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4-2017

Global hop market

A 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 Russia

Germany 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.

drinktec

India. United Breweries: the beer drought ends

UB’s Ebitda rose by 50.8%, even after accounting for increases in expenses on salaries, promotions and other expenses.

Beer guzzlers went on a binge in the December quarter. What prompted this is not really known, but the industry is not complaining. Sure, there was a low base effect, but not enough to explain the 13% increase from a year ago in the beer industry’s growth.

United Breweries Ltd’s (UB’s) earnings release called this growth extraordinary. In the year-ago quarter, volumes had risen by 1%. In the first half of FY16, volumes fell by 1%. The December quarter marks a sharp deviation in trend. If it reverses in March, it will go down as an aberration.

The growth in industry volumes obviously benefited UB too, whose net sales rose by 15.1% over a year ago. A Kotak Institutional Equities note had estimated sales growth at 9% and Ebitda (earnings before interest, taxes, depreciation and amortization) growth at 19%. UB also benefited from soft input prices, with its material costs rising by only 10.2%. The company attributed this to product mix, that is, due to selling more of higher margin products.

UB’s Ebitda, therefore, rose by 50.8%, even after accounting for increases in expenses on salaries, promotions and other expenses. Its profit after tax rose by 80.6% over a year ago. The company’s results were announced post-market close on Tuesday. Since January, its share has declined by 14.9%. These results may help the share get back on its feet.

Investors will want to know what is driving the recovery in volumes and if it is sustainable. Fortunately for the company, the low base effect will continue all the way till mid-FY17. Even if the December quarter’s level of growth is not fully sustained, even if some part of this growth is repeated, it is better than a decline and should mean a healthy performance from UB in the near-to-medium term.

3 Feb. 2016

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