Friday, November 2, 2007

United Breweries Limited: Performance Highlights – 6 Months to September 30th, 2007

-- UBL Continues to Outperform the Industry

-- Underlying Volume Growth of 14.3% Compared to Previous Year (Combined Volumes)

-- EBITDA of Rs. 112.23Cr Versus Rs. 86.96Cr Last Year, 29% Increase

-- EPS OF Rs. 1.92 Versus Rs. 1.79 Last Year

For the half year to 30th September 2007, UBL has continued to outperform the Industry. With a combined volume growth of 14.3% against an Industry growth of circa 12.6%, UBL continues to grow share of this fast growing and increasingly competitive market. This year, new competition has arrived from a number of International brewers determined to make their mark in this important emerging beer market. In spite of this, UBL has continued to demonstrate it’s leadership credentials through the strength of it’s portfolio and established infrastructure.

The Industry continues to be driven by Strong beer with growth in the half year of around 15.7%. UBL has delivered a 21% increase in Strong beer sales in the half year, led by Kingfisher Strong, which alone registered nearly 24% growth with sales exceeding 16m cases. The mild beer segment has shown a significant decline during the second quarter, and has only managed 6% growth during the half year. The UBL mild beer brands have managed to grow slightly ahead of the industry, with Kingfisher premium growing in line with the market.

To continue the growth of the Kingfisher brand during the quarter Kingfisher Draught beer was launched in 500ml cans. The striking yellow format of the product, combined with the great taste of fresh draught beer, is already proving a success with consumers.

The excellent volume performance has been passed through to the UBL bottom line generating an operating profit of Rs122.23Cr, registering a 29% growth versus last year. In spite of the significant strain placed upon margins through increased input prices, and the limited ability to raise prices in many States, UBL has been able to maintain it’s operating margin directionally in line with last year, through improved efficiencies, and careful cost management, and, continue to increase investment in brand building activity.

As detailed last quarter the comparative numbers do not include the merged operations of KBDL, which was only merged in June 2007 and as a consequence the numbers are not comparable, on a line by line analysis. Due to the this lack of comparability, and the effect of the Hyderabad brewery on the business in profit terms, the Board of Directors have published the combined results of the UBL and MABL entities (100%, not statutory consolidation) to provide greater transparency to members. The combined results show an increase in EBITDA of 30% to Rs143.31Cr, from Rs109.75Cr last year.

In light of the significant growth in the Indian Beer market, and in order to maintain it’s market leadership position, the board of Directors have sanctioned approval to invest around Rs1,200Cr in the expansion of capacity in existing breweries, and new Greenfield capacity. On the 28th September 2007, at the Annual General Meeting the Board of directors announced the decision to raise up to Rs425Cr by way of a rights issue, to partially fund the capacity expansion required by the business. The balance of funding will be through external debt and internal accruals.


-- The Company is engaged in manufacture, purchase and sale of Beer including licensing of brands which constitutes a single business segment. The Company also considers the whole of India as a single geographical segment.

-- The results for the quarter ended September 30, 2006 included an operating profit of Rs.24.17 Crore arising out of change in commercial arrangement with Karnataka Breweries & Distilleries Private Limited upon its becoming a subsidiary of the Company due to acquisition by the Company.

-- In view of the change in the commercial terms of the bottling arrangement with United Millennium Breweries Limited in the quarter under review with retrospective effect from April 1, 2007 an operating profit of Rs. 5 Crore pertaining to the first quarter being booked in the quarter.

-- Millennium Alcobev Private Limited (MAPL), being a Joint Venture (JV) between the Company and Scottish & Newcastle Plc. has already made significant inroads into the market by achieving a 10% market share within a period of three years. The JV has its manufacturing locations in critical markets and meets almost 30% of the Company’s capacity requirement. The Company has adopted a turn-around strategy for the JV operations which has involved in operational merger of the businesses. This has led to a rationalization of spend, a repositioning of the combined brands, restructuring the debt profile of the JV in order to reduce the cost of borrowing, all of which generated positive earning before interest, depreciation and taxes for the quarter. The brewing capacities have been expanded in all the entities in line with the growth in the business by infusing additional funds. The Company continues to consider that the investments are strategic and long term in nature and substantial benefits are expected to accrue to the JV in terms of market share and capacity utilization. The management is of the view that there is no permanent diminution in the value of investments and no provision, therefore, is considered necessary at this stage.

-- In addition to Interim Dividend on Equity Shares @ 15% amounting to Rs.3.70 Crore (inclusive of distribution tax) paid in January 2007, the Board has at its Meeting held on June 22, 2007 recommended payment of Final Dividend @ 10% amounting to Rs.2.53 Crore (inclusive of distribution tax), making the total Dividend payout on Equity Shares @ 25% for the financial year 2006-2007. The Final Dividend has been paid upon approval by the Members at the Annual General Meeting held on September 28, 2007.

-- The figures relating to the previous period have been reclassified wherever considered necessary. Due to the seasonality of the business, the quarterly results are not indicative of the overall profitability of the year.

-- Investor complaints pending as on July 1, 2007 were Nil. Complaints received and disposed off during the quarter ended September 30, 2007 were 21 and there were no complaints unresolved as on that date.

-- The Un-audited Results for the quarter ended September 30, 2007 have been approved by the Board of Directors at the Meeting held on October 31, 2007.

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