Posted January 2011
Australia – Has Foster’s neglected its beer division CUB?
So Foster’s engine room, the highly profitable beer unit CUB, has finally run out of steam? And who’s to take the blame? Management, obviously. Consider this: CUB has had so many Managing Directors in recent years that we have lost count. No wonder the beer guys at CUB reckon the wine business is the mill stone around their necks and they can't wait to be on their own when the demerger is finally done. In the meantime, Foster's shareholders have been dealt a blow, when the investment bank Merrill Lynch took a swipe at Foster’s and revised the company's net profit forecast down by 14 percent to AUD 710 million (EUR 518 million) for the 2011 financial year (ending 30 June 2011). As long-suffering shareholders await more detail on the company's plans to split its beer and wine businesses into two listed entities, Merrill Lynch's prominent analyst David Errington warned on 21 January 2011 that the demerger alone will not be enough to address the problems at the company. Read on
Australia – Brisbane’s XXXX brewery under water
Because of the floods, Lion Nathan in mid-January 2011 had to close down its brewery in Brisbane for a few days, after workers had rushed to move expensive equipment and raw ingredients to the factory's upper level. A short time later floodwater rushed into the building. At some stage, the water was 2.5 metres deep at the brewery’s front gate, with around one metre of water through the packaging plant and reception. Although some cartons of beer at the brewery were damaged and would have to be destroyed, the majority of stock had remained untouched by the floodwater. It appears that the damage will not be as great as that sustained by various Brisbane breweries in the floods of 1893 and 1974. To replenish dwindling supplies, the brewer of the iconic XXXX brand on 20 January 2011 was forced to send a shipload of beer north as roads had become inaccessible. Fans of CUB’s beers have fared better with a Foster's spokesman saying there were no supply problems for their main product lines in the state of Queensland. Read on
Germany -Slow mo wrestling
The German beer market in 2010: a tale of woe. Beer consumption is estimated to have declined by another 3 percent, a trend brewers have had to live with for most of this past decade. What is newsworthy is the viciousness of price wars in the off-premise sector. Market observers believe that already 60 percent of all beer was sold “on promotion”. That has delivered a double whammy to brewers’ bottom lines. Declining volumes and shrinking margins – how much longer will the major brewers be able to withstand exit pressures? Radeburger Group, Germany’s major brewing group, reported volume declines of 2.5 percent to 13.1 million hl. The only reason Radeburger Group managed to raise its turnover by 2 percent to EUR 1.6 billion was last year’s purchase of the Bionade soft drink brand. The Beck’s brand, owned by AB-InBev, was among the major losers. INSIDE market research says that volume sales dropped 9.4 percent. AB-InBev’s other major brand, Hasseröder, lost even more: -10.7 percent. Interestingly, the meteoric rise of Germany’s cheap beer producer Oettinger appears to have been stemmed: Oettinger’s volumes fell 3.8 percent to an estimated 6.3 million hl beer. Read on
Luxembourg - Dutch brewery allowed to continue selling “Bavaria” beer
Bavarian brewers probably had their Christmas celebrations spoilt by a ruling of the European Court of Justice (ECJ). On 22 December 2010 the ECJ ended a lengthy trademark conflict between Bavaria Brouwerij and the Bavarian Brauerbund and decided that the brewery’s registered trademark of “Bavaria” in Germany (1995) has priority over the protected geographical indication (PGI) "Bayerisches Bier" registered by the Bavarian Brauerbund in Europe in 2001. If a product is classified as PGI it means that no one abroad may produce the product and give it the protected designation of origin name. Champagne, Cognac, Roquefort are only some examples of products that enjoy a PGI. The latest ruling by the ECJ means that although the brand “Bavaria” is not brewed in Germany, the Dutch brewery can keep its name and, what is more, can sell its beer in Germany too. Read on
UK – SABMiller pumps up third quarter volumes
Emerging markets help SABMiller. So what's new? That's been the only growth for years. Still, the world’s number two brewer beat forecasts with a 3 percent rise in third quarter volumes (ended 31 December 2010) over the prior year, boosted by growth in Africa and Asia. The largely emerging market brewer has mostly escaped the tough trading environment experienced by others with major exposure to flat western European beer markets. SABMiller managed to raise beer prices to boost its quarterly revenue by 6 percent and said on 18 January 2011 that an improving Europe had helped to compensate for a fall in Colombia, which was hit by the heaviest rain for 50 years. Strong volume growth in Asia and Africa offset volume dips in both North and South America in its October-December quarter, which is heavily dependent on summer beer drinking in the southern markets of South Africa and Latin America. Read on
Germany – “Beer Poster” 2011 Award
Readers, please watch out for this one and get your beer posters registered for an award. BierConvent International (BCI), a Beer Brotherhood founded in Munich in 1968, that aims at promoting beer as a noble beverage and nurturing the centuries old tradition associated with beer, is inviting breweries to submit their entries for an international competition under the title “Beer Poster 2011”. Breweries throughout the world can participate, regardless of size. The posters should be outstanding by way of graphics and design. Humour is a definite plus.
Beer should be portrayed as a traditional and enjoyable beverage, suitable for many occasions, while targeting diverse consumer groups. It should also be portrayed as a beverage of value, made from natural ingredients, which requires lots of tender loving care all the way to the glass.
An international jury
comprising members of BCI, representatives of national and international associations and organisations, wholesalers and restaurateurs as well as journalists will make a selection and award prizes accordingly.
These will be presented at BrauBeviale in Nuremberg in November 2011 at a Gala event.
The Registration deadline is 31 March 2011.
Submissions must be made – electronically – by 30 April 2011.
For further information, please contact Dr. Karl-Ullrich Heyse at u.l.heyse&t-online.de
USA – Cut until you bleed
Looks like MillerCoors will
find it hard to keep up with the Joneses, err AB-InBev when it
comes to cost-cutting. Under the leadership of Leo Kiely, who
was chosen by Molson Coors in 2007 to head the MillerCoors joint
venture, trimming things down to bare essentials seems to have
run its course.
Now analysts like Carlos Laboy
of Credit Suisse worry that if MillerCoors is to keep pace with
Anheuser-Busch’s frugality it could be tough. In a few months’
time SABMiller will get to appoint the new CEO of MillerCoors.
He (most likely a man) will
have his plate rather full: squeeze more dosh out of MillerCoors,
breathe new life into brands which appear to have had their best
years yet and patch up relations to the distributors which – if
we believe industry gossip - have turned sour.
Doesn’t that sound like a
really interesting job proposition? Read on
USA – Whither Altria?
Long time no hear from the
Marlboro Men. Sometimes no news is good news. Not in this case.
That’s why investors have begun to wonder what the Altria Group
is up to – if up to anything at all, to be precise. For almost a
decade, Altria has only made headlines when it sold off business
units: in 2002 it disposed of Miller Brewing (while keeping a
27.3 percent in newly formed SABMiller). In 2007 it spun off
Kraft Foods and in 2008 Philip Morris International, its
international tobacco division.
So what’s next? Selling its
stake in SABMiller? Or buying more wine? In 2009 Altria acquired
UST, whose primary businesses manufacture and market moist
smokeless tobacco products (how mad is this?).
Incidentally, this deal
brought the wine company Ste. Michelle Wine Estates into
Altria’s fold. Many observers think that Altria could branch out
into wine, which we consider a sure recipe for a booming
headache – mixing wine and ciggies is not a good idea. But then,
what can a “sin stock” do that’s not playing the mergers&
acquisitions game? The answer: pay shareholders fat dividends
and sit tight. So watch out for Altria’s full year results
released on 27 January 2011.
Having divested its
non-tobacco and international segments, Altria now operates
primarily in the challenging U.S. tobacco industry.
Although Altria is the market
leader, it has to face up to the fact that cigarette volumes in
the U.S. are in structural decline. The powerful Food and Drug
Administration (FDA), having assumed regulatory control, has
been quick to assert its authority. And the threat of litigation
is still omnipresent, despite a lull in high profile court
cases.
Never mind these headwinds,
tobacco manufacturing is still a lucrative business, so
lucrative that Altria’s directors in January 2010 decided that
they will pay about 80 percent of future profits as dividends,
up from 75 percent.
If Altria is dishing out most
of its profits as dividends, could this be taken as an
indication that it is not planning any large-scale takeovers?
I think that this is the case.
Market observers have long
wondered what Altria is going to do with its wine business, Ste
Michelle. Ste. Michelle's sales of USD 403 million and operating
profit of USD 43 million in 2009 were just a fraction of
Altria's overall revenue of USD 23.5 billion and profit of USD
3.2 billion.
While I do not expect Altria
to take Ste Michelle as the nucleus of an as-yet-to-be formed
large-scale wine division, I do not think that Altria is in a
hurry to sell Ste Michelle off either. Multiples in the wine
industry have reached rock bottom levels and Altria would be
hard pressed to find a buyer willing to fork out 20 times Ste
Michelle’s operating profits as was custom only six years ago
rather than perhaps a multiple of 8 or 10 times operating
profits which appears to be the going rate these days.
However, what Altria is
planning to do with its stake in SABMiller is really anybody’s
guess.
But take a second to think:
what would be left of Altria once all its paraphenalic
investments are gone? The simple answer is: a U.S. tobacco
company that no other tobacco company in its right mind would
touch with a barge pole.
Let’s face it: who wants to
have the FDA breathing down their neck all the time?
I think Altria is best advised
to play mum and generate predictable cash flows, which can be
purchased at a fair price. Even if Altria fails to continue its
previous levels of growth, and gets bogged down by continued
legal issues, the one-two punch of high dividends and a low
stock price could still turn a seemingly high-risk company into
a fairly safe investment.
Provided you don’t mind
investing in “sin stocks”.
Nigeria – Heineken makes a real job of it
The going will get tough for
SABMiller in Nigeria now that Heineken has stepped up its
efforts to buy further brewing capacity in Africa’s most
populous country (150 million people) and second-largest beer
market behind South Africa.
On 12 January 2011 Heineken
announced that it has acquired controlling interests in five,
alas rather tired breweries with a total capacity of 3.7 million
hl from the Sona Group, which is owned by the, um,
larger-than-life character A.K. Mirchandani. Neither a
transaction price nor sales volumes were disclosed.
But Brauwelt sources say that
Mr Mirchandani’s beer business could have been struggling.
Several years ago Mr Mirchandani had been in talks with
SABMiller over the sale of three of his breweries. He then asked
for USD 150 million, a price SABMiller thought was far too high.
This time Heineken probably got a bargain and SABMiller has been
left to continue fending on its own. Read on
South Africa - Wal-Mart to buy 51percent of
Massmart
If anyone still questions
whether Africa really is the next big investment play, at least
one seriously big hitter, the world’s largest retailer Wal-Mart,
has no such doubts. On 17 January 2011, shareholders in South
Africa's Massmart Holdings Ltd. agreed to sell a 51 percent
controlling stake in the major African retailer to Wal-Mart for
USD 2.4 billion.
Massmart has 263 stores in
South Africa and 25 in 12 other sub-Saharan countries. The
retailer employs over 28,000 permanent and flexi-time staff, and
achieved annual sales of R 47.451 billion (USD 6.9 billion) for
the year ending 27 June 2010.The acquisition marks Wal-Mart’s
first foray into the growing sub-Saharan African market.
However, the deal faces opposition from South African labour
unions, concerned that the possible “Walmartisation” of the
local retail industry might lead to job losses. Read on
USA – August
Busch IV back in the headlines
We
thought we had seen and heard the last of August Busch IV, 46,
the former CEO of American brewer Anheuser-Busch. When InBev
bought Anheuser-Busch in 2008 he lost his job and was forced to
retreat from the limelight. Probably for appearances sake he was
made a member of the AB-InBev board but in actual fact no longer
had any role in day-to-day operations. Now he is back in the
news, alas not as he may have intended. On 24 December 2010 it
was reported that an aspiring young model, aged 27, was found
dead in his gated St. Louis home. The death is under
investigation as there were no signs of trauma or illness, and
an overdose was among the possible causes of death. The news
took several weeks to make international waves yet in early
January 2011 the London Sunday Times ran a big story on the
tragic incident because some old hack had remembered that 27
years ago a women died in a car accident caused by Mr Busch.
Through a series of strange circumstances Mr Busch was never
charged for her death and the scandal soon died down as the
Busches in those days were deemed untouchable. This time the
media may not treat him with kid gloves. Call it Sod’s Law, but
has-beens don’t enjoy any favours. Read on
USA – Anheuser-Busch Vice
President of Marketing leaves
Ahhh,
the sack race is on. With the U.S. beer market expected to have
declined 2 percent in 2010, the executive suite must be getting
restless. Heads will roll. Anheuser-Busch’s Keith Levy is the
first this year to head for the managerial unemployment line.
AB-InBev said on 6 January 2011 that its Vice President of
Marketing is leaving effective immediately to “pursue other
opportunities”, the standard corporate euphemism for getting
fired. The timing of Mr Levy's departure is interesting. January
is typically a busy month filled with last-minute changes to
A-B's advertising strategy, commented a St Louis newspaper. Mr
Levy joined Anheuser-Busch in 1987 and helped lead the marketing
division through the 2008 merger of Anheuser-Busch and InBev,
which made the company the world's largest brewer by sales.
During its most recent quarter, the company said high
unemployment among Americans aged 21 to 27 -- which is almost
double the national rate -- has been particularly challenging.
To offset falling volumes, the brewer has increased beer prices
in the United States. Read on
Germany – Carlsberg sells brewery
in Dresden
Is
this a strategy or plain desperation? On 3 January 2011, Danish
brewer Carlsberg said that it has sold its 2.0 million hl
Feldschlößchen brewery in Dresden, Germany, to private label
company Frankfurter Brauhaus GmbH at a non-cash loss of around
130 million Danish kroner (USD 23 million). Carlsberg said it
wants to focus on five core brands in northern Germany. The sale
of the Feldschlößchen brewery, which Carlsberg had struggled to
operate efficiently, leaves the Danish brewer with just two
breweries and 700 employees in Germany. Two years ago Carlsberg
had sold a brewery in Braunschweig to Germany’s cheap beer
producer Oettinger, which had been underperforming. The sale of
assets represents quite a volte-face on Carlsberg’s original
plans. Following the EUR 1 billion takeover (including debt) of
Germany’s Holsten Group in 2004, Carlsberg became Germany’s
number two brewing group. Now it’s probably down to ninth or
tenth rank. Read on
Australia – What about the free
beer promise?
Foster’s may have been relieved that the Australian cricket team
was crushed by England’s players. The Australian brewer will not
have to honour its pledge to give a free beer to every adult in
the country should the Aussies win. Buying a bottle of VB for
some 13 million adult Australians would have cost Foster’s
nearly AUD 20 million at retail prices. But the promise was an
easy one to make as England were thought to have a decent chance
of victory. In the end, England won and on Friday 7 January 2011
England cricket fans began celebrating after the team's 3-1
victory over Australia in the Ashes series Down Under. The
visitors from the UK, nick-named the Barmy Army, downed (and
paid for) plenty of Australian beers because their victory ended
24 years of pain. The last time England won the Ashes in
Australia was back in 1986. Read on
Australia –
The price of wine
How
to lose a large fortune? That’s easy. Invest in wine. Eight
years after it paid AUD 1.1 billion for BRL Hardy, the world’s
number one wine company Constellation Brands has exited the
Australian and UK wine sectors in a deal that values the
business at only AUD 290 million (USD 290 million) and which
adds substance to the view that the wine industry rivals
airlines as one of the great wealth destroyers. At the end of
December 2010, Constellation, which once set out to become the
Coca-Cola of wine, sold an 80 percent stake in the businesses to
CHAMP Private Equity, retaining the residual 20 percent stake.
The businesses, which include the Hardys wine brand, were losing
money at the recent rate of about AUD 3 million a quarter, it
was reported. Apparently, private equity outfits which know how
to buy a business, slash, burn and strip away costs and
peripherals; return its tight-cost focus; and re-sell it in
three to five years, are having a ball these days. Wine
companies can be had for next to nothing. The other big
international wine industry player that is offering itself for a
sale is Foster’s. And waiting in the wings is the U.S.
Brown-Forman Corporation (Jack Daniel’s) that has said it may
sell some of its California wines, as it focuses more keenly on
its spirits brands. Read on
South Africa – Rumours fly over
KWV bid
Why
the sudden interest in South Africa’s second largest wine and
drinks group KWV, a co-operative known for its KWV brandy and
Roodeberg wines? For several weeks now, rumours have been going
round that several parties could be interested in buying KWV,
which is arguably the cheapest (unlisted) liquor company in the
world, having only recently managed an operational turnaround.
One of the interested parties is the South African conglomerate
Pioneer Food Group that specialises in bread, cornflakes and
juice. Pioneer has offered USD 120 million in shares and cash.
Obviously there will be some advantages outside the regular cost
saving considerations and potential distribution and marketing
synergies. But we find them hard to see. The other potential
bidder is the UK based drinks group Halewood, which handles
brands like Lambrini, Lamb’s Navy Rum, Crabbies Alcoholic Ginger
Beer and Red Square Vodka and has an annual turnover of GBP 250
million (EUR 300 million). Halewood has not made an indicative
offer yet. Besides, any deal will need the support of 75 percent
of KWV’s shareholders. Read on
Australia – Coopers not for sale
While
the Foster’s Group, Australia’s biggest brewer, is said to face
a slight decline in beer profitability of 0.5 percent to 38
percent (EBITDA) for the first time since 2001 with volumes down
an estimated 5 percent during the six months to December 2010,
the Adelaide-based Coopers brewery remains optimistic. In its
2009/2010 financial year ended 30 June 2010 the family-owned
Coopers registered a record beer production of 620,000 hl,
revenues of AUD 179 million (USD 179 million) and an after-tax
profit of AUD 23.5 million. When it comes to size, Coopers is
Australia’s number three brewer and likely to attract unwanted
attention from overseas suitors wanting to consolidate the
highly-profitable yet flattish Australian beer market. But
Managing Director Tim Cooper told Australian media in late
December 2010 that he is not waiting for the phone to ring.
Read on
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