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AGENDA
• Business Overview• Macro-Economic & Industry Overview• Technical Analysis• Financial Ratios• Valuation• Recommendation
CRAFT BREW ALLIANCE – INTRODUCTION
Business: A craft beer brewing company with a unique alliance
between three craft beer brands Operates two segments:
Beer related operations: Brewing and sale of craft beers and cider from six breweries
Pubs operations: Operates 5 pubs for brand building
Has master distribution partnership with Anheuser–Busch
Market Cap $281mm
Employees ~725
Annual production Capacity (000’s) 1,075 barrels
Source: Company website and 10K_2013
DEVELOPMENT STRATEGY
0%
4%
8%
12%
2% 2%
6% 6%
11%7% - 11%
2008 2009 2010 2011 2012 2013 2014 2015Redhook /
Widmer Merger
Kona Merger
Sale of FSB
Omission Launch
Square Mile Launch
Merger Integrationand Building Business
Model Foundation
National Portfolio StrategyDevelopment and Initial Market
Introduction
National PortfolioStrategy Growth
andValue Creation
Source: CBA Investor Presentation
Volume Growth
BRANDS
Source: Company website and 10K_2013
• Launched in 1981 in Seattle
• Distributed in all 50 states
• Launched in 1984 in Portland
• Distributed in all 50 states
• Launched in 1994 in Hawaii
• Distributed in 36 states
• Launched in 2012 in Portland
• First gluten free beer
• Launched in 2013
• Distributed in 10 states and expanding
Source: Company website and 10K_2013
New Hampshire Brewery
Annual / Max Capacity (000’s)
215 / 280
Hawaii Brewery
Annual / Max Capacity (000’s)
10 / 10
Washington Brewery
Oregon Brewery
Annual / Max Capacity (000’s)
630 / 650
BREWING FACILITIES
Annual / Max Capacity (000’s)
220 / 280
Source: Company website and 10K_2013
ANHEUSER–BUSCH PARTNERSHIP
Anheuser-Busch 32%
Widmer Brothers 12%
Kona Founders 9%Management and Board 4%
Minority 43%
Ownership Structure
Master Distribution Agreement
Distribution of Kona, Widmer Brothers, Redhook, Omission and Square Mile in all states, territories and possessions of the US
Distributor Agreement has a term that expires on December 31, 2018, subject to automatic renewal
CBA pays margin fees, invoicing, staging and cooperage handling fees, and inventory manager fees
Source: 10K_2013 and investor presentationNote: does not include alternating proprietorship revenue
HISTORICAL FINANCIAL ANALYSIS
2010 2011 2012 20130
50
100
150
200
110 127146 155
12
2224
24
Beer related Pubs
$m
m
Net Sales
Compounded growth of ~11% , primarily
because of shift in mix towards packaged,
which has a higher selling price per barrel
than draft
2010 2011 2012 20130.0
8.0
16.0
24.0
32.0
25.630.3 29.6 28.1
Beer related
(%)
Gross Margin
During 2012 and 2013, product mix, variable
costs, supply chain challenges and pubs
pressured gross margin
Expected 5 year gross margin expansion of ‐
500 to 700 basis points
BEER INDUSTRY CHARACTERISTICS
Success Factors
Effective Quality Control
Marketing of Products
Control of distribution networks
Establishment of brand names
Global Beer Market Distribution By Volume
Source: IBISWorld. Craft Beer Production in the US. August 2013; MarketLine Industry Profile: Global Beer. August 2013.
Packaging
Price
Taste
Ingredients
Differentiation Factors 43.90%
33.70%
11.60%
3.40%7.40%
Supermarkets/Hypermarkets On-tradeSpecialist Retailers Convenience StoresOther
CONSUMER EXPENDITURE ON BEER – % CHANGE YOY
2010 2011 2012 2013
11.62%10.84%
-0.54%
-7.83%
13.79%
9.31%
-0.29%
5.91%
-2.57%
9.61%
-3.93%
3.17%
7.23%
5.23%
2.65% 2.82%
Asia Pacific Eastern Europe Western Europe North America
Source: Passport. Euromonitor International. Consumer Expenditure on Alcoholic Drinks. February 2014.
THE CRAFT
Growth In Craft Breweries
• 2011 – 1,970• 2012 – 2,347• 2013 – 2,483
Growth in Volume of Craft Beer
• 2012 – 15%• 2013 – 18%
2014 2015 2016 2017 2018 20190%
2%
4%
6%
8%
10%
12%
14%13.00%
9.30%
3.60%
3.10%
7.20%
4.60%
Growth Rate in Craft Beer Revenue Forecasts
Source: MarketLine. Craft Beer: A Fast Growing Market. September 2013; www.brewersassociation.org
SWOT ANALYSIS FOR BREW
Strengths• Distribution to retailers through A-B agreement• Ability to test products in pubs before new launches• Quality control by using local suppliers
Weaknesses• Majority ownership by Anheuser Busch limits some activities• Shipping costs associated with Kona brand products • Concentration in the Pacific Northwest
Opportunities • New product launches • Expansion in domestic and international markets• Consolidation in the industry
Threats• Changes in consumer preferences • Increases in regulation or taxes, especially the excise tax• Public relations and brand image
FINANCIAL RATIOS
Liquidity Ratios2011 2012 2013
Current Ratio 1.1 1.2 1.2Quick Ratio 0.6 0.6 0.5Cash Ratio 0.1 0.3 0.2
Profitability Ratios2011 2012 2013
Operating Profit Margin 3.6% 3.0% 2.1%Net Profit Margin 6.0% 1.4% 1.0%ROA 6.1% 1.5% 1.2%Cash Return on Equity 16.1% 9.1% 9.1%
Solvency Ratios2011 2012 2013
Debt/Assets 9.0% 8.0% 6.9%Debt/Equity 13.7% 12.3% 10.6%Interest overage 5.9 7.7 8.2
Source: Brew 10K
CRAFT BREW RATIOSLiquidity Ratios
Current Ratio 0.9 Quick Ratio 0.6 Profitability Ratios
Operating Profit Margin 17.2%Net Profit Margin 14.3%ROA 6.9%Cash Return on Equity
Solvency Ratios
Debt/Assets 24.5%Debt/Equity 57.6%Interest overage 3.6
COMPARABLE COMPANIES RATIOS*
*Ratios calculated by taking averages of our comparable companies
FINANCIAL RATIOS
Source: Brew 10K
Activity Ratios2011 2012 2013
Fixed Assets Turnover 1.5 1.7 1.7Total Assets Turnover 0.9 1.0 1.1
DuPont Analysis2011 2012 2013
Tax Burden 0.6 0.6 0.6Interest Burden 2.9 0.9 0.9Operating Profit Margin 3.6% 3.0% 2.1%Asset Turnover 1.0 1.1 1.1Leverage 1.5 1.5 1.5ROE 10.0% 2.5% 1.9%
CRAFT BREW RATIOS COMPARABLE COMPANIES RATIOS
Activity Ratios
Fixed Assets Turnover 2.4Total Assets Turnover 0.7
ROE 17.2%
*Ratios calculated by taking averages of our comparable companies
COMPARABLE COMPANIES
Anheuser-Busch 20%
Boston Beer Co. Inc. 30%
Carlsberg 20%
Molson Coors Co. 15%
Heineken 15%
COMPARABLE VALUATION
P/E – 15%
Forward P/E – 20%
EV/Revenue – 15%
EV/EBITDA – 15%
Forward EV/EBITDA – 20% P/B – 15%
Estimated Share Price
$15.21
ASSUMPTIONS
Assumptions
2009A 2010A 2011A 2012A 2013A 2014P 2015P 2016P 2017P 2018P
Sales Growth % 5.6% 13.3% 13.5% 5.8% 13.0% 10.0% 8.0% 8.0% 10.0%
Excise Tax Rate ( % of Sales) 6.4% 6.5% 7.3% 7.0% 6.9% 7.0% 8.0% 8.0% 8.0% 8.0%
Gross Margin (% Sales) 20.6% 23.9% 28.1% 27.5% 26.1% 27.1% 28.1% 29.1% 30.1% 31.1%
SG&A Margin (% Sales) 18.7% 21.3% 24.7% 24.7% 24.1% 23.5% 23.0% 23.0% 23.0% 23.0%
CapEx 5.5% 5.5% 5.5% 5.5% 4.0% 3.8% 3.8% 4.0% 3.8%
D&A ($) 5.5% 5.0% 4.5% 4.0% 4.2% 5.0% 5.3% 5.6% 6.0% 6.2%
Interest Expenses 9.5% 6.1% 6.4% 5.0% 3.9% 4.0% 4.3% 4.1% 4.1% 4.2%
DISCOUNTED CASH FLOW ANALYSIS
FCF Build 2014P 2015P 2016P 2017P 2018P EBIT 7,868.9 12,243.7 15,806.5 19,861.0 24,916.0 Less: Taxes (2,918.0) (4,645.0) (6,049.9) (7,649.8) (9,642.4)Less: Capex (8,698.0) (9,089.4) (9,816.5) (11,159.8) (11,662.0)Less: Change in NWC 81.9 (1,314.9) (1,157.1) (1,249.7) (1,687.1)Plus: D&A 10,872.5 12,677.3 14,466.5 16,739.8 19,027.5
Unleveled FCF 7,207.3 9,871.7 13,249.4 16,541.4 20,952.1
Terminal Value Assumptions 4.0%
Discounted rate (WACC) 13.01% 13.01% 13.01% 13.01% 13.01% 13.01%
Terminal Value 241772.4
Discounted period (t) 1.00 2.00 3.00 4.00 5.00 5.00
Discount Factor 0.88 0.78 0.69 0.61 0.54 0.54
PV of FCFs (in thousands) 6,377.4 7,729.3 9,179.4 10,140.6 11,365.6 131,150.8
% of Total EV 3.6% 4.4% 5.2% 5.8% 6.5% 74.5%
PV of FCFs Terminal Value Enterprise Value Net Debt Equity Value ($ thousands) ($ thousands) ($ thousands) ($ thousands) ($ thousands) SharesPerpetuity Method 44,792.3 131,150.8 175,943.1 3,357.6 172,585.5 18,972.247
Price $ 9.10
WACC Cost of debt
Cost of debt 6.0%Marginal tax rate 40.0%
Cost of debt after tax shield 3.6% Cost of equity
Risk-Free Rate (rf) 2.7%Market Risk Premium (rm-rf) 7.0%CAPM Beta 1.24
CAPM Cost of Equity 11.4%BREW Realized Return 21.1%Cost of Equity 12.4% Capital structure Debt 4.0%Market Cap 96.0%Total 100.0% Weighted average cost of capital 12.0%
Business risk premium 1.0%Discount Rate 13.0%
SENSITIVITY
Enterprise Value - WACC vs. Perpetuity Growth Rate
Perpetuity Growth Rate
9.1 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5%
WACC
10.0% 11.8 12.5 13.3 14.3 15.4 16.8 18.5
11.0% 10.2 10.8 11.4 12.1 12.9 13.8 14.9
12.0% 9.0 9.4 9.9 10.4 11.0 11.7 12.4
13.0% 8.0 8.4 8.7 9.1 9.6 10.1 10.6
14.0% 7.2 7.5 7.8 8.1 8.4 8.8 9.2
15.0% 6.6 6.8 7.0 7.2 7.5 7.8 8.2
16.0% 6.0 6.2 6.3 6.5 6.8 7.0 7.3