Analysis of beer market in China (on Russian)
Beer market of Ukraine: big three losing weightIn 2016, fast increase of excises and resulting price spike stood in the way of the beer market stabilization. Most of competition (as well as mass sorts) moved to the economy segment of the market. The biggest losses were incurred by the leading three, especially Obolon, which again experienced pressure after reallocation of Efes market share. However, one should already speak of TOP-4. Group Oasis CIS (PPB) became a strong player and competitor to transnational companies. Besides the net sales of many regional medium breweries look rather good and 16-fold cost reduction wholesale trade license for craft brewers opens up a possibility of rapid growth in 2017.
Analysis of beer market in China
China’s transition to a “new normal” reality backfired on the brewing industry unexpectedly. Stagnation and subsequent market decline resulted from dynamic social and economic changes. There has emerged a “two speed” market where the medium class significance is growing, yet the share of main beer consumers, “blue collar” is decreasing. Also the inflow of consumers is shrinking, as demographics stopped being a growth driver. Finally, beer is giving way to other alcohol drinks....
Sri Lanka. Fitch affirms Lion Brewery’s ‘Aa-(lka)’ rating; says wellplaced to recover from floods
Fitch has also affirmed the National Long-term Rating of ‘Aa-(lka)’ on Lion’s outstanding senior unsecured debentures.
Fitch has maintained a Stable Outlook despite Lion’s weakening credit metrics due to the one-time disruption to production caused by floods in May 2016. Lion is Sri Lanka’s largest beer producer, with a leading domestic market share in the beer industry. Beer is the country’s second most-consumed alcoholic beverage after arrack. Lion’s credit profile is supported by its entrenched domestic brands and limited product substitution due to the high technical competence required for brewing beer in contrast to manufacturing spirits. Lion’s leading position has helped the company secure new brands and access a wide distribution network.
Fitch expects revenue to decline in the financial year to 31 March 2017 (FY17) due to higher excise duties on beer introduced in 2015, as well as lost sales due to a temporarily halt in production, as Lion’s manufacturing plant was heavily affected by Sri Lanka’s adverse weather conditions in May 2016.
However, Fitch expects beer sales to recover from FY18 onwards, supported by rising urbanisation, increasing tourist arrivals and increasing per capita income, which will help the segment regain lost market share.
“We expect Lion’s EBITDA margin to normalise to around 27 percent in the medium-term, from the high of 33 percent in FY16, mainly due to taxes on beer overtaking spirits on an equivalentalcohol basis since late 2015,” Fitch said. However, Lion’s margins should benefit in the long-term from operational efficiencies following an upgrade of its production facilities, which have sufficient capacity for the next five years.
Lion’s revenue declined 52 percent yoy in 1Q17 due to lost inventory and a temporary manufacturing halt caused by the floods.
The company is importing beer until local production recommences in late 2016 to mitigate the loss, but this is limited to its main product categories and may negatively affect margins due to the higher costs of imports. Losses on fixed-assets, stock and business interruption are covered by insurance, but the quantum of the claim or when Lion will receive payment is not yet determined.
Fitch expects Lion’s financial leverage, measured as leaseadjusted net debt/operating EBTIDAR, to weaken in FY17 due to lower profitability from business interruption. However, the company should accelerate its deleveraging from FY18, benefitting from lower capex and normalised returns, bringing its leverage ratios below Fitch’s negative triggers.
Meanwhile Fitch cautioned about the high regulatory risks faced by Lion.
Domestic producers of alcoholic beverages face high excise duties, which put legitimate alcoholic beverages outside the reach of many people. The 2015 double duty hike led to tax on strong beer overtaking the tax on hard liquor on an equivalent-alcohol basis, which we believe will slow the demand shift to beer from hard liquor.
Fitch expects further tax increases on beer to moderate, now that beer is taxed more than hard liquor.
31 Aug. 2016