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.
Bid for Foster’s may need a top-up
SABMiller's bid puts an enterprise value (market value plus net debt) of $10.4 billion on Foster's. That's 12.7 times earnings before interest and tax of $887 million that Foster's announced yesterday, and when it releases its formal defence, Fosters will produce comparisons with other beer industry takeovers that make that look a bit light.
The key comparison is Kirin of Japan's takeover of Lion Nathan in 2009. The EBIT-to-enterprise value multiple in that case was 15.2 times, which, all other things being equal, points to about $5.95 a share for Foster's.
Advertisement: Story continues below Foster's will point to overseas deals that were more expensive too, but SABMiller can cite other takeovers that were cheaper and argue that, on other profit-to-enterprise-value measures, it is pretty much matching the price Kirin paid for Lion. It will also point out that Kirin bought a company that was gaining market share, while it is bidding for one that has been losing it.
Foster's said volumes slid by 5.2 per cent during the year and by 6 per cent for beer, in line with the beer market overall, in a year that Pollaers said was the toughest since the recession years of the early 1990s.
That means beer market share was stable, overall, although Pollaers argues that market share is no longer the prime number. He says the group will not subsidise beer sales and actually allowed the group's bottle-shop beer market share to fall slightly in the June half after withholding supplies temporarily from outlets that were either discounting too heavily, or threatening to.
Foster's shares were sitting at the bid price before the result and closed 9? or 1.8 per cent higher at $4.99 yesterday. The market rose by 2.2 per cent, so investors are hunting for a bump, but also agreeing with Pollaers that there's a lot of renovation work to come. The steady beer market share, for example, flatters the local brands because it includes Foster's star imported beer, Corona, which grew volumes by 15 per cent in the imported beer segment that accounts for 9 per cent of the Australian beer market.
Hedge funds - which want a bid to sell into - still control between 10 and 15 per cent of the brewer's shares; retail shareholders - who have in the main been on the share register for years - control another 20 to 25 per cent and about three-quarters of the group is owned by institutions.
Pollaers has contacted most of the institutions and is getting no feedback that $4.90 should be embraced.
That will change if SABMiller sweetens the bid to give Foster's shareholders an up-front piece of the renovation gain that Pollaers is promising to deliver over the next few years - a gain that it will also capture if it takes control: about $5.50 looks right to me.
WHEN the brouhaha over BlueScope Steel's decision to halve steel production at Port Kembla and quit steel exporting at a cost of about $500 million and 1000 jobs has subsided, BlueScope will probably be re-rated by the market.
Closure was inevitable given that exports were costing the company $250 million a year after the soaring Australian dollar and record coking coal and iron ore prices pushed its production costs from just within the top quartile of world steel producers to the bottom of the third quartile - but the retreat is being done in a way that gives BlueScope options.
Steel production will halve to 2.6 million tonnes a year with the closure of one of the group's two Port Kembla blast furnaces, but only one of BlueScope's four Kembla coke ovens will be closing down. Coke that is produced and not consumed by the remaining blast furnace can be profitably exported and, if the price of coal and iron ore eases and the Australian dollar also falls, BlueScope can resume exporting by firing up the shuttered blast furnace and directing coke production towards it.
The closure of one of the coke ovens means the previous production of 5.2 million tonnes would not be attained, but a return to production of about 4.2 million tonnes a year is possible.
When the current restructuring is complete expect BlueScope to be in the market for coking coal and iron ore reserves of its own. It fought for but lost its Illawarra coal reserves when it was spun out of BHP a decade ago and has been looking at coal and iron takeovers ever since. It knows it erred in not moving before the commodity price boom took off and will fix the mistake if the boom cools.
24 Aug. 2011