Dmitry Nekrasov’s Philosophy — on the Past, Present and Future of Ukrainian Brewing IndustryA meeting with Dmitry Nekrasov always turns into a training course: “Introduction to brewing business“. We are talking to a clever “playing trainer“ a person that can be called a godfather of the Ukrainian craft. He has a dozen of successful projects to his name. Dmitry told us about craft beer in Ukraine, on market cycles, on specifity of operating in retail and HoReCa, on union of Ukrainian brewers and certainly, how a brewery of his own, First Dnipro Brewery is doing.
The market of import beer in Russia: review and databasesThe market of import beer is rapidly growing and changing. But while in the past years it was growing due to brands variety, in 2019 major and affordable brands from TOP-10 were developing actively. It seems that the fact of a brand origin from far abroad counties, even if it is not well known but has moderate price and good distribution provides for million liters of sales in the territory of Russia. Among distributors AB InBev Efes was far behind, yet the role of Baltika and suppliers of the second row got more important. The boom of German brands was followed by stagnation of import from other traditional regions (and Belarus) instead the supplies from Mexico, Lithuania and Asian countries grew considerably.
Russia: Positions of Brewing CompaniesThe review contains an analysis of interim performance of brewers in the first half of 2019. There are rather dynamic changes behind a modest industry growth. Baltika is again experiencing a stage of volumes and market share slid due to competition with AB InBev Efes. Because of the price competition and presence expansion in the modern trade company #2. has come close to the leading position. At the same time sales of Heineken Russia have continued growing which makes the premium part of the portfolio heavier. The market premiumization trend had been also confirmed by import brands. MBC and Zavod Trekhsosenskiy have been the most successful among federal market players. The market share of independent regional brewers and Ochakovo have continued falling as they are being squeezed out by the market leaders at their competitive fields.
Ukrainian beer market 2019: companies and brandsIn 2019 beer production and market have been still fluctuating about zero point. However, the past season was successful for brewers judging by the sales profitability. The price mix has improved due to rapid general market premiumization, as well as its particular aspect, the growth of import beer sales. By the season end AB InBev Efes improved its positions considerably. It turned out that consumers had not forgot Efes brands that had to leave the market, but started to recover rapidly. Against the stagnating market that meant sales decline of other companies, in the first place Carlsberg Group that most of all beneficiated from Efes exiting the market. PPB turned out to be stable to branding activity of its competitor and Obolon kept the same volumes and at the moment it is the absolute leader of the economy segment. The share growth of independent producers took place thanks to leading craft breweries, that so far do not have a big market weight, but they are rapidly gaining it.
Brewing industry in Kazakhstan 2019During the first half of 2019, the majority of Kazakh brewers made their contribution into positive dynamics. Yet it was companies of the lower division, not the two transnational leaders that raised their production and sales. The shares of draft beer and aluminum can which is rapidly squeezing glass bottle out of the market, have been growing. The price segmentation has remained stable despite the substantial rise of retail prices and fluctuations of brand market shares, while the borders between segments have become blurred. The main events in the industry have been: the announced revision of the beer excise policy, launch of BeerKhan brand in the strong beer segment, and most important – purchasing assets of Shymkentbeer by Arasan.
The trend of complication of Russian beer market is going on and in several directions at the same time. The range has got wider, the import and small segments are growing, namely craft beer, alcohol-free beer and special flavor beer. At the same time, all ex-mega brands and light lagers by Russian brewers are experiencing a decline of their shares. AB InBev Efes, Heineken, MBC and Pivzavod Trekhsosenskiy have exceeded the market, Carlsberg was developing slower than the market and Ochakovo as well as some other mid-sized breweries have been cutting down their volumes. To a big extent brewers’ performance was connected to their ability to reach agreement with networks, sacrifice their margin and enter new markets. Craft brewers are facing a serious danger of producers’ registration introduction – de facto licensing. ...
China Resources Beer has bigger M&A fish to fry
"We no longer pay attention to smaller players," Chief Financial Officer Tomakin Lai Po-sing said at an earnings briefing. "What remains are the biggest players," after a series of consolidation moves.
When the company waded into the mainland beer market with its Snow brand in 1994, there were two clear industry leaders -- Tsingtao Brewery and Beijing Yanjing Brewery -- and myriad local breweries scattered across the country. As overall beer demand surged, industry consolidation picked up, elevating Snow to the pinnacle by 2006. But even then, the top five players controlled less than half of the market.
At the end of last year, the top five had a 73.7% market share, with China Resources Beer retaining the top spot, at 24.6%.
Two domestic and two global players round out the quintet: Tsingtao, Yanjing, Anheuser-Busch InBev and Carlsberg. They would surely qualify as "big targets," but large acquisitions naturally come with hefty price tags. Lai expressed confidence about the funding side of things as well.
In July, the company announced a rights issue to raise about 9.5 billion Hong Kong dollars ($1.23 billion). The main objective was to fund the purchase of SAB Miller's 49% stake in a joint venture, to create a wholly owned subsidiary. Lai, however, explained that the move was also in preparation for "potential M&A opportunities."
By limiting its borrowing, the company has kept its total loans outstanding at 4.53 billion yuan ($680 million) as of June. That is roughly on par with its cash and bank deposits, placing it in a virtual net-zero-debt position.
Banks seem keen to extend loans, probably, given the company's healthy M&A appetite and relatively solid financial standing. Lai revealed that prior to the rights issue announcement, "many European and Japanese bankers came to our office every day asking to lend to us." Some offered over HK$1 billion, he added without naming names.
"Of course, PRC (China) is the market that we are very familiar with," Lai continued. But he also stressed a few times that China Resources Beer is "open and prepared for everything," suggesting international acquisitions are not out of the question.
Waiting to pounce
Companies have all sorts of reasons for seeking nonorganic expansion, but slower earnings growth is often a motivator. In the case of China Resources Beer, revenue for the January-June period shrank 2% on the year, to 15.2 billion yuan. Total beer sales volume fell 1.9%, to 6.12 million kiloliters, due to a combination of the economic slowdown, weaker consumer spending and bad weather.
The company managed a 45% increase in net profit attributable to shareholders, on a continuing operations basis. But the amount -- 606 million yuan -- put its net profit margin at only 4%.
Even as it looks to make a splash in the M&A market, China Resources Beer is carefully watching its yuan. Vincent Tse Tan-hon, its investor relations director, said the company "is not spending more [on marketing] than previous 'sports years,'" even though events like the Rio Olympics and the UEFA Euro 2016 soccer tournament are ideal for raising a brand's profile.
The July and August heat may have put beer sales back on a growth trajectory, in the "low-single digits," but Tse made it clear that management is "not spending excessively." It apparently wants to keep the books in order, should the opportunity for a big outlay arise.
The earnings announcement was made during lunchtime. At the end of trading in Hong Kong on Friday, China Resources Beer's stock was slightly up 0.25%, at HK$15.68.
22 Авг. 2016