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.
Fitch rates Anheuser-Busch InBev’s USD4bn issues at ‘A’
ABIFI's notes rank pari passu with most of ABI's other debt and benefit from the same system of unconditional, full and irrevocable cross guarantees enjoyed by debt incurred by Anheuser-Busch InBev NV/SA, Anheuser-Busch InBev Worldwide Inc, Anheuser-Busch Companies LLC. (formerly Anheuser-Busch Companies Inc), Brandbrew S.A. and CoBrew NV. The debt of these entities accounted for the majority of group debt. AmBev, an important cash generator within the ABI group and currently in a net cash position remains however excluded from the pool of guarantors. Based on the ABIFI notes prospectus, ABI also has the option to exclude Grupo Modelo SAB de CV (Modelo) when its acquisition is finalized.
Please refer to the group structure chart in Fitch's Credit Update for ABI published on 14 December 2012 atfor full details of the relations among the entities mentioned above and their total indebtedness. ABIFI was only incorporated in December 2012 and, therefore did not have any outstanding debt or cash flow generation at the time of our last Credit Update.
ABI's credit profile is supported by the following key factors, among others:
Leading Global Player:
ABI's rating benefits from its size and leadership in the global beer industry, benefiting from a broad portfolio of local and global brands, sold across all pricing points, as well as strong routes to market and a highly effective approach to managing costs. ABI's operations are balanced across profitable, mature markets and high growth ones.
Rating Affirmation on Modelo acquisition:
The affirmation in July 2012 of ABI's 'A' IDR following the agreement to acquire 50% of Modelo reflected Fitch's expectation that the transaction (expected to complete in 2013) will only mildly derail the process of steady deleveraging achieved through to end-2011 and that full control of Modelo will strengthen ABI's business and financial profile. Future financial policies, combined with very strong free cash flow (FCF) generation, should enable ABI to maintain net debt/EBITDA at or below 2.0x from end-2014.
Superior Cash Flow Generation:
ABI's FCF of between USD5bn and USD7bn annually projected for 2012-2015 is superior both in dollar terms and as a proportion of sales to most corporates in the 'A' rating category. Fitch calculates that ABI's lease, pension, minority dividend adjusted net debt/EBITDARP and funds from operations (FFO) adjusted leverage will only temporarily exceed 2.0x and 2.5x respectively in 2013, despite up to approximately USD15.4bn merger and acquisition net spending over 2012-2013 from the Dominicana and Modelo acquisitions and increases to dividend payouts.
RATING SENSITIVITY GUIDANCE:
Negative: Future developments that could lead to negative rating actions include:
- Any debt-funded acquisitions, material signs of weakness in the company's Brazilian or US operations or generous shareholder distributions causing leverage to remain at or above 2.0x-2.5x on a permanent basis.
While not expected before 2014, future developments that could lead to a positive rating action include:
- a combination of leverage falling closer to 1.0x, EBITDA-based interest cover rising to more than 10x-12x, wider geographic diversification while maintaining strong profitability and lower M&A risk.
17 Jan. 2013