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United Breweries Ltd.

BSE: 532478 Sector: Consumer
NSE: UBL ISIN Code: INE686F01025
BSE LIVE 15:40 | 13 Dec 1027.60 16.55
(1.64%)
OPEN

1008.00

HIGH

1054.45

LOW

1008.00

NSE 15:45 | 13 Dec 1025.00 12.35
(1.22%)
OPEN

1016.00

HIGH

1055.50

LOW

1016.00

OPEN 1008.00
PREVIOUS CLOSE 1011.05
VOLUME 17895
52-Week high 1190.00
52-Week low 715.80
P/E 87.38
Mkt Cap.(Rs cr) 27,170
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00
OPEN 1008.00
CLOSE 1011.05
VOLUME 17895
52-Week high 1190.00
52-Week low 715.80
P/E 87.38
Mkt Cap.(Rs cr) 27,170
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

United Breweries Ltd. (UBL) - Chairman Speech

Company chairman speech

Dear Friends & Fellow Shareholders

Since we last met a year ago the global economic environment has changed in manydifferent ways several of which have had a positive rub-off on the Indian economy whileyet others have added to a sense of uncertainty. Softening of commodity prices inparticular that of oil and minerals including gold has in substantial measure helped toimprove the cost structures and deficits on one hand while easing core inflation on theother. This has opened up the possibility of the country moving to an extended period oflow inflationary pressures which taken together with productivity improvements can resultin sustained growth. The slowing down of the Chinese economy and the slow rate of growthexperienced by most European economies with the exception of Germany has meant a moreaffordable energy basket which has a positive rub- off effect across the board for Indiawhich is largely still dependent on imported hydrocarbons. The recent re-approachmentbetween the United States and Iran should auger further increase in oil supplies withresultant softening of prices.

Simultaneously the softening in the prices of gold taken together with measures beinginitiated by the Government for monetization of the yellow metal has also greatly helpedin reducing the fiscal deficit.

The monsoon this year which was expected to be very much below average has turned outto be thus far better than expected. Most parts of the country barring some areas ofthe West have received enough rainfall in the sowing period and consequently there arereports of 4% increase in acreage under cultivation. This too is resulting in an improvedconfidence in the rural sector leading to enhanced demand for goods and services.

Despite very visible hurdles to governance arising from political rivalry between theGovernment and the Opposition Parties that has stalled Parliament and blocked the progressof several important legislations most particularly the introduction of the Goods andService Tax and Land Acquisition Bill several initiatives by the newly formed Governmentto streamline processes clamp down on corruption etc. are beginning to take root. Themost significant among these initiatives has been the move towards direct transfer ofbenefits and strenuous efforts to enhance banking outreach through universal coverage. Tomy mind bringing millions of previously unbanked Indians into the formal financial sectoris very likely to reap rich dividends in the years to come. Similarly the replacement ofsubsidies by targeted direct benefit transfer not only dramatically reduces leakages butalso empowers a new set of consumers.

Turning to the operation of our company United Breweries consistent with its record ofmany years sustained growth at higher rates than industry and thereby accrued marketshare during the last financial year. In the backdrop of an industry that grew at about7% our company has recorded overall growth of 7% accumulating volumes of 147 millioncases (12 mio HL) accounting for 51% of the total market. Importantly in the premiumbeer segment within both strong and mild categories which constitute the core of UnitedBreweries' business growth rate has been significantly higher than the overall industryreflecting higher willingness and ability to spend among target consumers. Despite theaggressive presence of all the major international brewers in the country I am proud thatwe have been able to increase our share year-on-year and today our size is more thandouble of the nearest competitor.

These growths have been made possible both by new launches and strong performance ofstar brands. Kingfisher Ultra has now become the most aspiratory premium mild beer in thecountry and Heineken is now the fastest growing brand in our company's portfolio as aworld-class super premium beer.

Our company of course continues its recognized efforts to keep the Kingfisher brandin the forefront of the consumers mind through associations built up over many decades inareas such as Sports Food Music and Fashion. Association of our brands with premierevents which capture the fancy of young Indians such as IPL Cricket Kingfisher DerbyFormula 1 Motor Racing Marathons in Mumbai Delhi and Bangalore - all add to the demandpull. The Kingfisher Calendar remains one of the most sought after events in the country'ssocial calendar and the Great Indian Oktoberfest is a much loved opportunity for consumersto be part of a global cultural heritage.

Much as our company is known for its marketing prowess our profitability is sustainedby tight cost controls and manufacturing innovations. Obviously with the healthy volumegrowth on an already large base of over 147 million cases it is incumbent upon ourcompany to invest continuously both in capacity and technology. During the year theGreenfield brewery near Patna in Bihar has commenced operations and in Rajasthan we haveexpanded our supply base by the acquisition of brewing assets near Shahjahanpur whichwill commence production later this year.

United Breweries has been recognized within the Heineken's global network for theconsistent high quality of its products and this is a tribute to the unstinting efforts ofour manufacturing team.

In the brewing industry packaging particularly bottles constitute a major cost. Thestrategy of introducing patented embossed bottles is a major driver of cost control whichcontinues to reap dividends over the years. Long term contracts for new technology lightweight bottles and locally manufactured aluminum cans have helped also to lock in costadvantages in a highly inflationary environment.

Total productivity management and focus for every aspect have also yielded advantagesthrough energy savings and water savings.

Our company has long recognized that the communities we operate in are in fact a partof our business and we have been doing much to improve quality of life well long beforethe whole concept of Corporate Social Responsibility gained legal mandate. Not only do wecontinue to be involved deeply in Education and Healthcare within the communities that weoperate in but some of our initiatives on energy saving and use of water have receivedinternational acclaim and recognition. Several of our breweries have during the yearreceived recognition and awards from State Governments as well as by internationalorganizations.

Human Resources are an important part of our business and I am pleased to record thevery harmonious relationship that our company has both with management staff as well asthe workers and continues to focus on a transparent manpower model that benefits allcategories of employees on a continuous basis.

While I have talked in the previous paragraphs about the positive underlying trends inthe industry in general and the proactive steps taken by our company to take advantage ofthe same it is also necessary to caution on several fronts.

The single largest constraint to profitability remains the intrusive Governmentregulations and erratic often unexplained changes to both regulations and taxation. Inmost parts of the world beer is the preferred beverage of choice particularly for youngconsumers and internationally ranks 3rd among all beverages after water and tea. In Indiadecades of perverse taxation policy that equates spirits and beer has resulted in beerbeing prohibitively expensive as a share of the consumer's wallet. This has consistentlyled to the size of the beer market being much smaller than its corresponding shares inalmost every other country in the world. It has driven and continues to drive ouryoungsters to prefer hard alcohol with attendant moral and social consequences inpreference to beer which is a low alcohol social beverage.

Our company and I in particular have been in the forefront of efforts to educate theState Government on the need for a rational regulatory and taxation policy which will alsobring long term benefits to our citizens. One of the land mark economic legislations whichis expected to improve the ease of doing business in India and truly put in place a commonmarket among Indian states is the planned Goods and Service Tax. This historic legislationhas been caught up in political infighting. Even as I write this this bill is stalled inParliament thus depriving the country of what most economists estimate would be a 1%boost to GDP It is particularly concerning for our industry that an effort appears tobeing made to exclude some industries most prominently the beverage alcohol industry formthe ambit of GST. This will lead to the continued balkanization of Indian states in theindustry and impose punitive costs on us. 4s a long standing advocate of a vibrantIndia growing on the back of world class products and services I end with a note ofoptimism both for the nation and for the business of our company.

My personal appreciation to all who have striven to make us proud and trust that wehave many more milestones to cross in the years ahead.

Thank you.

VIJAY MALLYA

CHAIRMAN