The beer market dynamics in Russia is approaching zero, yet major brewers are divided into those who developed considerably in 2017 and those who considerably reduced their volumes. For instance, company Efes has managed to substantially extend their sales due to restrained pricing policy and activity in the modern trade. Heineken has also demonstrated an excellent performance promoted by significant increase of advertisement budgets launching a non-alcohol sort of the title brand and unusual activity in the economy market segment. Carlsberg and AB InBev have been focusing on margins and lost a market share of their inexpensive brands. Serious dependence on PET package and mass enthusiasm about Zhigulevskoe have negatively impacted the most of big regional brewers, that have been for the first time pressed by the leaders in the key sales channels, especially in Volga and Central regions. In the small business there has been a noticeable slowdown in appearing of new restaurant breweries, yet the number of craft breweries has been growing rapidly. In 2018, the beer market is likely to grow a little, while the share of AB InBev Efes may decrease due to the integration. ...
“Catalogue of Russian Beer Producers 2018” includes 1070 businesses ranging from large subsidiaries of international companies to rather small restaurant and craft microbreweries.The catalogue includes 32 large breweries, 75 regional breweries, 693 industrial mini- and microbreweries as well as 270 restaurant breweries. ...
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.
Fitch affirms Distilleries Company of Sri Lanka at AAA
KEY RATING DRIVERS
Leading Alcohol Manufacturer: DIST continues to be the market leader in alcoholic beverage production in Sri Lanka due to its strong brands, which drive demand and access to retail points across the island. DIST’s product portfolio includes its mass-market Extra Special Arrack brand, which accounts for the majority of sales, and licensed international brands channelled through its subsidiary Periceyl (Pvt) Ltd. As of the latest published statistics, DIST accounted for around half of Sri Lanka’s total alcoholic beverage production and 72% of the country’s total arrack production.
Spirits to Regain Market Share: We expect the trend of drinkers switching to beer from hard liquor to reverse in 2016, as taxes on the alcohol content in strong beer have caught up with those on hard liquor (spirits) after increases in excise taxes in October and November 2015. Taxes on strong beer increased 70% while taxes on spirits increased 24% from October 2014 to November 2015. Arrack production declined 3% annually over 2011 to 2014, resulting in a smaller share in alcohol sales for arrack, DIST’s main product. However, Fitch expects sales of spirits to grow in the mid-single digits over the next three years, which will help the segment to regain lost market share.
Demand to Grow: We expect demand for alcohol in 2016 to rise as tax-led price increases are likely to be absorbed by rising disposable income. Disposable income is likely to rise, driven by higher per capita income along with the mid-single digit economic growth for Sri Lanka, and following the recent increase in public-sector pay, higher tax exemptions for private-sector employees and reduced essential-goods prices.
Resilient Operating Profile: Profitability remains healthy, which is reflected in the EBITDA margin continuing to be over 30% at 31.4% in the financial year ended 31 March 2015 (FY15). EBITDA margins are supported by DIST’s ability to pass on tax increases to the consumer.
Regulatory Risk: The industry is highly regulated, with a complete ban on advertising and licensing across the value chain acting as a barrier to entry. The industry is also characterised by high and frequent tax revisions, which put increasing pressure on industry players. This risk is partially mitigated by liquor’s contribution to government coffers, with Fitch estimating that liquor taxes will account for 5.1% of total government revenue in 2014. Successive governments have consistently used taxes on alcohol to boost revenue to bridge budget deficits.
Fitch’s key assumptions within our rating case for the issuer include:
– Revenue to grow by mid-single digits over the next three years
– Relatively stable EBITDAR margins driven by lower operating costs and the new bottling line
Negative: Future developments that may, individually or collectively, lead to a negative rating action include:
– Consolidated financial leverage (measured as adjusted net debt/EBITDAR excluding Melsta Regal Finance Ltd (MRF)) increasing to over 1.5x on a sustained basis. (end-March 2015: 0.9x)
– Consolidated funds flow from operations coverage of interest and fixed charges such as operating lease rentals, excluding MRF, weakening to below 4.0x, on a sustained basis. (end-March 2015: 6.7x)
– A structural change in the domestic alcoholic beverage industry that considerably weakens DIST’s competitive position
Positive: There is no scope for an upgrade since the company is at the highest rating on the Sri Lankan National Rating Scale.
At end-September 2015, the group (excluding its finance company subsidiary) had LKR2.3bn of cash and LKR12.5bn in unused facilities to meet LKR5.4bn of short-term debt. In addition, DIST has good access to bank funding because it is one of the larger corporates in Sri Lanka with a resilient cash flow.
26 Feb. 2016