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.
Recommended Proposal to Acquire Foster’s at A$5.10 per share
As part of the transaction, and in line with Foster's previously announced capital management initiative, Foster's will pay its shareholders a return of capital of A$0.30 per share prior to closing, reflecting both the confirmed value of historic tax losses and a better cash/net debt position than assumed in SABMiller's initial proposal.
The agreed proposal represents an acquisition enterprise value of A$11.5 billion, which is a 2.8% increase on the enterprise value of A$11.2 billion implied by SABMiller's initial proposal announced on 21 June 2011 (see endnote 2).
The acquisition of Foster's is consistent with SABMiller's strategic priorities and will provide SABMiller with:
exposure to Australia's strong economic growth prospects;
a leading position in the stable and profitable Australian beer industry; and
the opportunity to apply SABMiller's capabilities and scale to improve Foster's financial and operating performance.
The acquisition is expected to be EPS enhancing for SABMiller in the first full year of ownership and economic returns are expected to exceed the project WACC by year 5.
SABMiller and Foster's have agreed that the offer will be effected by means of a scheme of arrangement to be proposed by Foster's to its shareholders.
The scheme of arrangement is recommended by the Foster's board and is subject to a number of customary conditions, detailed in a scheme implementation deed, the principal terms of which are summarised in Attachment 1 to this announcement. A full copy of the scheme implementation deed will be available shortly on SABMiller's website.
The scheme implementation deed provides for the ordinary conduct of Foster's business from signing until completion, and arrangements for merger and implementation planning before closing. It specifies that in certain circumstances, including if a higher valued competing transaction is announced and completed within twelve months, Foster's will pay to SABMiller a break fee of A$99 million, being 1% of the equity value of the recommended transaction.
Foster's has commenced the process of obtaining a ruling from the Australian Tax Office ("ATO") confirming the tax treatment of the capital reduction.
SABMiller has internal resources and committed financing to fund the cash consideration, and SABMiller expects to maintain a strong investment grade credit profile.
As previously announced, SABMiller has separately reached agreement with Coca-Cola Amatil Limited to be able to acquire its share of the Pacific Beverages Pty Limited joint venture should SABMiller acquire a controlling interest in Foster's.
SABMiller has entered into a number of cash settled equity swap contracts that provide it with an economic exposure equivalent to 78 million shares (being approximately 4.0% of the total number of issued Foster's shares), which will reduce SABMiller's aggregate cash cost of the transaction consideration by approximately A$69 million.
SABMiller and Foster's have agreed to work together to prepare the necessary documents to be considered by Foster's shareholders. The scheme document is expected to be posted to Foster's shareholders in approximately six weeks. If approved by shareholders at the relevant scheme meetings later this year, SABMiller expects the acquisition to be completed before the end of 2011.
Unanimous Directors' Recommendation
The Directors of Foster's have unanimously recommended that shareholders vote in favour of the scheme of arrangement and capital reduction, and have committed to voting their own interests in favour of the proposals, in the absence of a higher valued competing proposal and subject to an independent expert confirming that the proposal is in the best interests of Foster's shareholders.
Commenting on the agreement, SABMiller's Chief Executive, Graham Mackay, said:
"We are pleased that we have reached agreement on a recommended transaction to be put to Foster's shareholders.
"Foster's will become an important part of our business, and through the application of our commercial capabilities and global scale, we expect to build on the initiatives that Foster's management has put in place, further enhancing Foster's performance and creating value for our shareholders.
"Foster's has a long-standing and proud reputation as one of the leading companies in Australia. We look forward to working with Foster's employees and other stakeholders to ensure the success of Foster's in the future as the largest brewer in Australia with an outstanding portfolio of brands."
References in this announcement to Foster's shares and to Foster's shareholders are references to fully paid shares. Different provisions consistent with their terms of issue will apply to partly-paid shares in Foster's. The number of partly paid shares is not material.
The acquisition enterprise value is calculated as follows:
Equity value paid to Foster's shareholders - A$9,901m
Plus: Estimated net debt at Dec-11 - A$1,377m
Plus: A$0.30 per share capital return - A$582m
Plus: Minority interests - A$12m
Less: Estimated present value of historic tax losses - A$400m
Acquisition enterprise value - A$11,472m
Webcast and conference call
A live audio webcast of a presentation to investors hosted by SABMiller's Chief Executive, Graham Mackay and Chief Financial Officer, Jamie Wilson will begin at 11:30 am London time / 8:30 pm Sydney time on 21 September 2011. To access the webcast or download a copy of the presentation, visit www.sabmiller.com.
23 Sep. 2011