Global Breweries

Fundamental Analysis and Recommendations

Cyrus Cheung Ervinna Jeff

November 17, 2004

Global Breweries
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Overview of Presentation

Industry Overview

History & Background Product Industry Consumers Growth Area Key Success Factors Anheuser-Busch : Cyrus Cheung Heineken : Erivnna Molson : Jeff

Company Analysis and Recommendations:

Global 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.

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

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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)
Source: http://www.beermachine.com/files/beer-science-history.htm

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

Specialty Beers:

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Product - Brewing process:

1. 2. 3. 4. 5. 6. 7. 8. 9.

Milling Mashing Boiling Cooling Fermenting Filtering Conditioning Pasteurizing 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% 5 largest account for approx. 44% of total volume Compare this to the cigarette industry - 5 largest, 60% share

Industry remains fragmented

Home market dependence

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Industry
Current trends in the industry

Consolidation led by major international brewers

Interbrew and Heineken China, Eastern Europe, Russia

Volume growth in developing market

Big gets bigger

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Industry
G lobal M arket Share 2004 (in volum e)

InBev 13%

A nheuserBusch 10% SA iller BM 9% Heineken 7%

others 56% Carlsberg 5%

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

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Industry
Global Beer Consumption
Per C apita Share C onsumption C ountry (2001) (in liters) US 16.4 83.1 C hina 14.3 15.8 G ermany 7.3 123.1 Brazil 5.8 46.7 UK 4.1 97.1 Japan 3.6 40 M exico 3.5 48.6 R ussian F ederation3.1 30 Poland 1.7 60.5 F rance 1.5 35.9 C zech R epublic 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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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)

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Modern US Beer industry:

Share of Total Beverage Alcohol Retail Dollar Sales Share of Total Beverage Alcohol Consumption
Spirits 5% Wine 8% Beer 54% Spirits 31%

Wine 15%

Beer 87%

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US Market During the 3rd Quarter (Volume)

% Chang e Shipm ents

M arket S hare (% )
49.8 18.3 10.4 4.0 11.4 6.1

C hg
-0 .1Pts +0.5 -0.4 -0.2 +0.3 -0.1Pts

Anhe user usch +0.9 -B M iller C oors Pabst Im ports Others Total

+4.0 -2.9 -4.6 +4.0 -0.7 +1.1

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US Market
M a r k e t S h a r e ( I n c lu d in g E x p o r t s ) %

Market Share by Brewer

60

50

Anheuser -Busch

40

30

SABMiller (excludes Fosters, Pilsner Pabst (includes Stroh, etc.) Coors (including Molson)

Urquell & Presidente )

20

Micros & Regionals Imports

10

1 983

1984

1985

1 986

1 987

1988

19 89

19 90

19 91

19 92

19 93

19 94

1995

1996

1997

199 8

1999

200 0

2001

200 2

200 3

Source: A -B Internal

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200 4
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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) National brand, light beer Malt Liquor, popular priced( cheap)

Sub Premium 25.5%

Premium

Super Premium 18.2%

Sub Premium

Premium 56.3%

2003 US Market

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Consumers & Trends

The Growth of Beer Consumption Slowed in 2003
U.S. All Beverages: Total Beverage Consumption (Gallon Basis)
Soft Drinks Coffee Milk Beer Bottled Water Tea Juices Powdered Drinks Wine Distilled Spirits Cider
-9.1%
CHANGE IN CONSUMPTION 2003 v. 2002

0.7% 0.3% 0.7% -0.6% 10.5% 0.5% 1.6% -0.8% 4.8% 3.6%

Total Beverages Trend: +1.6%

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

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Consumers & Trends

Beer Consumer Demographic Profile
Beer Consumers skew towards Male, Younger, Low to Moderate Educa Blue Collar, and Moderate Income Households.
One Per son Tw Persons o Thre Persons e Fou Persons r Five Persons Six Person + s Blue Collar W hite Collar Grey Collar Ma les Fema les W hites 21- 24 y ars e 25 - 34 y ars e 35 - 44 y ars e 45 - 54 y ars e 55 - 64 y ars e 65 yea + rs Single Married Other Blacks Hispanic Other Not Em ployed Full Tim e Part Tim e Retired Not in Labor Force

ted,

Total US

Beer Consumer

Gra Sch de ool Som High Sch e ool High Sch ool Grad. Som College e College Grad.

Under $1 5,000 $1 5,000 - $24,999 $25,000 - $34,999 $35,000 - $49,999 $50,000 - $64,999 $65,000 +

20

40

60

80

100

20

40

60

80

100

Source: Anheuser

-Busch, Inc. Eagle Eye, Beer Poll

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Consumers & Trends

The Number of Core Beer Consumers Is Expected to Continue Growing, Generating Greater Category Sales
After Bottoming Out in the Late 1990s, a Core Beer Consumer Demographic Will Grow by 16% over the Next 6 Years
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Age 21 - 27

Population (Millions)

28 27 26 25 24 23 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10

Growth Rate: +16%

Source: U.S. Census

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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 Smirnoff Ice Mike's Hard Lemonade Skyy Blue Bacardi Silver Zima Tequiza Doc Otis Hooper's Hooch Two Dogs Supplier Diageo Mike's Hard Beve rage SAB Miller/Skyy Spirits Anheuser-Busch/Bacardi Coors Brewing Anheuser-Busch Anheuser Busch US Beverage Next Generation Mktg. 2000 310 6,800 --8,400 3,600 2,500 2,300 1,060 1,000 -500 2001 19,880 11,000 --6,900 2,750 2,550 2,200 1,100 900 -520 2002 22,450 11,500 7,000 6,000 5,240 2,600 2,400 1,500 950 900 690 450

Rick's Spiked Lemonade US Beverage Vibe Jed's Hard Lemonade Coors Brewing Matt Brewing

Source: Adams Handbook Advance 2003

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Global Expansions
Potential markets: Growing middle class South America

High Consumption Concentrated market ( Brazil (65%) , Argentina (80%),

East Europe

Switching from spirit

China has the largest Beer consumption by volume One of the world most competitive market

Asia ( China)

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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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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 AnheuserBusch 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)

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Management Team
Management Team :
Names Busch III, August A. Stokes, Patrick T Baker, W. Randolph Jacob, John E Kasen, Keith M. Busch IV, August A. Gonzales, Carlos F. Forese, James J. Knight, Charles F. Age 66 61 57 69 60 39 37 68 68 Officer Since 1974 1981 1982 1994 2003 2000 1994 2003 1987 Title Chairman of the Board President, Chief Executive Officer, Director Chief Financial Office, Vice President Executive Vice President Global Communication, Director President and Chairman of the Board of Busch Entertainment Corp. Vice President and Group Executive; President of Anheuser-Busch, Inc. Director; Grupo Modello Director; Americas Most Powerful People 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 Executives

For Fiscal Year Ending 12/31/2003

Names Stokes, Patrick T Busch III, August A. Busch IV, August A. Baker, W. Randolph Lambright, Stephen K.

Total Annual All Other Compensation $4.91 M $2.14 M $1.81 M $1.24 M $1.18 M $0.15 M $0.11 M $0.07M $0.06M $0.07M

Fiscal Year Total $5.06 M $2.24 M $1.88 M $1.30 M $1.25 M

Options Total Exercised $46.21 M $46.10 M $8.34 M $28.34 M $13.66M $6.56 M $6.41M $1.32 M $2.26 M $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 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) one of the largest U.S. manufacturers of aluminum beverage containers and the world's largest recycler of aluminum beverage containers. Formed in 1979, consists of nine distinctive park

Packaging

Entertainment

Sources: Anheuser Busch Companies: At a glance (Anheuser Busch Companies, 2003)

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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: 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

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Income contribution of each segment

For Fiscal Year Ending 12/31/2003

2 %

4 %

5 %

Dom stic Be r e e Inte rnational Be r e Packaging Ente rtainm nt e

8% 9
Sources: Anheuser Busch Companies 2003 Annual Report

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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)

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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 Increasing domestic beer segment volume and per barrel profitability

Objectives / Strategies

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

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Value Drivers

Home market dominance (49.6% market share)

Twice as large as nearest competitors

Economies of scale 2/3rds of volume delivered by wholesalers who only carry Anheuser-Busch (A-B) First to introduce low carb beers Leverage 49.6% market share into 75% of markets operating profit
Sources: Anheuser Busch Companies 2003 Annual Report

Extensive exclusive distribution

Brand recognition and Innovation

Marketing and manufacturing efficiency

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Consolidated Balance Sheet

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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 0.46 0.8 2.16 13.7% 54.4% 2001 0.45 0.9 1.47 12.2% 41.6% Industry 0.66 1.37 2.34 10.83% 64.01% S&P 500 1.31 1.80 0.63 7.38% 20.05%
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Quick Ratio Current Ratio Lt Debt / Equity

0.54 0.96 2.99

Return on Assets 12.05% ROE 72.0%

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Debt Analysis

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Consolidated Statement of Income

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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
2002 $13,566.8 $1,933.8 $2.20 1.4 $0.75 2001 $12,911.0 $1,704.5 $1.89 1.5 $0.69 Industry N/A N/A N/A 1.86 N/A S&P 500 N/A N/A N/A 2.02 N/A

Dollar in millions except per 2003 share Net Sales Net Income Earnings/Share (diluted) Dividend Yield Annual Dividend Profitability Ratios Gross Margin Profit Margin 40.16% 12.25% $14,146.7 $2,075.9 $2.48 1.92 $0.83

40.1% 14.3%

38.4% 13.2%

39.84% 11.08%

46.76% 13.99%
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Global Breweries

Income Statement Analysis cont.

REVENUE Quarters MAR JUN SEP DEC 2001 3,044,200 3,452,000 3,522,200 2,893,100 2002 3,136,600 3,626,100 3,706,200 3,097,500 2003 3,280,600 3,770,200 3,880,500 3,215,400 2004 3,477,000 4,010,000 4,080,100

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 MAR JUN SEP DEC 2001 0.430 0.580 0.620 0.260 2002 0.510 0.660 0.710 0.320 2003 0.570 0.750 0.800 0.360 2004 0.670 0.830 0.850

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 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

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Financial Analysis Summary

GROWTH 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 Valuation Ratios
RATIO COMPARISON

Profitability Ratios (%)

Company

Industry

Sector

S&P 500

Valuation Ratios

Company

Industry

Sector

S&P 500

Gross Margin - 5 Yr. Avg.

38.71

38.81

45.54

46.18

P/E Ratio (TTM)

18.86

19.19

20.28

22.25

P/E High - Last 5 Yrs. EBITD - 5 Yr. Avg. 27.37 24.25 19.45 20.38 P/E Low - Last 5 Yrs. Operating Margin - 5 Yr. Avg. 21.00 18.73 16.16 18.07

28.79

28.27

42.58

45.90

20.97

18.63

18.24

16.40

Price to Sales (TTM)

2.82

2.48

2.45

3.26

Price to Book (MRQ) Pre-Tax Margin - 5 Yr. Avg. 18.41 16.40 15.07 17.10 Price to Tangible Book (MRQ) Net Profit Margin - 5 Yr. Avg. 11.21 10.07 9.86 11.31

14.59

11.51

7.45

4.16

25.25

22.91

16.14

7.56

Price to Cash Flow (TTM)

15.17

14.91

15.50

16.03

Effective Tax Rate - 5 Yr. Avg.

39.11

38.41

35.09

34.

Price to Free Cash Flow (TTM)

35.14

32.17

35.75

26.26

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Stock Price Summary

As of 11/16/04 4:00 PM

Traded on NYSE

Symbol: BUD.N 790,067,968 units outstanding Market Capitalization of $40.246 Billions US Instit. Ownership $467.2 Million (58.3%) Open: 50.92 High: 51.09 Low: 50.70 Volume: 1,251,900

Current Price: Change: 50.73 -0.21 Percent Change: -0.41%

Yield: 1.90%

P/E Ratio: 52 Week Range: 18.74 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

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

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

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

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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 Global Breweries

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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 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. Anheuser-Busch Companies Proceeds with Tender Offer for China's Harbin Brewery; SABMiller Withdraws Bid

Nov 9, 2004

Jun 3, 2004

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

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Analyst Recommendations and Revisions

Consensus Recommendation OUTPERFORM Company Fiscal Year End Month December Last Updated 15-Nov-04

Analyst Recommendations and Revisions

1-5 Linear Scale (1)BUY (2)OUTPERFORM (3)HOLD (4)UNDERPERFORM (5)SELL No Opinion Current 3 3 11 0 0 0 1 Month Ago 4 4 9 0 0 0 2 Months Ago 5 5 8 0 0 0 1 Year Ago 5 6 6 1 0 0

Mean Rating

2.47

2.29

2.17

2.17

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

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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 Global Breweries
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My recommendation

Conclusion

Buy
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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.) The fourth largest market share in the world The largest production in Europe The second largest imported beer in US market

Facts:

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Company Overview
Output of the largest breweries in Europe (million hl) Brewery Heineken Interbrew/Ambev Carlsberg S&N SABMiller Radeberger Gruppe Coors Anadolou Group Mahou S.A. Bitburger Total Total all breweries Sources: Brauwelt 2004/22 p. 645 Note: the figures only include beer produced in Europe 73 66 56 49 33 18 12 11 10 9 337 500 2003

The largest production in Europe

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Company Overview
Leading Imported Beer Brands (000 2.25-Gallon Cases)
BRAND SUPPLIER COUNTRY OF ORIGIN 20002001p % Ch an ge

Corona Extra Heineken Labatt Blue Tecate Guinness Stout Foster's Lager Beck's Amstel Light Bass Ale Modelo Especial

Barton/Gambrinus Heineken USA Labatt USA Labatt USA Guinness UDV Miller Brewing Beck's North America Heineken USA Guinness UDV Barton/Gambrinus

Mexico Netherlands Canada Mexico Ireland Canada Germany Netherlands UK Mexico

74,000 54,000 14,106 11,024 10,035 8,956 7,938 7,100 7,338 5250 199,747 77,603 277,350

85,061 58,000 15,269 12,026 10,690 10,196 8,135 8,000 7,690 6,656 221,723 79,427 301,150

14.9% 7.4% 8.2% 9.1% 6.5% 13.9% 2.5% 12.7% 4.8% 26.8% 11.0% 2.3% 8.6%

The second largest imported beer in US market

TOTAL LEADING BRANDS OTHERS TOTAL IMPORTED BEER

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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

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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. 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)

Supervisory Board:

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Operation

Product:

80% beer, 10% soft drinks, 3% spirits and wines. International:

Heineken (premium) Amstel (main stream) Tiger (China), Primus (Africa), Guinness (Africa), Kaiser (Brazil), Murphys Irish (Europe), etc.

National and regional brands

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 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

Americas:

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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) Joint venture with Fraser & Neave (Singapore) 43.9% indirect interest in HAPBC (China market)

Asia/Pacific:

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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)

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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)

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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

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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)

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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)

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Financial Analysis

Financial Statements:

Balance Sheet Income Statement Cash Flow Statement

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Financial Analysis

Valuation Ratios
Valuation Ratios P/E Ratio (TTM) P/E High - Last 5 Yrs. P/E Low - Last 5 Yrs. Beta Price to Sales (TTM) Price to Book (MRQ) Price to Tangible Book (MRQ) Price to Cash Flow (TTM) Price to Free Cash Flow (TTM) % Owned Institutions

RATIO COMPARISON Company 24.69 NA NA 0.11 1.28 3.78 8.21 14.19 15.75 0.66 Industry 19.19 28.27 18.63 0.04 2.48 11.51 22.91 14.91 32.17 55.92 Sector 20.28 42.58 18.24 0.22 2.45 7.45 16.14 15.50 35.75 54.14 S&P 500 22.25 45.90 16.40 1.00 3.26 4.16 7.56 16.03 26.26 63.55

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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

39.5527.95

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Financial Analysis

Growth Rates
Growth Rates(%) Sales (MRQ) vs Qtr. 1 Yr. Ago Sales (TTM) vs TTM 1 Yr. Ago Sales - 5 Yr. Growth Rate Company 11.26 12.05 8.09 Industry 6.32 7.45 6.90 Sector 8.27 10.90 5.26 S&P 500 16.43 15.01 9.50

EPS (MRQ) vs Qtr. 1 Yr. Ago

-26.72

20.76

9.35

17.42

EPS (TTM) vs TTM 1 Yr. Ago EPS - 5 Yr. Growth Rate

-22.32 -2.16

14.26 14.16

13.86 12.20

25.92 12.64

Capital Spending - 5 Yr. Growth Rate

10.34

5.50

-1.09

4.38

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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

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Financial Analysis

Profitability Ratios
Profitability Ratios (%) Gross Margin (TTM) Gross Margin - 5 Yr. Avg. EBITD Margin (TTM) EBITD - 5 Yr. Avg. Operating Margin (TTM) Operating Margin - 5 Yr. Avg. Pre-Tax Margin (TTM) Pre-Tax Margin - 5 Yr. Avg. Net Profit Margin (TTM) Net Profit Margin - 5 Yr. Avg. Effective Tax Rate (TTM) Effective Tax Rate - 5 Yr. Avg. Company 40.89 75.71 20.41 18.12 12.59 12.70 11.31 12.42 8.02 8.75 29.04 29.64 Industry 39.84 38.81 25.51 24.25 20.11 18.73 17.86 16.40 11.08 10.07 37.50 38.41 Sector 45.25 45.54 19.59 19.45 16.82 16.16 16.08 15.07 11.30 9.86 30.33 35.09 S&P 500 46.76 46.18 21.56 20.38 21.68 18.07 18.06 17.10 13.99 11.31 29.99 34.23

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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

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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

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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

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Stock Price Analysis

5 years Performance

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Stock Price Analysis

1 Year Performance

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Valuation

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

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Analyst Recommendation
1-5 Linear Scale Current 1 Month Ago 0 0 2 0 1 0 2 Months Ago 0 0 2 0 1 0 1 Year Ago 0 0 2 0 1 0

(1)BUY (2)OUTPERFORM (3)HOLD (4)UNDERPERFORM (5)SELL No Opinion

0 0 2 0 1 0

Mean Rating

3.67

3.67

3.67

3.67

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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

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Molson

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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

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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) Robert Coallier( Joined Molson in 2000)

President and Chief Operating Officer, North America

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 Gigure ( Joined Molson in 1999)

Senior Vice President, Chief Legal Officer and Secretary

Peter L. Amirault ( Joined Molson in 2002) Les Hine ( Joined Molson in 2003)
Chief Marketing Officer

Senior Vice-President Business Development and Innovation

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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 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)

3. Daniel W. Colson 4. David P. OBrien 5. H. Sanford Riley

9. Luc Beauregard - CEO of National Public Relations servicing Molson

*in 2004 the Board Sharked by one-third

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Molson: Operations

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Molson: Operations
North America

Brazil

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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:

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Molson: Vision & Objectives

by growing revenue Operating Profits:and
Revenue Growth

1) Growing

saving costs

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 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.

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Molson: Vision & Objectives 2)

By building brand Market Shareequity 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

Grow

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

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

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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 Global Breweries
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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.

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Molson: Financial

Income statement
17.99 1.22 3.50 0.56 9.57 27.34

P/E Price to Sales Price to Book Dividend Per Share Book Value Per Share Revenue Per Share

Cash Flow statement

216.4 (73.1) (125.8) 21.2

Balance Sheet

Operating Activities Investing Activities Financing Activities Net

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%

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

Latest quarter

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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

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Molson : In the News

Molson and Coors Announce Merger of Equals to Create World's Fifth Largest Brewer
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
InterbrewAmBev A-B SABMiller Heineken Molson Coors Carlsberg(1) Scottish & Newcastle Grupo Modelo Coors Asahi Tsingtao FEMSA Kirin Molson Fosters 42 39 36 33 25 23 21 17 60 54 50 116 109 152

Volume (M hl)
215

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 brewer with the operational scale to succeed in the global -5 brewing industry
Strong market positions in some of the world largest beer markets s 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 Complementary product lines and operational geography Existing strong working relationships Common values, operating philosophies and heritages

Natural strategic and cultural fit

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Molson : In the News

Transaction Summary:
Company Name Molson Coors Brewing Company Transaction Overview Combination of Molson and Coors through a merger -of-equals transaction Consideration Exchange Ratio Shareholder Support Expected Closing Required Approvals Stock-for-stock exchange (tax -free to holders of Molson in Canada and to holders of Coors in US) .360 Coors voting/non -voting shares per Molson voting/non -voting share Both families agree to vote in favor of transaction Fall 2004 Recommended unanimously by Molson and Coors Board of Directors Subject to approval by 2/3 of each class of Molson shareholders by and a majority of each class of Coors shareholders Subject to regulatory approvals Stock Listings Dividend Policy Listing of Molson Coors A and B shares on NYSE; listing of exchangeable A and B shares on TSX Company to adopt current Molson dividend policy currently US$0.4 4 per Molson share, or US$1.21 per Molson Coors share

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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.

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Molson: Stock Price

A Non-Voting
Public 100%
Molson MOL.A-T Last: C$ 34.050 Last Trade:Nov17, 2004 16:20 EST Net Change: C$ 0.450 33.500 34.350 33.500 1,042,800 36.800 % Change: 1.34% Bid 34.050 Ask 34.100 EPS 0.28 P/E 121.60 Indicated 0.60 Annual Div. Yield 1.79 Open High Low Volume 52-Week High

106.9M shares

52-Week Low 28.500

Market Capitalization of approximately $4121 million

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Molson : Stock Price

B Voting
Molson MOL.B-T Open High Low Volume 52-Week High Last Trade:Nov17, 2004 12:46 EST 34.230 34.230 34.230 500 36.780 Bid Ask EPS P/E Indicated Annual Div. Yield 33.800 34.490 0.28 122.20 0.60 1.78 Last: C$ 34.230 Net Change: C$ 0.530 % Change: 1.57%

Public 45%

52-Week Low 28.950

22.4M shares

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Molson : Shareholder Return

Molson Shareholder Return Since April 2001

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Molson : Recommendation
Analyst Recommendation:
Current Recommendation 7 Days 30 Days 60 Days Company Symbol # of Ago Mean Ago Mean Ago Mean Consensus Mean Industry Brokers Molson MOL.A-T Hold 3.5 2.7 13 3.5 3.4 3.2

Our Recommendation: Hold : Wait for more info on Brazil Too early to tell the benefits of merger

* Dividend capture opportunity

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