Market leadership in India

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Market leadership in India
2
IntroductionTony Froggatt CEO SN
3
SN in emerging markets India is a material
long term investment

• SN has traditionally been viewed as a strong
  player in Western Europe
• SNs emerging market positions are strategically
  significant
• SNs investments in India and China are small
  but material to long term growth
• SNs investment in India is important
• The market has huge potential
• UBL has the best position
• SN are a value adding partner

4
SN in Asia JV positions in two of the most
dynamic markets
India - JV
China - JV
United Breweries Limited (UBL) Listed Bombay
No.1 in market 37.5 equity stake US49m
invested May03 US171m invested Dec04 Turnover
US 200m
Chongqing Brewing Company (CBC) Listed
Shanghai No.5 in market 19.5 equity stake
US64m invested Nov04 Turnover US 130m
- Indicative combined 100 UBL and 100 MAL
2005
- 100 of CBC 2004
5
The Indian attraction Beer market
characteristics and the implications
Characteristic
Implication

• Strategic consolidation complete
• Only small positions remain for
• new entrants
• High value of strong local partner
• Brands can command price premium
• Market conditions allow profitable
• business
• Achievable profit growth

• Strategic
• Consolidated market
• Top players have national strength
• Heavy regulation
• High barriers to entry
• Business operations
• Consumers understand branding
• Retail prices increasing
• Cost pressures largely local
• Deliverable synergies

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John HuntMD AsiaSN
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Indian demographics A market with significant
opportunity

• 10th biggest economy in World1
• GDP of 518/Head2 (6.5 pa3)
• Foreign Direct Investment
• c.US5.5bn p/a 4
• New infrastructure projects
• Liberalisation reform agenda
• 1.1 billion throats
• Growing at c.16.5m per year
• 600 mn lt 25 yrs
• 320 mn urban
• 180 mn middle class househds
• BPO/ IT generation
• Culture
• Hindu 80, Muslim 13
• 4 States and 1 UT are dry

Central Government Plus 28 States / 7 UTs
Delhi
Kolkata
Mumbai
Bangalore
Chennai
1 - World bank 2004, 2 - EIU
estimates 2004,
3 EIU Estimates 2001-05 4 Ernst and Young
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An overview of the UBL business National Sales
and Production footprint

• Market leader with 48
• Head office in Bangalore
• 3,250 employees
• Turnover US 200m
• Volume 3.5 m.hl
• Breweries in all key States
• 14 owned breweries
• 9 contract breweries
• 2 Greenfield breweries

Top 13 States
Owned breweries
Contract brewery
Greenfield breweries
- Indicative combined 100 UBL and 100 MAL
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Alcoholic beverage market Beer is
significantly under- represented
Volume (mhl)
Per Cap (l/hd)
Abs. alc. (ml)
Share abs. alc.
Country Liquor
18.5
1.7
740
68
IMFL
7.4
0.7
296
27
Beer
7.1
0.7
51
5
Wine
0.3
0.0
3
0
Soft drinks
30.0
2.7
0
0
Total
63.5
5.8
1090
100
GDP growth, consumer behaviour retail/
distribution liberalisation all favour beer going
forward.
Source Combination of State Government published
data and UB Internal estimates
IMFL Indian made foreign liquor
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The beer market is growing rapidlyand growth is
forecast to continue

• Sustained level of growth
• H1 06 at 16
• Significant volatility yoy
• Monsoon
• State policies

Forecast future annual growth base of c.8
Source Combination of State Government published
data and UB Internal estimates
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Beer market competitive set India is a highly
consolidated market
Market Share Mar 05
Brand Market Share Mar 05

• Top Brewer 48 Top 2 gt 80
• Top Brand 33 Top 5 Brands 66 of total market
• c.90 of volume in 650 ml bottle

Source Combination of State Government published
data and UB Internal estimates
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Indian market is highly regulatedInability to
replicate national footprint is a major barrier
to entry

• State Government controls alcohol
• Alcohol is State Governments responsibility
• Income from alcohol significant part of state
  budgets
• State government policy driven by
  socio-economic conditions
• Restrictive nature of the market
• Tariff barriers create separate markets
• Duty level at 42 MRP is high
• Govt license brewery production
• Government intervention in 63 of market
• Retail pricing
• Government retail and distribution
• Indirect control over private enterprise

- Weighted average of Top 10 states
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Indian beer market has a strong growth
baseRetail liberalisation is an additional
opportunity

• Close to 1 million outlets in India sell soft
  drinks
• The number of outlets that sell beer is under
  54,000
• 1 outlet per 20,000 people (c. 1 per 350 people
  in UK)

Reform of beer retail licensing and beer duty
would create a step change in growth.
Source NCAER Report 2004
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SN support structure for UBLSN is an active
partner
UBL Board

• UBL Control
• VJM SN joint control
• 2 board seats each
• 3 non-execs
• CEO is VJM nominee by agreement
• CFO is SN nominee by agreement

• 2 SN Execs
• J Hunt
• J Dunsmore

• 2 Partner Execs
• Dr V Mallya
• R Nedungadi

K Ganguly - CEO L Jackson - CFO
3 Independent Non-Execs
Ops, Logistics, Procurement
Finance Reporting
Marketing Brands
Technical
Industrial
Greenfield
SN Group Operations
SN Group Marketing
SN Group Finance
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SN investment structure

• UBL/MAL Status
• UBL MAL remain separate legal entities
• UBL/MAL managed as a single business
• SN investment
• UBL US 102m equity, US 79m non-equity
• MAL US 12m equity, US 27m non-equity

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UBL stock exchange reporting vs SN all India
investment

• UBL reporting
• Quarterly UBL unconsolidated
• Annually UBL fully consolidated
• Associated Breweries Distilleries
• Mangalore Breweries Distilleries
• 40 Millennium JV accounting
• SN reporting
• Bi-annually
• 37.5 share of UBL consolidated
• 40 of Millennium
• Income from non-equity investment

UBL Operating Company T/over 711
Volume 2.3mhl
98
100
40
Associated Breweries Distilleries Ltd
Mangalore Breweries Distilleries Ltd
Millennium Alcobev Ltd (MAL)
T/over 2012 Volume 0.9m.hl2
T/over 61 Volume 0.2 m.hl
T/over 31 Volume 0.1 m.hl
1 - share of combined 100 UB 100 MAL
indicative turnover 2005
2 - 100 of MAL
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SN as an active partner Helping to build value

• Short term synergies
• UBL Millennium combination
• Brand portfolio integration
• Operations integration
• Single management team
• Corporate Governance
• SN network for Kingfisher

• Outcome of Strategy reviews
• Marketing
• Grow beer market
• Kingfisher brand focus
• Kronenbourg brand opportunity
• Innovation brand extension
• Operations
• Production footprint
• Efficiency and quality
• Procurement
• Finance
• Tax and debt

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Dr Vijay MallyaChairman United Breweries Ltd
(UBL)
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UBL Long term market leading performance

• Market 5 year CAGR 8
• UB 5 year CAGR 14
• Market share 12 pts since 2000 (36 to 48)

UBL Volume Growth

• Unrivalled portfolio of brands, with mix of
  national regional brands
• Kingfisher Mild dominant market leader
• Kingfisher Strong fastest growth in market
• Multi state brands Zingaro and Sandpiper
• Innovation Jaguar, UB Export in pints, KF Strong
  in cans

Source Combination of State Government published
data and UB Internal estimates
- UBL MAL 2004/05 vs 1999/00
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Market share developmentUBL is clear market
leader in a consolidated market
2003/04
2004/05
Apr-Sept 2005

• UBL is 1.5x size of No.2
• UBL is growing at a faster rate than the market
• April-Sept 2005 2pt market share gain v
  April-Sept 2004

Source Combination of State Government published
data and UB Internal estimates
21
Market position by state UBL is No.1 in 8 out
of the top 10 state markets
UBL Position
UB No.1 SAB No.1
India Val.
No.1 No.1 No.2 No.1 No.1 No.1 No.2 No.1 No.1 No.1
Maharashtra Tamil Nadu Andra Pradesh
Karnataka Mumbai Rajasthan Uttar Pradesh
Delhi Madhya Pradesh Kerala
16 13 13 10 8 7 6 5 3 2

• UB led markets account for 57 of volume, but
  64 of value
• No.2 led markets account for 24 of volume, but
  19 of value

Source Combination of State Government published
data and UB Internal estimates
- of volume in Top 10 regional markets
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Kingfisher brand Indias first global
consumer brand

• Kingfisher brand has 33 market share

Mild beer
Market growth 5 UBL
growth 5 Kingfisher brand
market share 54
UBL Market leader in all 10 largest states
Strong beer
Market growth 9 UBL
growth 31 Kingfisher brand
market share 21
UBL Market leader in 7 of 10 largest states
Source Combination of State Government published
data and UB Internal estimates
- 5 Yr CAGR to March 2005
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Kingfisher brand Driving both segments of the
market in 2005

• Top 2 Kingfisher SKUs available across all
  outlets in the country
• Kingfisher owns the beer enjoyment culture
• Brand synonymous with a fun, stylish,
  aspirational lifestyle
• Highest top of mind scores in both mild and
  strong segments

Source UBL H106 presentation and Government
Information
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Why choose SN as JV partner

• Culture of partnership
• Operational expertise
• Brand development and innovation expertise
• International distribution for Kingfisher brand

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UBL Driving and capturing growth

• Powerful Market leader
• Dominant No.1 brand
• Top management team
• Strong links to government and business community
• International partner with operations/marketing
  expertise

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India is moving fast

• The economy is growing rapidly
• The Government is committed to reform and opening
  up the economy
• People are wealthier and spending more
• Consumer want and are prepared to pay for brands

UBL is uniquely placed to capitalise
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CloseTony Froggatt CEO SN
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Market leadership in India
Questions
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Market leadership in India