r e p o r tANNUAL 2 0 0 0 - Quinsa · second PepsiCo franchise in Argentina, ... Beverages-related...
Transcript of r e p o r tANNUAL 2 0 0 0 - Quinsa · second PepsiCo franchise in Argentina, ... Beverages-related...
Quinsa
Quilmes Industrial S.A.
84, Grand Rue L-1660 Luxembourg
Grand Duchy of Luxembourg
2000ANNUAL
report
The past year has seen the Company steadily
strengthen its position as a leading beverage producer
in Latin America.
With the consolidation of BAESA, the acquisition of a
second PepsiCo franchise in Argentina, and the sale of
its bottling operation in Paraguay, the Company now
has a solid and focused presence in the Argentine and
Uruguayan soft drinks markets. The water business is
also expanding healthily on the back of our association
with Perrier Vittel, as acquisitions and the
introduction of new brands and technology have
already made Quinsa the second largest player in the
Argentine and Uruguayan markets.
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StatementCHAIRMAN’S
JACQUES LOUIS DE MONTALEMBERT
Chairman of the Board
The Company’s core business has also seen major
developments, as evidenced by the recent acquisition
of two beer companies in Bolivia. Quinsa now holds a
commanding presence in that market and we are
extremely excited with the potential for earnings
growth this will provide for 2001.
These achievements are no mean feat considering the
u n f a vourable trading conditions that pre vailed in
most of these markets during 2000. Pe r s i s t e n t
recessions and an extremely aggre s s i ve competitive
e n v i ronment have underlined the import ance of
maintaining an adequate balance between mark e t
s h a re and pro f i t a b i l i t y. We believe t he Company has
successfully ove rcome this challenge, as reflected by its
defence of above - a verage margins. In that sense, our
success reflects the efforts of an extremely motiva t e d
and focused management team and the dedication of
all Qu i n s a’s people.
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We are optimistic about the region’s prospects and are
confident that as the different economies resume their
growth, the efforts of these past years will bear the
results we have been working for: that Quinsa become
a major force in the beverages industry.
Consistently adding value to our shareholders remains
our ultimate objective. In that direction, we approved
the implementation of a share buy-back programme
last year and also approved the restructuring of the
Company’s capital in order to give holders of preferred
shares full voting rights, and allow Argentine pension
funds to invest in our stock.
We appreciate the support of our shareholders and are
committed to enhancing their investment in the
Company.
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review
chiefEXECUTIVE’S
Dear Shareholder,
The year 2000 will probably be a difficult year to
forget for Quinsa’s shareholders, management and
employees. Far from recovering from its long drawn
recession, Argentina went through one of its most
difficult years in the last decade. In terms of the
beverage industry, the effects of this continued decline
in economic activity were compounded by fierce and
at times irrational competition.
Despite this environment, the Company managed to
maintain its total beer volumes almost unchanged and,
t h rough the acquisition of BAESA, was able to incre a s e
soft drink volumes nearly threefold and to virt u a l l y
AGUSTÍN GARCÍA MANSILLA
Chief Executive Officer
double its water volumes. Total re venues increased 21%
to US$ 955 million. Operating profit declined 18% to
US$ 132 million, as the lower profitability from an
Argentine beer business that has been subject to heavy
discounting by the competition, was not ye t
compensated by the new businesses acquired. Net pro f i t
after tax declined 6% to US$ 73 million.
The year 2000 has also been by far the most active in
terms of mergers, acquisitions and divestitures. In
effect, we have completed a number of transactions as
a result of our growth strategy, that have strengthened
our position as a leading beverage company in Latin
America. In that sense, our strategic initiatives have
included:
Beverages-related diversification
During December 1999 we had announced the
acquisition of 51% of the capital stock of BAESA, the
largest PepsiCo bottler in Argentina. The acquisition of
the remaining shares was a prerequisite for the full
integration of our beer and soft drinks businesses, a
necessary step to accelerate the cost savings and
synergies needed to turn around BAESA. As the result
of lengthy negotiations, Quinsa acquired a further 47%
of BAESA’s capital stock during the year. The final
acquisition cost was US$ 230 million, implying a
valuation of under US$ 2.5 per unit case sold, which is
very attractive when compared to other bottlers in the
region. This has allowed us to accelerate the
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implementation of commercial, industrial and
administrative synergies. Among other things, we have
been able to merge CMQ with BAESA, a process we
completed in March 2001. This merger will
undoubtedly result in the simplification of
administrative procedures, and will also enhance the
combined operation’s tax efficiency. On a normalised
basis, that is once the synergies and cost savings have
been implemented, we expect total annual savings to
reach about US$ 31 million.
Towards the end of the year, we also completed the
acquisition of EDISA, the second-largest PepsiCo
bottler in Argentina, with a franchise that covers
approximately 20% of the country’s population. The
transaction was completed at a firm value of US$ 36.5
million, a valuation of US$ 1.6 per unit case sold.
EDISA will provide additional synergies to the BAESA
operation, par ticularly in terms of the consolidation of
our soft drinks industrial infrastructure. This
acquisition includes an excellent facility in Tucuman
that could allow us to service a large par t of the
country once the remaining PepsiCo franchises are
available.
The mirror of these two acquisitions was the sale of
our Paraguayan soft drinks business to Coca-Cola.
After long and complex negotiations we were able to
sell our 58% equity stake in this company during
October last year for US$ 64 million. This implies a
valuation of US$ 4.5 per case sold, undoubtedly an
excellent price compared to other transactions, and
particularly to the price paid for the PepsiCo
franchises in Argentina. This transaction allows
Quinsa to focus on the development of other
businesses with PepsiCo, including not only the
acquisition of the remaining soft drinks franchises in
Argentina but also the addition of other product lines
such as Tropicana, which will be introduced during
the year 2001.
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Geographical expansion
Growth through geographical expansion has always
been one of our strategic thrust s. The major
diff iculty in implementing this strategy for almost
e ve ry brewer in South America has been the scarc i t y
of targets and the lack of controlling share h o l d e r s
willing to sell.
During the year 1996 we made our entry into Bolivia
t h rough the acquisition of two breweries in
Cochabamba and Santa Cruz . This allowed us to
c a p t u re a third of the Bolivian market with the Du c a l
and Taquiña brands.
In September 2000 we announced the acquisition of
a 61% stake in Cervecería Boliviana Nacional La Pa z ,
and one month later we acquired a controlling stake
in C ervecería Boliviana Nacional Santa Cruz . T h i s
re p resented a total investment of US$ 110 million,
plus US$ 15 million in outst anding debt. Both
companies combined sold 1.2 million hectolit re s
during the fiscal year ended Ma rch 31, 2000. T h e s e
acquisitions have given us cont rol of what is by far
the most import ant brand in Bolivia, Paceña, and
reach a t ot al market share of about 98%.
These t wo transactions are of paramount import a n c e
for Quinsa, since they will allow us to implement a
number of synergies with our previous businesses
t h rough the rationalisation of industrial capacity, a
m o re rational pricing policy for our broad brand
p o rtfolio and the reduction of administrative
expenses. The present value of these synergies exc e e d s
US$ 50 million, almost half the price paid for the
equity of both companies.
With almost US$ 90 million in re venues, our
Bolivian operation is now comparable to our
Paraguayan beer business. Despite the peculiarities of
the Bolivian topography, which re q u i res us to
maint ain several breweries to serve the mark e t
e f f i c i e n t l y, we expect to achieve profitability leve l s
similar to those obt ained by our beer business in
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The year 2000 has also witnessed major operational
d e velopments. Among the most significant of these I
would like to mention the follow i n g :
Industrial Benchmarking Programme
Quinsa introduced a Productivity Analysis concept
based on six factors: volume, seasonality, production
planning, capacity utilisation, flexibility and hourly
output. Through a benchmarking process, we are now
comparing all of our facilities with Heineken’s. As a
result of this exercise, we have successfully
implemented action plans which resulted in annual
savings for the whole system of close to US$ 8 million.
Administrative Streamlining
We have continued to implement a very focused
programme aimed at reducing administrative expenses
in all of our operations. The main target of this
programme has been Argentina, where we will benefit
from the merger of our beer and soft drinks
companies. An indication of our success to date is the
fact that administrative expenses have barely increased
despite the large acquisitions we have made.
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Pa r a g u a y, within the next couple of years. Bolivia will
c e rtainly be one of the major contributors to
Qu i n s a’s operating cash flow growth in the years to
c o m e .
During 2000 we also concentrated the production of
malt at our most efficient plant in Tres Arroyo s
(Argentina), by disposing of our old malstery in
Uruguay for a total consideration of about US$ 14
million. Our Tres Arroyos plant, with a capacity of
90,000 tonnes, will supply almost 70% of Qu i n s a’s
needs, while the remainder will be acquired fro m
t h i rd parties with production facilities closer to our
b rewe r i e s .
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Product Portfolio
Our beer operation in Argentina was more active than
ever in terms of product development and packaging
innovations. We strengthened our leadership in the
one-way segment of the market with the introduction
of one-litre bottles for Heineken and for the
reformulated Iguana brand. Among other innovations,
we launched the first PET bottle in Argentina and also
developed diverse multipacks. We have reinforced our
role as market leaders, not only in terms of volume,
but also in terms of pricing and product innovation.
We believe these actions were very relevant for the
Argentine beer market to counter the effects of a long
recession.
Our bottled water business in Argentina has added the
Glaciar brand to its portfolio, which it acquired
through BAESA. It also launched the Nestle Pureza
Vital brand in October 2000. Total volume sold with
three brands (Glaciar, Nestle Pureza Vital and Eco de
los Andes) was 1.2 million hectolitres, giving us a
21.4% share in this market.
Integration of Soft Drinks
In t he soft drinks business, one of our major
o b j e c t i ves is t o be the lowest cost pro d u c e r. It is with
this in mind that we have concentrated our efforts in
cost reduct ion programmes and the integration
p rocess with our beer business. Both processes are
running ext remely well, and have been decisive in
the turning of the business’ operat ing results t o
almost bre a k - e ven for t he year 2000. Headcount has
been reduced by more than 30% and the cost of
p u rchases has been greatly reduced despite incre a s e s
in the price of aluminium and PE T. The int egration
of BAESA’s distribut ion network with our beer
business is also running according to plan, to the
extent that both syst ems will be fully integrat ed by
the end of 2001. While we will be maintaining an
independent sales force for supermarkets and dire c t
sales, t he integration of merchandising, ware h o u s i n g
and delive ry will result in substantial cost savings.
The successful conclusion of this effort tow a rds the
end of the year 2001 will result in a signif icant
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i m p rovement of the business’ operational cashflow
during the next ye a r s .
Other Market Developments
Our business in Chile continues to improve on the
basis of a 14% volume growth, which
has resulted in a market share of
almost 10%. This excellent
performance was the result of the
continued success of locally brewed
Heineken, and allowed the Chilean operation to
achieve a positive operational cashflow for the first
time ever.
Our Paraguayan beer operation continued to perform
extremely well. During 2000 the company completed
the expansion of the Ypané brewery and closed down
the old Asunción plant. The performance of the
Quilmes brand was determinant in achieving an 81%
market share.
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Other Corporate Initiatives
Management has pursued various initiatives aimed at
enhancing the value of the Company for its
shareholders, two of which I would like to address in
some detail:
One of senior management’s major concerns has been
the price of Qu i n s a’s stock and the f irm’s low va l u a t i o n
re l a t i ve to its regional peers. This has been the result, to a
c e rtain extent, of the nature of the Company’s capital
s t ru c t u re. The Board of Di rectors has there f o re approve d
two initiatives proposed by management during the ye a r
2000. The first of these concerns the implementation of
a share buy-back programme, for a maximum amount of
5 million shares, or approximately 4.6% of total capital
outstanding. As of Fe b ru a ry 27, 2001 the total amount
of shares acquired under this programme was 574,000.
We remain committed, there f o re, to support the price of
our stock as far as possible under current SEC and
Lu xembourg regulations.
The second initiative is related to the nature of our
capital stock. We are current ly in t he process of
c o n ve rting our pre f e r red non-voting shares into
o rd i n a ry voting shares (Class B shares). With this, we
hope to appeal to a wider investor base, including the
Argentine pension funds. These are t he most
signif icant local investors in equities, and are
c u r rently barred from investing in our stock owing to
its non-vot ing nature. As part of the same process we
will be splitt ing current ord i n a ry shares on a 10:1
ratio, with each of these new Class A shares carry i n g
a claim to dividends and assets equal to 10% of t he
claim they had prior to the re s t ructuring. Fi n a l l y, we
a re allowing for the conversion f rom Class A share s
into Class B shares, under certain limitat ions. We
thus hope to provide current holders of ord i n a ry
s h a res with access to the more liquid market, since
Class B shares will be traded in the New Yo rk St o c k
Exchange.
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Outlook
A lot has been achieved during the past ye a r, and ye t
we are still faced with an enormous amount of work
to be done during 2001. The successful consolidation
of our Bolivian acquisitions and the merger of our
soft drinks and beer operat ions in Argentina and
Uruguay will demand an enormous effort fro m
e ve ryone in the Company. I am confident they will
both be completed on schedule and with the re s u l t s
we are expect ing.
We are t he leaders in markets with high grow t h
potential, have developed a lean and dynamic
s t ru c t u re and have maintained a solid balance sheet
while invest ing heavily in our brands and
p roduction f acilities. We are pleased with the many
tangible improvement s we have been able to make
t h roughout t he Company during the past ye a r. On
behalf of all of our management team and the Board
of Di rectors we would like to t hank our
s h a reholders for t heir continued support. I would
also ve ry specially like t o t hank our personnel, who
h a ve worked ve ry hard throughout t he year and
h a ve shown a noticeable capacity for reaction under
changing circumstances.
We remain committed to add value to our
shareholders, and have no doubts we are on the right
track in that respect.
Thank you for your support.
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Quinsa is a Lu xembourg-based holding company,
which controls 85 percent of Quilmes In t e r n a t i o n a l
( Bermuda) Ltd., ("QIB"). The remaining 15 perc e n t
s h a re is owned, since 1984, by He i n e k e n
International Beheer B.V. ("Heineken"). He i n e k e n
Technical Se rvices B.V. renders technical assistance to
the operating companies. Quinsa, through QIB,
c o n t rols beverage and malting businesses in five Latin
American count ries. Its beer brands are market leaders
in Argentina, Bolivia, Paraguay and Uruguay and
h a ve a strong presence in Chile. The Company also
owns a controlling interest in the two largest Pe p s i C o
bottlers in Argentina, Buenos Aires Em b o t e l l a d o r a
S.A. ("BAESA") and Embotelladora del Interior S.A.
("EDISA"). Qu i n s a’s common and pre f e r red share s
a re listed on the Lu xembourg Stock Exc h a n g e
( Reuters codes: QU I N . LU and QU I N p. LU). Qu i n s a’s
American De p o s i t o ry Sh a res, re p resent ing the
C o m p a n y’s pre f e r red shares, are listed on the New
Yo rk Stock Exchange (NYSE:LQU ) .
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QUINSAabout
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2000 1999 1998 1997 1996 1995
Consolidated Operating Results
Gross Sales 991.9 819.9 854.8 890.9 831.9 797.6
Operating Profit 132.3 160.4 165.6 173.4 148.5 166.5
Net Profit 72.8 77.5 94.5 72.0 60.4 60.3
Net Income per share* 0.673 0.727 0.887 0.676 0.572 0.588
Consolidated financial condition
Total Assets 1,510.7 1,386.4 1,075.2 1,038.7 942.7 825.5
Shareholders’ equity 647.8 589.2 539.0 468.2 416.9 338.5
Capital Expenditures** 68.1 104.1 81.1 123.9 64.3 76.3
Dividends
Dividends declared (net) *** 31.9 31.4 27.3 23.6 20.5 20.5
Dividends per share (net)* 0.295 0.295 0.256 0.221 0.193 0.193
Price per share (12/31)
-Voting share (Lux) 7.000 9.125 9.000 10.750 8.000 10.400
-Share (NYSE) 9.000 11.9375 9.313 13.688 9.125
* Net income per share and dividend per share have been computed on the weighted average aggregate number
of shares and voting shares outstanding for the period restated to give effect to the 1996 stock split and the issue
of 1,581,339 preferred shares which were exchanged for BAESA shares acquired from Bayerische Hypo-Vereinsbank.
** Includes bottles and crates
*** To be proposed at the AGM of June 2001.
FINANCIAL HIGHLIGHTS
Year ended December 31,
(IN US$ million, except per share amounts)
Quilmes’ leadership of the Argentine market is
reflected in its 69 percent market share. The drivers
for this commanding position continue to be the
strength of its brands, its large brand portfolio, and its
access to the largest distribution network for beverages
in the country.
Market developments – 2000
T h ree years of economic recession finally took their toll
on beer consumption, as market volumes for the ye a r
declined 2.3 percent to 12.4 million hectolitres. Wi t h i n
this context average prices decreased compared to 1999,
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ARGENTINAas some competitors continued their aggre s s i ve price
discounting and the economic environment led
consumers to down-trade to less expensive brands.
Quilmes maintained its focus on defending long-term
p rofitability and brand equity, avoiding actions where a
loss of value could not be compensated with potential
volume increases. This policy is reflected in the
C o m p a n y’s share of value, which is consistently higher
than its market share .
Company developments
During the year 2000 Quilmes was highly pro a c t i ve in
terms of product and packaging development. T h e
Company be lieves innovation is a key tool for maintaining
its leadership in the market. In line with this, new
p resentations we re introduced in the market such as non-
returnable one-litre bottles, a PET bottle under the
Quilmes brand, the first such bottle in the Argentine
m a rket, and new multipacks. These actions, intro d u c e d
during the fourth quarter of the ye a r, supported an
i n c rease in market share which has continued into 2001.
In terms of industrial ef ficiency, the year 2000 saw the
Company increase its focus on Continuous Im p rove m e n t
both in the breweries and in the malting plant.
Im p o rtant pro g resses we re made in the pro d u c t i v i t y
t rend and operating performance, leading to
i m p rovements in our production costs. The main
efficiencies achieved we re the result of Target and Ac t i o n
Plans based on internal and external Be n c h m a rk i n g
(BCS), the consolidation of our Team Ba s e d
Organisation and TPM Programs, and the
re-engineering of administrative and logistic processes.
Quinsa obtained approval for the merger of its beer and
soft drinks businesses, and this will result in an
acceleration of a number of synergies, particularly in the
a d m i n i s t r a t i ve and commercial are a s .
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OPERATING HIGHLIGHTS
(Figures in US$ million, where applicable)
2000 1999
Sales volume (beer, thousands
of hls.) 8,427 9,033
Revenues (net of taxes) 463.8 525.3
Operating profit 110.3 134.9
EBITDA 159.0 183.6
Headcount 1,964 2,127
Market developments - 2000
Ma rket volumes increased close to 8 percent despite the
u n f a vourable environment, albeit at the expense of ave r a g e
price declines. Consumers, affected by the long-drawn
economic recession, tended to trade down to less
e x p e n s i ve brands. BAESA’s market share in the Gre a t e r
Buenos Aires region was approximately 27 perc e n t .
BAESA
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Company developments
Quinsa completed the acquisition of a 98.6 percent
stake in the company, which was a prerequisite for the
full integration of its beer and soft drinks operations.
In that sense, the beer and soft drink distribution
networks will be fully integrated by the end of 2001.
Combining warehousing, delivery and merchandising
for both businesses will result in a significant
improvement of operating cash flow.
In December 2000, Quinsa acquired Em b o t e l l a d o r a s
de l Interior S.A., and thus consolidated 84 percent of
PepsiCo volume sales in Argentina. This acquisition will
a l l ow the Company to tap further synergies, part i c u l a r l y
related to the rationalisation of its industrial network .
OPERATING HIGHLIGHTS
(Figures in US$ million, where applicable)
2000 1999 (*)
Sales volume (soft drinks,
thousands of hls.) 4,680 588
Revenues (net of taxes) 237.7 31.1
Operating profit (2.2) 3.7
EBITDA 9.9 5.2
Headcount 1,591 2,352
(*) 1999 includes December only.
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Market developments - 2000
Consumer demand did not improve during the year,
as the country’s economic difficulties persisted and
market volumes declined. This was particularly true of
the on-premise segment, which accounts for more
than 50 percent of market volumes.
In December 2000 the government reduced the
specific tax on beers by 29 percent, in an effort to fuel
consumer spending.
Company developments – 2000
The most re l e vant development during the year was the
acquisition of Cervecería Boliviana Nacional, which has
g i ven Quinsa a consolidated market share of
a p p roximately 98 percent. This acquisition will result in
m a rked improvements for the Bolivian business, as it will
a l l ow for a higher degree of price rationality and
industrial efficiency, lower transportation costs and lowe r
a d m i n i s t r a t i ve expenses as a percentage of sales. As the
synergies and cost reductions come into place during the
year 2001, profitability will improve signif icantly.
BOLIVIA
OPERATING HIGHLIGHTS
(Figures in US$ million, where applicable)
2000 1999
Sales volume
(beer, thousands of hls.) 799 553
Revenues (net of taxes) 42.1 30.8
Operating income 0.2 0.5
EBITDA 9.1 7.8
Headcount 1,578 476
(*) Figures for 2000 include four months of operations for Cervecería
Boliviana Nacional La Paz and one month for Cervecería Boliviana
Nacional Santa Cruz.
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OPERATING HIGHLIGHTS
(Figures in US$ million, where applicable)
2000 1999
Sales volume
(beer, thousands of hls.) 411 362
Revenues (net of taxes) 26.7 24.7
Operating profit (4.1) (5.9)
EBITDA 0.3 (1.2)
Headcount 321 311
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Market developments – 2000
The Chilean market recovered from the recession of
1999, with beer volumes increasing particularly during
the second half of the year. Thus, total market
volumes for the year increased approximately 3
percent. Quinsa’s performance was significantly better
than this, leading to an average market share for the
year of approximately 10 percent.
Company developments –2000
The successful launching of locally brewed Heineken
beer towards the end of 1999 provided the Company
with a solid platform from which to develop volume
growth and improved performance. During 2000 its
Becker, Baltica and Heineken brands all performed
above expectations, leading to total volume increases
of approximately 14 percent. This trend has continued
into 2001, which leads us to be optimistic about
margin improvements in the future.
The past year also marked a milestone in the history of
Quinsa’s Chilean business: EBITDA was positive for
the first time since we entered the market.
CHILE
Company developments –2000
The Company completed the expansion of its Ypané
plant during the year, doubling its previous capacity.
It also closed down its older facility in downtown
Asunción and set up a distribution centre to handle
direct sales and distribution in the city. The Ypané
expansion has allowed for significant cost savings, as
witnessed by the businesses improved margins.
Furthermore, it included our first local canning line,
which has further improved profitability. The
Quilmes brand, which was previously imported from
Argentina, is now being produced locally.
Market developments – 2000
The Paraguayan beer market saw total volumes
increase slightly more than 1 percent, despite
economic difficulties that affected consumer demand.
Quinsa continued to do extremely well, ending the
year with a 5 percent increase in volumes sold. Market
share increased to 81 percent, fuelled by solid
performances of the Quilmes and Baviera brands.
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PARAGUAY
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OPERATING HIGHLIGHTS
(Figures in US$ million, where applicable)
2000 1999
Sales volume
(beer, thousands of hls.) 1,603 1,520
Revenues (net of taxes) 84.8 81.5
Operating profit 31.4 25.3
EBITDA 40.9 35.9
Headcount 461 574
Company developments – 2000
The Company is in the process of merging its
Uruguayan beer and soft drinks operations, the latter
resulting from the BAESA acquisition in December
1999. This process will involve moving the bottling
lines to our brewery, and it should be completed
during the year 2001. Operating results, which were
affected by the poor performance of the soft drinks
market in general, should improve considerably as a
result of this process.
Market developments – 2000
The Uruguayan economy experienced difficulties that
were similar to other countries in the region,
particularly Argentina. Market volumes for beer
declined approximately 7 percent, although Quinsa’s
volume sales performed better than that as market
share increased one percentage point to 54 percent.
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URUGUAY
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OPERATING HIGHLIGHTS
(Figures in US$ million, where applicable)
2000 1999
Sales v olume
(beer, thousands of hls.) 406 425
Revenues (net of taxes) 63.9 48.7
Beer 26.1 27.6
Soft drinks and water 21.4 4.0
Other (net) 16.4 17.1
Operating profit (0.8) 2.5
Beer 2.6 4.2
Other (net) (3.4) (1.7)
EBITDA 3.3 5.1
Headcount 479 354