
million in savings had been implemented.
98
Molson Vision Objectives 2) Grow Market Share
By building brand equity and innovating

• 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 Molsons 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

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
Molson Vision Objectives 3) Grow Volume
by developing markets and strengthening sales

• Volume by Geographic Regions

• 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
Molson Vision Objectives 4) Organizational
Renewal
by leveraging and developing talent

• 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

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
Molson Financial

• Income statement

P/E
17.99 Price to Sales
1.22 Price to Book
3.50 Dividend Per Share
0.56 Book Value Per Share
9.57 Revenue Per Share
27.34

• Cash Flow statement

Operating Activities
216.4 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

• Balance Sheet

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
Latest quarter
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
Molson In the News

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

105
Molson In the News

• Transaction Summary

106
Molson In the News
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 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
Molson Stock Price
A Non-Voting
Public100
106.9M shares
Market Capitalization of approximately 4121
million
108
Molson Stock Price
B Voting
Public45
22.4M shares
109
Molson Shareholder Return
Molson Shareholder Return Since April 2001
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
The End