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MillerCoors Reports Underlying Earnings Growth for First Quarter

4 May 2010

May 4, 2010 (London and Denver) - Despite a sluggish U.S. beer market driven by continued economic adversity, SABMiller plc (SAB.L) and Molson Coors Brewing Company (NYSE: TAP; TSX) reported underlying earnings growth for MillerCoors in the first quarter ended March 31, 2010.

Underlying net income, excluding special items, increased 0.4 percent to $217.2 million versus the prior year comparable quarter due to favorable pricing, synergies and cost savings, which were offset by soft volumes, cost deleverage and commodity cost pressures.

"We successfully grew profit despite a challenging selling environment in the first quarter,” said Leo Kiely, chief executive officer, MillerCoors." As we enter the key summer selling season, we’re investing in brand innovation, chain account focus, execution, quality, and people to win in beer. As we continue to deal with economic and competitive pressures, we remain focused on building our brands and managing costs."

Key operating results for the first quarter are compared to the prior year quarter and include MillerCoors operations in the U.S. and Puerto Rico.

FIRST QUARTER HIGHLIGHTS

(All amounts are in U.S. dollars and calculated in accordance with U.S. GAAP, unless otherwise indicated. First quarter results are compared to the prior year comparable quarter.)

  • Underlying net income, excluding special items, increased 0.4% to $217.2 million;
  • Total net revenue declined by 0.9% to $1.701 billion;
  • Domestic net revenue per barrel (NRPB), excluding contract brewing and company-owned distributor sales, increased 2.1%;
  • Cost of goods sold (COGS) per barrel increased 5.9%;
  • Synergies and cost savings were $60 million, bringing cumulative synergies and cost savings (including legacy cost savings programs) to $409 million since July 1, 2008.

MillerCoors domestic sales-to-retailers (STRs) declined 4.0 percent largely driven by continued weak economic conditions affecting the entire industry. Domestic sales-to-wholesalers (STWs) declined 3.6 percent driven primarily by lower retail sales.

First Quarter Brand STR Highlights

First quarter Premium Lights brand volumes (Miller Lite, Coors Light and MGD 64) were down mid-single digits due to a high-single-digit decline in Miller Lite and low-single-digit decline in Coors Light, which were partially offset by the double-digit growth of MGD 64.

MillerCoors Craft and Import portfolio grew mid-single digits in the quarter, driven by double-digit growth of Blue Moon and mid-single-digit growth in Peroni Nastro Azzurro despite a soft import category. The domestic above-premium portfolio – which includes Sparks – continued to decline at a double-digit rate. In the premium regular portfolio, Coors Banquet was flat.

The Below Premium portfolio was down low-single digits due primarily to a decline in Milwaukee’s Best, while Keystone delivered mid-single-digit growth.

First Quarter Financial Highlights

MillerCoors total net revenue declined by 0.9 percent to $1.701 billion. Excluding contract brewing and company-owned distributor sales, domestic net revenue decreased 1.6 percent to $1.583 billion, with NRPB up 2.1 percent. Third-party contract brewing volumes were up 2.8 percent.

Cost of goods sold per barrel increased 5.9 percent driven by increases in commodity costs, with significant increases in brewing materials (malt and corn), packaging materials (glass and aluminum), and higher fuel costs. COGS per barrel continue to be negatively impacted by the absorption of fixed and semi-variable costs across lower production volumes.

Marketing, general and administrative costs decreased by 9.2 percent primarily due to the continued realization of synergies.

Depreciation and amortization expenses for MillerCoors in the first quarter were $71 million, and additions to tangible and intangible assets totaled $115 million. This includes the acquisition of distribution rights from Western Beverage Distributing of Colorado for $57 million.

During the first quarter, MillerCoors reported special charges totaling $8.6 million, driven largely by voluntary severance and relocation expenses related to the integration of MillerCoors.

Integration, Synergies and Cost Savings

Supply chain integration continues to proceed on schedule. The brewery optimization project is nearing completion, as product moves are more than 90 percent complete. The next phase of supply chain integration will include the realignment of teams in quality, engineering and packaging and manufacturing and supply chain development.

MillerCoors remains on track to deliver $750 million in total synergies and other cost savings by the end of 2012. In the first quarter, MillerCoors delivered total cost reductions of $60 million comprising $53 million in synergies and $7 million in additional cost savings.

Total cost savings since July 1, 2008, now stand at $409 million, made up of $50 million in Resources for Growth (RFG) and Unicorn cost initiatives, $326 million in synergies and $33 million in additional cost savings.

Overview of MillerCoors

MillerCoors brews, markets and sells the MillerCoors portfolio of brands in the U.S. and Puerto Rico. Built on a foundation of great beer brands and more than 289 years of brewing heritage, MillerCoors continues the commitment of its founders to brew the highest quality beers. MillerCoors is the second-largest beer company in America, capturing nearly 30 percent of U.S. beer sales. Led by two of the best-selling beers in the industry, MillerCoors has a broad portfolio of highly complementary brands across every major industry segment. Miller Lite is the great-tasting beer that established the American light beer category in 1975, and Coors Light is the brand that introduced consumers to Rocky Mountain cold refreshment. MillerCoors brews premium beers Coors Banquet and Miller Genuine Draft, and economy brands Miller High Life and Keystone Light. The company also imports Peroni Nastro Azzurro, Pilsner Urquell, Grolsch and Molson Canadian and offers innovative products such as Miller Chill and Sparks. MillerCoors features craft brews from the Jacob Leinenkugel Brewing Company, Blue Moon Brewing Company and the Blitz-Weinhard Brewing Company. MillerCoors operates eight major breweries in the U.S., as well as the Leinenkugel’s craft brewery in Chippewa Falls, WI and two microbreweries, the 10th Street Brewery in Milwaukee and the Blue Moon Brewing Company at Coors Field in Denver. MillerCoors vision is to create the best beer company in America by driving profitable industry growth. MillerCoors insists on building its brands the right way through brewing quality, responsible marketing and environmental and community impact. MillerCoors is a joint venture of SABMiller plc and Molson Coors Brewing Company.

Overview of SABMiller

SABMiller plc is one of the world’s largest brewers with brewing interests and distribution agreements across six continents. The group’s wide portfolio of brands includes premium international beers such as Grolsch, Miller Genuine Draft, Peroni Nastro Azzurro and Pilsner Urquell, as well as market-leading local brands such as Aguila, Castle, Miller Lite, Snow and Tyskie. SABMiller plc is also one of the largest bottlers of Coca-Cola products in the world. In the year ended March 31, 2009, the group reported $3,405 million adjusted pre-tax profit and group revenue of $25,302 million. SABMiller plc is listed on the London and Johannesburg stock exchanges.

Overview of Molson Coors

Molson Coors Brewing Company is one of the world’s largest brewers. It brews, markets and sells a portfolio of leading premium quality brands such as Coors Light, Molson Canadian, Molson Dry, Carling, Coors Banquet and Keystone Light in North America, Europe and Asia. For more information on Molson Coors Brewing Company, visit the company’s web site, http://www.molsoncoors.com/.

In addition to synergies, MillerCoors recently completed the RFG and Unicorn cost savings programs, which delivered $50 million in cost savings since July 1, 2008.  For the full year, the company realized $26 million in additional cost savings, toward its $200 million cost savings goal due in 2012. 

In total, MillerCoors has delivered $349 million in cumulative synergies and cost savings since July 1, 2008.

Forward-Looking Statements

This press release includes "forward-looking statements" within the meaning of the U.S. federal securities laws, and language indicating trends, such as "anticipated" and "expected".  It also includes financial information, of which, as of the date of this press release, the Companies' independent auditors have not completed their review.  Although the Companies believe that the assumptions upon which their respective financial information and their respective forward-looking statements are based are reasonable, they can give no assurance that these assumptions will prove to be correct.  Important factors that could cause actual results to differ materially from the Companies' projections and expectations are disclosed in Molson Coors' filings with the Securities and Exchange Commission or in SABMiller's annual report and accounts for the year ended March 31, 2009, and in other documents which are available on SABMiller's website at www.sabmiller.com.  These factors include, among others, changes in consumer preferences and product trends; price discounting by major competitors; failure to realize anticipated results from synergy initiatives; and increases in costs generally.  All forward-looking statements in this press release are expressly qualified by such cautionary statements and by reference to the underlying assumptions.  Neither SABMiller nor Molson Coors undertakes to update forward-looking statements relating to their respective businesses, whether as a result of new information, future events or otherwise.  Neither SABMiller nor Molson Coors accepts any responsibility for any financial information contained in this press release relating to the business or operations or results or financial condition of the other or their respective groups.  

MillerCoors Results and Related Reconciliations

The table below reconciles net income attributable to MillerCoors, reported in accordance with US GAAP as used for inclusion within Molson Coors reported results, to MillerCoors EBITA as used for inclusion within SABMiller’s reported results in accordance with IFRS. Underlying net income and EBITA are non-GAAP measures. Management of both companies believes that underlying net income and EBITA provide shareholders with a useful basis for assessing the profit performance of MillerCoors. There are limitations to using non-GAAP financial measures, including the difficulty associated with comparing companies that use similarly named non-GAAP measures whose calculations may differ from the company’s calculations.

MillerCoors Reconciliation of US GAAP Net Income to Underlying Net Income (non-GAAP measure) and to EBITA, calculated under IFRS, noting that first half 2008 numbers are Pro Forma. 

 MillerCoors
 Three Months Ended
(In millions of $US)Mar 31,
2010
Mar 31,
2009
US -GAAP: Net Income208.6206.0
Plus: Special items18.610.4
Non – GAAP Underlying Net Income217.2216.4
Plus: Adjustments to arrive at IFRS Underlying EBITA228.518.7
IFRS: MillerCoors underlying earnings before interest, taxes and amortization before exceptional items (EBITA3)245.7235.1
Percent change vs. prior year MillerCoors pro-forma underlying EBITA34.5% 

1Current year special items include integration charges related to the MillerCoors Joint Venture

2US – GAAP Underlying Net Income to IFRS EBITA adjustments relate to differing treatment of step-up depreciation, pension, post retirement benefits, consolidation of container joint ventures, asset disposal, deferred taxes, share based compensation and severance expenses between US - GAAP and IFRS. Amortization of intangible assets, Interest, Taxes, Equity Income and Minority interest have been removed to arrive at underlying EBITA.

3EBITA - Earnings Before Interest, Taxes, and Amortization, excluding exceptional items.

MILLERCOORS LLC RESULTS OF OPERATIONS (VOLUMES IN THOUSANDS, DOLLARS IN MILLIONS) (UNAUDITED)

 Three Months Ended
 Mar 31, 2010Mar 31, 2009
  ActualActual
Volume in barrels15,228 15,699
Sales$1,983.8$2,005.7
Excise Taxes(282.9)(289.8)
Net Sales1,700.91,715.9
Cost of Goods Sold(1,078.6)(1,049.9)
Gross profit622.3666.0
Marketing, General and Administrative Expenses(401.2)(441.8)
Special Items (net)(8.6)(10.4)
Operating Income212.5213.8
Other Income (Expense), net2.3(0.5)
Income before Income Taxes and Minority Interests214.8213.3
Income Tax Expense(1.4)(2.1)
Net Income213.4211.2
Net income attributable to Non-controlling interest(4.8)(5.2)
Net Income Attributable to MillerCoors LLC$208.6$206.0

Contacts

For further information, please contact:

SABMiller plcTel: +44 20 7659 0100/ 414 931 2000
Nigel FairbrassMedia Relations, SABMillerMob: +44 7799 894265
Gary LeibowitzInvestor Relations, SABMillerMob: +44 7717 428540
Molson Coors 
Colin WheelerMedia Relations, Molson CoorsTel: 303/927-2443
Dave DunnewaldInvestor Relations, Molson CoorsTel: 303/927-2334
Leah RamseyInvestor Relations, Molson CoorsTel: 303/927-2397

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