Industry Analysis

1. Industry Analysis Brewers Presented by : Daniel De Santis Amy Wu Mike Chase Pauline Savoy Zhi Yuan Su(Max)

2. Industry Overview - General • Mature product • Benefit of not being subject to volatile sales fluctuations • Beer is the largest in the drinks sector • Seasonality • Steady increase in consumption • Great consumer interest • In US -2,800 brands, three times a decade ago • Solid niche markets developing

3. Seasonality

4. Industry Overview - Companies • Largest brewers in mature markets (business strategy of consolidation) • Move to global consolidation • Aggregate volume of the top 10 brewers has grown 4x faster total industry since mid-1990s • Global market share of top 20 brewers is increasing • 1990 -51% • 2000 -65% • Industry remains fragmented • 5 largest account for 30% of total volume • Cigarette industry –5 largest, 60% share • Biggest brewers are not the most global • Depends on the home market

5. Industry Overview – Growth Prospects • Mature in North America and traditional European markets • World’s top 5 per capita consumption in Europe • Growth in: • Eastern Europe and Russia • Traditionally spirit drinking • China • No 1 market in total volume • Economic crises are good • Switch from higher-priced spirits to lower-priced beer

6. Beer Consumption

7. USA – Growth • Seven consecutive years of growth up to 2002 • 2002 growth of 1.4 percent • All-time record of 203 million barrels shipped • Demographic Trends • Increase driven by growth in light beer, and gains in imports

8. Top Brewers

9. Top US Brands

10. Industry Regulations • Extensive government regulations at : • Federal, State & Local Level • an astonishing 44% tax of its 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) • Brewers • Beer Excise Tax

11. Government Measures • Decline in the USA in the early 1990s • 100 % increase in federal tax • Individual consumption gradually declining since the early 1980s • Public policy measures of moderation and personal responsibility • Potential government interference • Large scale employer, and contributes large amounts of tax revenue • Environmental issues

12. Porter’s Five Forces Model (Competitive Forces) Threats of New Entrants (Moderate) Bargaining Power Of Suppliers (Moderate) Rivalry among Competitors (Strong) Bargaining Power Of Buyers (Very Strong) Availability of Substitutes (Moderate)

13. Threats of New Entrants • Barriers to entry in the National Market • Large capital requirements and distribution networks • Industry regulations • Product standardization and heavily advertised • Economies of Scale • Fixed costs spread across large volume • Product extension and brand proliferation eased

14. Rivalry among Competitors(USA) • 3 Competitive Rivalry Segments: • National, Regional , and Microbrewers • Dynamic Competitors • 1800 domestic brewers & importers • growing popularity of microbreweries and brewpubs • 5 times more breweries than in 1992 • 2,200 beer wholesalers, and 560,000 retail establishments • Imports • Sales tripling in the past 11 years • However, 90 % of all beer sold is Made in the USA

15. Substitutes • Growth in premixed drinks • Malt beverages • Health conscience population • Non-alcoholic drinks (juice, mineral water,milk, etc.) • Beer remains the largest drinks sector

16. Buyer’s Bargaining Power • Low switching costs • Price competition • Advertising • Promotional Schemes

17. Suppliers • Farmers • Bottles/Can suppliers • Union Labour • Average pay $18.27 an hour

18. Key Industry Success Factors • Low Cost Structure • Distribution Channels • Competitive Pricing • Strong Advertising & Marketing skills • Strong Brand Recognition • Quality • Innovation

19. Just Mike Chase Anheuser-Busch Companies Inc.

20. Company Overview • Production/Distribution of beer, Packaging and Busch Entertainment • Largest Brewer in the world and U.S. • Has 51.6% of U.S. market and 11.6% of global market • Bud light has 19.1% of U.S. market • Budweiser # 1 brand in the world • Other Brands: Bud Dry, Michelob, Michelob Ultra, Busch, Natural Pilsner, World Select, Bacardi Silver, Doc’s Hard Lemonade, O'Doul's

21. 2002 U.S. Market Share(Not including exports)

22. Operations • A-B operates 12 breweries in U.S. • Produced almost 110 million barrels in expanded capacity breweries • Distribution through exclusive wholesalers, who gain from high margins and volume. • Budweiser also produced in U.K. and Wuhan, China.

23. Subsidiaries and Consolidation • Anheuser-Busch Packaging: aluminum and bottle recycling, packaging & printing. • Busch Agricultural Resources Inc. • Manufacturers Railway Company. • Busch Entertainment Corp. http://www.4adventure.com/home.aspx • 50% interest: Grupo Modelo: Mexico. • 20% interest: Compania Cervesias Unidas(CCU)Chile. • 7.2% interest: Tsingtao brewer: China. • Partnership with Kirin, Japan. • Partnership with Labatts.

24. Financials • Symbol: BUD-N • Price (03/11/03) $49.65 • 52 Week Spread: $53.84 - $45.30 • Market Cap: $41,049 million • # of Shares: 878.9 million • P/E Ratio: 20.30 • EPS: 2.44 up 13.8% • Book Value / Share: 3.61 down from 4.62 • ROE: 54.4% • Indicated Dividends: $0.88 from 0.75

25. Comparative Returns

26. Price History

27. Income Statement Analysis

28. Growth Analysis • Dividend Growth • 5 yr = 8.5% • Revenue Growth • 5 yr = 3.98% • EPS Growth • 1 yr = 16.4% • 5 yr = 13.46%

29. Growth Analysis

30. Balance Sheet Analysis

31. Balance Sheet Analysis

32. Cash Flow Analysis • Generating $2.6 billion cash flow from operations. • Free Cash flow of $1.93 billion. • Up 44.2% from 2001. • Reinvest in core businesses and packaging and entertainment. • Continue to buy international businesses in high growth markets. • Higher indicated dividends. • Focus on share repurchase.

33. Management • August A Busch: President A-B Inc. • Steve Burrows: CEO of A-B International • W Randolph Baker: V.P., CFO A-B Inc. • Keith N Kasen: CEO Busch Entertainment • Joe Sellinger: CEO Packaging • All promoted from within. • Average of 10 to 20 years with A-B. • Long term outlook for company performance.

34. Key Investment Positives • Unbeatable domestic market share • Extensive Exclusive Distribution • Volume (Economies of Scale) • Marketing • Management • Share repurchase strategy • Strong network of growing and profitable Foreign Brewers • Growing Volume, Revenue, FCF, EPS.

35. Key Investment Negatives • High Debt ratios • Growing debt servicing costs • Slowing growth in domestic market • Revenue and Profit growth from price increases and cost reductions.

36. Valuation Model • Gordon’s Growth Model • Good for stable companies • Paying dividends that grow • Stock Price = Ex (Div/Share) (k – g) • g = 8.525 over last 5 years • k = 0.1006 • Two valuations using expected dividends vs. indicated dividends • Expected: $53.03 Indicated:$57.33

37. Recommendation • Slowing growth in the Domestic Market • Reaching Price Break Point • Dominant and growing beer brands • Distribution competitive advantage • Strong International growth potential • Favourable treatment of stockholders • Dividend model value $53.03 to $57.33 Moderate Buy

38. CONTINUING TO DELIVER

39. Company Overview • Founded 1786 – oldest brewer in North America • One of the world’s largest brewers of quality beer • Global brewer with $3.5 billion in gross annual sales • Operations in Canada, Brazil and the United States

40. Brands Molson Canada • Molson Canadian (light and ice), Molson Export, Molson Dry, Rickard’s Red, Pilsner, Carling, Carling Black label, Bavaria (import), & Tornade. Molson Partner brands • Coors Light, Heineken, Miller Genuine Draft, Corna, Foster’s Lager, Dave’s, Murphy’s Irish Stout, Caffrey, Milwaukee’s Best, Milwaukee’s Best Dry

41. Brands Molson USA • Molson’s Beers imported directly from Canada: Molson Canadian (+ light), Molson, Ice, Molson Export, Molson Golden, Molson Excel Brazil • Kaiser Pilsen, SaSanta Cerva, Kaiser Summer Draft, Xingu, Kaiser Bock, Heineken (under licence), Bavaria Pilsen, Bavaria Premium

42. Operations • 100% Molson Canada – brewers located throughout Canada • 49.9% of Coors Canada • 50.1% interest in Molson USA – markets and distributes the Molson brands in the US • 80% of Kaiser in Brazil

43. Consolidations • Dec 2000 – entered the South American Market by acquiring Bavaria – a leading brand in Brazil • Sold the Montreal Canadians (keeping 19.9 share in the hockey team) • Purchased Kaiser 2002 – 2nd largest brewer in Brazil and merged Bavaria and Kaiser • Heineken acquired 20% of the newly formed entity • Molson does not plan any future Mergers or acquisition in the medium term. • Export Strategy – New VP

44. Molson’s Strategy • Grow Operating Profits by 14.5% annually • Grow Market Share annually • Grow Volume by 4% to 5% annually • Organizational Renewal • Improve Quality

45. 2003 Market Share • Brazil – Market share increased from 3.1% to 17.8% - purchase Kaiser 2nd largest brewer in Brazil.

46. Income Statement Analysis

47. Sales by Volume by Region Region Fiscal 2003

48. Molson Stock Symbol: MOL.A Recent Price(23/10/03) 34.30 52 week range $28.00 - $38.75 Market Cap(Mil) $4,356 Share outstanding(Mil) 129.0 P/E ratio: 16.70 P/B ratio: 3.92 EPS 2.05

49. Comparative Returns

50. Molson – stock chart 12 months