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 plc Trading Update
Lager volumes for the third quarter were 3% ahead of the prior year with good growth in all our regions with the exception of Europe and North America. Soft drinks volumes grew by 6% for the quarter with growth across all regions. Organic, constant currency group revenue grew 7% for the quarter. Group revenue per hectolitre grew 3% on the same basis supported principally by price benefits, with mix gains achieved in all regions except Europe. Overall, financial performance for the quarter was in line with our expectations.
In Latin America, lager volumes continued to show robust growth with volumes up 8%. Colombia's lager volumes increased by 6% with premium lager growth in excess of 30% due to successful seasonal offerings and campaigns. Continuing price restraint, improved weather and economic growth also contributed. In Peru lager volumes grew by 9% as consumers traded up from the informal alcohol sector supported by the national roll-out of the renovated Pilsen Callao brand and successful Cusque?a campaigns. Ecuador's lager volumes increased by 15% supported by the implementation of the direct service model and a focus on festivals and events which encouraged consumers to move into the beer category. In Central America lager volumes were up 6% with a particularly strong performance in El Salvador following the introduction of larger packs as part of our "affordability strategy". Soft drinks volumes in Latin America grew by 8%, with our non-alcoholic malt brands up 21% and now rolled out into Central America.
Europe's lager volumes were down 2%. Beer markets remain affected by intense competition, which continued negatively to impact mix, as well as fragile economic conditions. Volumes in Poland and Romania were both down by 6% reflecting the impact of planned de-stocking of wholesaler and distributor inventories as well as continuing competition in pricing and promotions. In the Czech Republic, domestic volumes grew by 2% reflecting the continued strong performance of brand and package innovations. Volumes were down 6% in Russia in a declining beer market. Strong growth continued in Ukraine where volumes increased by 20%.
MillerCoors domestic sales to retailers (STRs) declined 3.3% in the quarter on a trading day adjusted basis. Premium light brand volumes fell by low single digits with Miller Lite down mid single digits and a low single digit decline for Coors Light. The Tenth and Blake division saw double digit growth driven by the success of craft brands and beer merchants' programmes. Below premium volumes were down mid single digits. Domestic sales to wholesalers (STWs) were down 1.6% in the quarter compared with the prior year.
Lager volumes in Africa grew by 11%, despite cycling strong comparatives (third quarter volumes grew by 12% last year) and capacity constraints in a number of markets. In Tanzania lager volumes grew by 13% driven by both solid growth in premium brands and the strengthening of mainstream brands due to expanded and intensified sales and distribution. Continued extension of market penetration grew lager volumes in Uganda, up 17%. In Zambia lager volumes increased 16% underpinned by robust growth of our mainstream portfolio against a backdrop of strong economic conditions. Lager volumes in Mozambique grew by 8% benefiting from the launch of the Impala brand, a cassava based beer, and strong growth in the north of the country. In Zimbabwe our associate delivered lager volume growth of 19% supported by further improved product availability. Our associate Castel grew lager volumes by 9% with a strong performance in Cameroon and the Democratic Republic of Congo. Soft drinks volumes grew by 9% driven by solid performances from South Sudan, Ghana, Zimbabwe, and from our associate Castel.
In Asia Pacific lager volumes grew by 7% on an organic basis. Volumes in China grew 5%, despite cycling a strong comparative period. Including the impact of regional acquisitions, China's volumes were up 11%. In India volumes were up 21% benefitting from the lifting of trading restrictions in Andhra Pradesh, which had constrained volumes in the same quarter of the prior year, as well as good growth in the focus states of Karnataka and Haryana.
On 16 December 2011, the group completed the acquisition of Foster's in Australia for a total cash consideration of approximately A$10,483 million (approximately US$10,465 million), and the Asia segment was renamed the Asia Pacific segment. Volumes for Foster's are not included in third quarter group or divisional results. On a pro forma basis, Foster's volumes for the quarter ended 31 December 2011 were 6% below the same period in the prior year. The beer category overall is estimated to have declined at a slightly slower rate in the quarter.
In South Africa, in a challenging economic environment, lager volumes grew 2%. Growth was driven largely by momentum from our core power brands, particularly Castle Lite and Castle Lager, as we continued to make targeted investments in our portfolio and focused on improving retail execution and customer service. Soft drinks volumes increased 1% despite tough trading conditions and cycling strong growth of 9% in the comparative quarter. The performance was buoyed by growth in two litre PET and immediate consumption packs.
On 19 October 2011, the group announced its intention to form a strategic alliance with Anadolu Efes. The group intends to transfer its Russian and Ukrainian beer business to Anadolu Efes, and to take a 24% equity stake in the enlarged group, which will be the vehicle for both groups' investments in Turkey, Russia, the CIS, Central Asia and the Middle East. The alliance will result in the enlarged Anadolu Efes strengthening its market position to become the number two brewer, in value terms, in the large Russian beer market. It is already the leading beverage producer in Turkey, with 89% of the beer market and a 69% share of the carbonated soft drinks market, and it has leading market positions in the growth beer markets of Kazakhstan, Moldova and Georgia. Subject to finalisation of the definitive legal agreements and relevant regulatory approvals, the group expects to complete the transaction before the end of the financial year ending 31 March 2012.
On 4 November 2011, East African Breweries Limited launched a public offer through the Dar-es-Salaam Stock Exchange for the sale of its 20% interest in Tanzania Breweries Ltd, the group's subsidiary in Tanzania. The offer closed on 25 November 2011. SABMiller Africa BV applied for all of the shares offered, but the offer was substantially oversubscribed, and after priority allocations were made to applicants who were Tanzanian residents or East African residents in accordance with local securities laws, SABMiller Africa BV was allocated shares representing an additional 4.72% of Tanzania Breweries Limited, increasing its interest to 58% (36% group effective economic interest).
On 25 November 2011 SABMiller Africa BV disposed of its 20% interest (12% group effective economic interest) in its associate Kenya Breweries Limited to East African Breweries Limited for cash consideration of US$205 million.
During November and December 2011 two of SABMiller's African subsidiaries, Zambian Breweries plc in Zambia and Nile Breweries Ltd in Uganda, launched rights issues to raise approximately US$70 million each, and in January 2012 the group's subsidiary in Mozambique, Cervejas de Mo?ambique SARL, launched a rights issue to raise approximately US$40 million, in each case primarily to fund recently announced capacity expansions. The rights issues in Uganda and Mozambique remain open, and, following closing of the rights issue in Zambia, SABMiller Africa BV's interest remains unchanged at 87% (group effective economic interest unchanged at 54%).
With effect from 1 January 2012, the group and Castel implemented a number of organisation changes in their African operations as part of their strategic alliance agreement. The changes involve the combination of the operational management of the Castel and SABMiller businesses in Nigeria and Angola, with the Nigerian businesses being managed in future by SABMiller, and the Angolan businesses being managed by Castel.
On 13 January 2012, the group completed the acquisition from Coca-Cola Amatil Limited (CCA) of CCA's 50% interest in the group's Australian joint venture, Pacific Beverages (Pte) Limited, for cash consideration of A$326 million. Pacific Beverages is now a wholly owned subsidiary of SABMiller.
On 17 January 2012, the group successfully completed a US$7,000 million bond issue in four tranches: US$1,000 million 1.85% notes due 2015, US$2,000 million 2.45% notes due 2017, US$2,500 million 3.75% notes due 2022 and US$1,500 million 4.95% notes due 2042. The net proceeds were used to repay in part the bank borrowing incurred to finance the acquisition of Foster's.
In December 2011 the group announced the appointment of Ari Mervis (who had been Managing Director, SABMiller Asia since 2007) as Managing Director, SABMiller Asia Pacific and Chief Executive Officer of Foster's, with effect from 16 December 2011. The group also announced the appointment of Harald Harvey as Managing Director Asia, with effect from 1 February 2012. Harald will report to Ari Mervis and will oversee SABMiller's businesses in India and Vietnam, and its ongoing regional business development and export operations, as well as providing support to CR Snow.
23 Jan. 2012