Global hop marketA local alternative to mass beer suggested by independent brewers has been successful and is now altering the global market. Beer is becoming more diversified, so transnational companies have to accept the new game rules and to switch focus to young and fast growing markets. All these processes increased the demand for aroma and bitter hop as well as their acreage expansion on two continents. However now there appeared a downward trend of alcohol consumption in the world, so even special sorts can soon turn to be sufficient. In this connection the dynamic American hop market is already facing some problems. EU hop producers have become more cautious, they are not racing to exceed the demand and look forward with more confidence, judging by the contract terms.
Hop Market in RussiaGermany still dominates the Russian market, yet over the recent two years one has been able observe a continuous success of Czech hop suppliers. Their expansion and growing popularity of hops from the United States became the drivers of supplies growth in 2016 despite the preceding modest harvest crop in the EU, as well as the factor of relative stability in 2017. In this connection, in 2017, the ratio of the varieties continued to shift towards the aroma ones, and the supplies of Magnum hop and other alpha varieties were reduced. However, the import of bitter hop pellets is partially replaced by extracts, especially from the major beer manufacturers. Total volumes of alpha acid supplies, according to our estimation, decreased by approximately 5% and returned to the level of 2015. Barth Haas Group continues dominating the hop products market; HVG also increased its weight. At the same time, Morris Hanbury significantly reduced the supplies in 2017.
10+1 trends of Russian beer market 2015-2017Despite of the moderately negative prognoses for 2017, the beer market can be stabilized soon. Yet the years of the negative dynamics have resulted in marketing being limited just to “optimization” and the art of balancing between price and volumes. Bigger supermarkets share means stronger trade marketing. These processes are connected to the majority of the described trends. At the same time, the federal brands inflation leads to searching for new tastes, sales channels and contact formats that expand the product range and diversify the beer market, but do not imply a substantial volume increase. Let us enumerate and further discuss the ten trends of the beer market we can see in 2015-2017 as well as the major event of 2017.
Beer market of Ukraine 2017In the first half of 2017, the Ukrainian beer market goes on decreasing slowly. Yet, the companies manage to compensate their lost volumes by raising prices and improving the sales structures. This results in the mid price market segment reduction while the sales of premium brands are rising. These processes are connected to position strengthening of companies Carlsberg Group and Oasis and the market share reduction of Obolon. Most of the novelties by the market leaders belong to craft or hard lemon categories.
Beer market of Russia 2016: PET goes to draftThe beer market of Russia was warmed up by the hot summer, but the preparation for large volume PET prohibition has already impacted it negatively. The year was successful for Efes, MBC and regional producers; Carlsberg’s positions were virtually stable but AB InBev and Heineken lost a part of market share having focused on the sales profitability. The dynamics of big brands was determined by how much the companies were willing to keep the prices down or by their promotional activity. In this context the economy segment of the beer market and sales of inexpensive draft beer were increasing. The premium segment started shrinking due to license brands migrating to the mainstream segment.
SABMiller Trading Update
On an organic basis, both lager and soft drinks volumes for the first quarter grew 5%. Volume growth reflects the strength of our brand portfolio and commercial execution, growth in consumer spending in many developing markets, and a relatively weak comparative quarter in the prior year. Increased volumes, combined with selective price increases and some mix benefits, grew group revenue 7% on an organic, constant currency basis for the quarter, with group revenue per hectolitre up 2% on the same basis. We continued to increase investment behind our brands and as expected, raw material costs rose moderately. The group's financial performance in the quarter was in line with our expectations.
In Latin America, lager volumes grew by 6% on an organic basis. Colombia's lager volumes increased 6% partially reflecting lower sales in the prior year following the increase in VAT in February 2010, as well as improved marketing effectiveness and in-trade execution. These factors, together with fewer election "dry days" and the normalisation of weather patterns in June, more than offset the adverse impact on volumes of flooding and infrastructural damage. Lager volumes in Peru were 11% higher, driven by our brand portfolio and sales service initiatives to expand the beer category and capture share from the informal alcohol sector, and benefited from the buoyant economy. Ecuador lager volumes fell 1% due to government restrictions on alcohol sales on Sundays introduced in June 2010, and three "dry days" for a referendum over a peak consumption weekend. Soft drinks volumes across the region were up 10%, with good performances in Honduras and El Salvador, supported by expansion into new soft drinks categories.
In Europe, lager volumes were up 5%. Poland's volumes were up 4% cycling a weak comparative quarter that was impacted by widespread flooding and alcohol sales restrictions during a nine day national mourning period following the death of the president. The market continued to be impacted by significant competitor discounting. In the Czech Republic, domestic volumes grew by 4% supported by brand and package innovations despite continued market pressures. Russia's volumes were up 11%, with improved market performance compared to a weak quarter in the prior year, following the significant excise increase in January 2010. Our volumes in Romania declined by 3% as the market continued to suffer the effects of a fragile economic environment and government austerity measures. The region's volume performance benefited from significantly higher volumes in Ukraine, while volumes in the United Kingdom continued to grow. Volumes in Italy and the Netherlands were marginally lower.
In the three months to 30 June 2011, MillerCoors' US domestic sales to retailers (STRs) were down 2.7%, as a result of a continued weak economic environment, ongoing high unemployment levels and subdued consumer spending affected by high fuel prices and poor weather. Premium light STRs were down low single digits, as Miller Lite declined mid single digits and Coors Light volumes grew slightly. The Tenth and Blake craft and imports division maintained its strong performance with double digit growth, led by Blue Moon, including its seasonal brand extensions, and Leinenkugel's. Peroni Nastro Azzurro also delivered good growth in the quarter. The below premium segment saw a mid single digit volume decline as industry uptrading continued. Domestic sales to wholesalers (STWs) were down 3.1% in the quarter.
Lager volumes in Africa grew by 15% on an organic basis boosted by enhanced distribution, the strength of our local brand portfolios and generally favourable economic conditions. Lager volumes in Tanzania grew 23% against a prior year comparative period in which volumes declined. In Uganda, lager volumes were up 28% driven by strong in-trade execution. In Zambia, strong economic conditions, coupled with our focus on availability and outlet price execution, helped grow lager volumes by 29%. Lager volumes in Mozambique grew by 12% following a successful renovation of the mainstream brand 2M and enhanced market penetration in the north of the country. Angola's lager volumes grew 19% aided by the commissioning of the new brewery in Luanda in the prior year and increased availability in the north. Zimbabwe's lager volumes grew 28% on an organic basis following capacity upgrades in the prior year. Our associate Castel delivered lager volume growth of 9%. Soft drinks volumes grew by 9% on an organic basis with solid performances in Ghana and Zimbabwe, and from our associate Castel.
Lager volumes in Asia grew 11% on an organic basis, led by a 14% increase in China's volumes. Further share gains and improved weather conditions, compared to the severe storms that affected the prior year, underpinned China's growth with strong performances in the west and central regions. In India, volumes for the quarter were 13% below the prior year as we continued to be impacted by trading restrictions introduced in July 2010 in Andhra Pradesh. Excise increases implemented at the start of the quarter also limited overall market growth in a number of key states.
In South Africa, lager volumes ended the first quarter level with the prior year. Although volumes benefited from an Easter peak trading period, this was partially offset by the positive impact of the 2010 FIFA World Cup in the prior year. Our core power brand portfolio continued to benefit from targeted investment and enhanced retail execution, with Castle Lite in particular growing strongly. Soft drinks volumes declined by 3% during the quarter although retail execution continued to show improvement. Both beer and soft drinks volumes were affected by the cycling of the 2010 FIFA World Cup, unseasonably cold and wet weather and subdued consumer demand.
In May 2011 SpA Birra Peroni agreed to sell its in-house distribution business to the Tuo Group and the transaction was completed on 13 June 2011.
Also in May 2011, SABMiller Africa BV agreed to sell its 20% shareholding in its associate, Kenya Breweries Limited (KBL), to East African Breweries Limited (EABL) for a cash consideration of approximately US$225 million, subject to EABL disposing of its 20% shareholding in Tanzania Breweries Limited by way of a public offer through the Dar-es-Salaam Stock Exchange. SABMiller International BV also agreed to terminate a brewing and distribution agreement with KBL.
On 21 June 2011, the group announced that it had made a non-binding, conditional proposal to the Board of Directors of Foster's Group Limited to acquire all of Foster's shares for A$4.90 per fully paid share in cash to be financed through existing resources and new debt facilities. The group also confirmed that it had separately reached agreement to acquire Coca-Cola Amatil Limited's share of the Pacific Beverages Pty Limited joint venture should SABMiller acquire a controlling interest in Foster's.
On 1 July 2011, the group announced that it had entered into a distribution agreement with the Van Steenberge brewery in Ertvelde, Belgium, to distribute SABMiller's first Belgium beer in select markets.
In April 2011, the group entered into a five-year US$2,500 million committed syndicated facility, with the option of two one-year extensions. This facility replaced the existing US$2,000 million and US$600 million committed syndicated facilities, which were both voluntarily cancelled.
On 1 July 2011 a US$600m bond, issued in 2006, matured and was repaid from cash resources.
Lesley Knox and Helen Weir joined the SABMiller board as independent non-executive directors on 19 May 2011. Both new directors were appointed to the audit committee, and Lesley Knox also joined the remuneration committee.
Tom Long was appointed as the new chief executive officer of MillerCoors, with effect from 1 June 2011, replacing Leo Kiely who had successfully guided the integration and start-up of MillerCoors.
On 1 July 2011, Domenic De Lorenzo, the group's Director of Corporate Finance and Development, joined the SABMiller group executive committee.
After 25 years of service, Malcolm Wyman, Chief Financial Officer, will retire at the end of August 2011, and stands down from the board effective 21 July 2011. Malcolm will be replaced by Jamie Wilson, previously the Finance Director for SABMiller Europe.
22 Jul. 2011