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MillerCoors Achieves Double-digit Underlying Profit Growth In Second Quarter

3 August 2010

August 3, 2010 (London and Denver) – Despite volume headwinds which continue to affect the beer industry at-large, SABMiller plc (SAB.L) and Molson Coors Brewing Company (NYSE: TAP; TSX) reported double-digit underlying earnings growth for MillerCoors in the second quarter ended June 30, 2010.  

MillerCoors second quarter underlying net income, excluding special items, increased 19.8 percent to $389.7 million versus the prior year comparable quarter due to strong innovation, solid price gains, delivery of synergies, and lower marketing, general and administrative costs, which were partially offset by soft volumes.

“Now that we’re into the home stretch of the summer selling season, our results show some positive signs of progress,” said Leo Kiely, chief executive officer, MillerCoors.  “We grew profit by double digits in an unfavorable selling environment.  A few of our key brands showed significant trend improvements from the last quarter, and the craft and import portfolio posted very strong results, driven by our investments in brand innovation.”

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

SECOND QUARTER HIGHLIGHTS
(All amounts are in U.S. dollars and calculated in accordance with U.S. GAAP, unless otherwise indicated.  ) 

  • Underlying net income, excluding special items, increased 19.8% to $389.7 million;
  • Total net revenue declined by 0.1% to $2.134 billion;
  • Domestic net revenue per barrel (NRPB), excluding contract brewing and company-owned distributor sales, increased 2.8%;
  • Cost of goods sold  per barrel increased 1.6%;
  • Synergies and other cost savings were $72 million, bringing cumulative synergies and cost savings (including legacy cost savings programs) to $481 million since July 1, 2008. 

MillerCoors domestic sales-to-retailers (STRs) declined 2.4 percent.  Helped by MillerCoors premium light, craft and import brands, the second quarter showed a trend improvement from the first quarter, which was down 4.0 percent.  Domestic sales-to-wholesalers (STWs) declined 3.5 percent in the second quarter, driven primarily by lower STRs.

Second Quarter Brand STR Highlights
In the Premium Light portfolio, Coors Light volumes were unchanged and MGD 64 was down low-single digits, while Miller Lite fell by low single digits and cut its decline rate by more than half since the last quarter.

MillerCoors Craft and Import portfolio grew double-digits in the quarter, driven by double-digit-growth of Blue Moon, Leinenkugel’s and Peroni Nastro Azzurro.  The Premium Regular and smaller domestic Above Premium portfolios experienced double-digit declines.

The Below Premium portfolio was down low-single digits due to Miller High Life which declined low-single digits and Milwaukee’s Best which decreased at a high-single-digit rate. Keystone Light grew at a low-single-digit rate partially offsetting the declines in the Below Premium Portfolio. 

Second Quarter Financial Highlights
MillerCoors total net revenue declined 0.1 percent to $2.134 billion versus second quarter 2009.  Excluding contract brewing and company-owned distributor sales, domestic net revenue decreased 0.8 percent to $1.980 billion, with NRPB up 2.8 percent, driven by firm net pricing and slightly favorable sales mix.  Third-party contract brewing volumes were up 3.0 percent.

Costs of goods sold per barrel increased 1.6 percent, reflecting a significant trend improvement versus the first quarter.  This increase was driven by higher freight rates, product mix and increases in promotional packaging, which were largely offset by the continued delivery of synergies and cost savings.

Marketing, general and administrative costs decreased by 9.3 percent primarily due to synergies and lower marketing spending.

Depreciation and amortization expenses for MillerCoors in the second quarter were $71 million, and additions to tangible and intangible assets totaled $58 million.

During the second quarter, special items reflect a benefit of $1.5 million driven largely by a reduction in estimates for integration costs as a result of the formation of MillerCoors.

Synergies and Cost Savings
MillerCoors remains on track to deliver $750 million in total synergies and other cost savings by the end of 2012.  In the second quarter, MillerCoors delivered total cost reductions of $72 million comprising $63.8 million in synergies and $8.6 million in additional cost savings. These cost reductions were primarily realized from agency fees, media, regional tactical spending, inbound and outbound freight; and packaging and brewing materials.  

Total synergy and other cost savings since July 1, 2008, now stand at $481 million, made up of $50 million in Resources for Growth (RFG) and Unicorn cost initiatives, $389 million in synergies and $42 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, Wisconsin, 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 Pilsner Urquell, Peroni Nastro Azzurro, Miller Genuine Draft and Grolsch, as well as leading local brands such as Aguila, Castle, Miller Lite, Snow and Tyskie. SABMiller plc is also one of the world’s largest bottlers of Coca-Cola products. In the year ended March 31, 2010, the group reported $3,803 million adjusted pre-tax profit and group revenue of $26,350 million. SABMiller plc is listed on the London and Johannesburg stock exchanges.  For more information on SABMiller plc, visit the company's website: www.sabmiller.com.

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, www.molsoncoors.com.

Forward-Looking Statements
This press releaseincludes “forward-looking statements” within the meaning of theU.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 theirrespective 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, 2010, 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. You should not place undue reliance on any forward-looking statement. 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

MillerCoors LLC

1Current year special items include integration charges related to the MillerCoors Joint Venture. Prior year special items include integration charges related to the MillerCoors Joint Venture and charges for pension curtailment. 

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 Non-controlling interest have been removed to arrive at underlying EBITA.

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

Dollars in MillionsThree Months
Ended
Six Months
Ended
June 30, 2010June 30, 2009June 30, 2010June 30, 2009
US -GAAP: Net Income$391.2$304.9 $599.8$510.9
Plus: Special items1    (1.5)   20.4     7.1    30.8
Non – GAAP Underlying Net Income 389.7  325.3  606.9  541.7
Plus: Adjustments to arrive at IFRS Underlying EBITA2   27.5   42.6   56.0    61.3
IFRS: MillerCoors underlying earnings before interest, taxes and amortization before exceptional items (EBITA3 )   $417.2$367.9  $662.9$603.0
Percent change vs. prior year MillerCoors underlying EBITA313.4% 9.9%

MILLERCOORS LLCRESULTS OF OPERATIONS(VOLUMES IN THOUSANDS, DOLLARS IN MILLIONS)(UNAUDITED)
Three Months
Ended
Six Months
Ended
June 30, 2010June 30, 2009June 30, 2010June 30, 2009
Volume in barrels18,982 19,547 34,210 35,246
Sales$2,485.8 $2,499.4 $4,469.6 $4,505.1
Excise Taxes(351.7) (362.7) (634.6) (652.5)
Net Sales2,134.1 2,136.7 3,835.0 3,852.6
Cost of Goods Sold(1,284.8)(1,302.3)(2,363.4) (2,352.2)
Gross Profit849.3834.4 1,471.6 1,500.4
Marketing, General and Administrative Expenses(454.0)(500.6) (855.2) (942.4)
Special Items, net1.5 (20.4)(7.1) (30.8)
Operating Income396.8313.4 609.3 527.2
Other Income (Expense), net1.0(0.2) 3.3(0.7)
Income Before Income Taxes and Non-controlling Interest397.8313.2 612.6 526.5
Income Tax Expense(2.4)(2.5)  (3.8)(4.6) 
Net Income395.4310.7 608.8 521.9
Net Income Attributable to Non-controlling Interest(4.2)(5.8)(9.0)(11.0)
Net Income Attributable to MillerCoors LLC$391.2$304.9 $599.8 $510.9

Contacts

For further information, please contact:

SABMiller plcTel: +44 20 7659 0100/ 414 931 2000
Jonathan OatesMedia Relations, SABMillerMob: +44 20 7659 0144
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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