Posted March 2011
Belgium – AB-InBev will cut its
water usage to 3.5 hl/hl beer
Wai-wait: Could it
possibly be true that the most aggressive cost-cutter AB-InBev
is joining the Green Panthers? Have its executives suddenly seen
the light and turned environmentalists? Or have they just
realised that saving on water helps them improve their bottom
line? It’s a commonly held belief that companies only start
caring for the environment if they can make a business case for
it. And this seems to have happened at AB-InBev.
On 14 March 2011, the
world’s number one brewer announced its progress toward
achieving a set of three-year global environmental goals as part
of its Better World commitment.
Read on
South Africa – HIV/AIDS: Saving
lives, saving bottom lines
Times are a-changing and
sometimes actually for the better. Ten years ago, your
correspondent asked the CEO of what was then still SAB, Graham
Mackay, what his company intended to do about the HIV/AIDS
pandemic which had already begun to ravage Africa. His reply
was: “Why should I be doing anything about it?” My reply was:
“You could do something out of the goodness of your heart. Or
you could do it for simple business reasons because if you don’t
you will have to write-down your investments in human capital
pretty quickly.”
I admit this was a most
cynical thing to say. But as critics of companies’ Corporate
Social Responsibility (CSR) programmes never tire of complaining:
companies only do good if they stand to profit from their deeds.
Ten years later,
SABMiller just like Heineken and others are spending money on
corporate HIV/AIDS programmes because they have since come to
realise that there is a cost benefit to the company if they
provide testing and treatment to employees and their dependants.
In other words, it’s
cheaper for SABMiller to run their HIV/AIDS programmes than to
bear the costs of sick employees – factoring in the costs of
absenteeism, benefit payments and replacement, plus the loss in
productivity and skills.
In 2009 there were over
33 million people globally living with HIV or AIDS, yet
Sub-Saharan Africa had the highest share – 60 percent. Although
there was a decrease in new infections in 2009, an estimated
350,000 people still died of AIDS in South Africa alone in that
year. For every two people who get treatment, five new people
are infected, Jenni Gillies, SABMiller’s Group HIV consultant
told delegates at the IBD Africa Convention in Uganda in March
2011.
SABMiller’s policy is to
prevent new infections through counselling and testing and to
provide those who are infected plus their spouses and dependants
with treatment.
However, the challenge
remains huge as those infected will on average infect another
seven. Moreover, it is believed that less than 50 percent of all
people infected know their status. Also only 30 percent to 40
percent of people who need antiretrovirals to help them fight
the infection are able to access these drugs.
It’s a sad state of
affairs that HIV/AIDS has become the biggest obstacle to social
and economic development in Africa, Ms Gillies said.
Fortunately, brewers
like SABMiller – which after all represent Africa’s major
employer – have realised that it pays off for them to run
HIV/AIDS programmes because as Ms Gillies hammered home: the
consequences of the HIV/AIDS pandemic in Africa have the
potential to be devastating in every sense.
Australia – More consolidation in
the alcohol retail sector
Australia’s leading
retailer Woolworths again faces the scrutiny of Australia's
competition custodians after it revealed in late February 2011
an AUD 340 million deal to buy the dominant direct wine merchant
Cellarmasters.
The anti-trust watchdog has
confirmed it will review the acquisition amid concerns that it
threatens to undermine competition in the liquor marketplace and
heap further pressure on independent vineyards.
Read on
Belgium – It’s all
about the U.S. and Brazil
With two markets (North
America and Brazil) representing about 35 percent of the global
beer profit pool it came as no surprise that AB-InBev’s CEO
Carlos Brito would zoom in on these during AB-InBev’s 2010 full
year results presentation given on 3 March 2011. Overall,
AB-InBev managed to close 2010 with full year revenue growth of
4.4 percent to USD 36.3 billion, own beer volume growth of 2.1
percent to 348 million hl, EBITDA growth of 10.6 percent to
USD13.9 billion with an EBITDA margin reaching 38.2 percent from
35.8 percent in 2009.
Read on
China - China Resources buys
21.37 percent stake in Kingway Brewery from APB/Heineken
Consolidation of the
Chinese beer market is gathering pace. China Resources
Enterprises, which is in a joint venture with SABMiller and also
happens to be China’s major brewer, bought a 21.37 percent stake
in Kingway Brewery on 9 March 2011 according to a Hong Kong
stock exchange disclosure.
China Resources paid
around USD 164.4 million for the stake, according to Chinese
media sources.
Only a few days
previously, Kingway Brewery, which has seven breweries in China
according to its web site, had said that its
shareholder Heineken-APB was
planning to divest its stake in the Chinese brewer.
Read on
Nigeria – SABMiller to build a
new brewery
“Double
and half the price of beer and go farming!” That’s how Mark
Bowman, President of SAB Miller Africa summed up his company’s
strategy in Africa at an investor conference in Florida in
February 2011. What could he have meant by this cryptic remark?
According to Mr Bowman, there are
two price segments which promise the most growth. The first one
is the “affordable beer segment”, sold at a price point about 20
percent below the mainstream segment. Beer offerings in this
segment could lure consumers away from even cheaper traditional
beers or moonshine, which are reckoned to be quite substantial
in Africa. “Affordable beers” are often brewed with sorghum
sourced locally and therefore aren’t only cheaper to produce,
they also enjoy an excise cut that brewers pass on to the
consumers. For example, in Uganda beers brewed with sorghum have
an excise rate of 20 percent slapped on them whereas all-malt
beers have an excise of 60 percent.
Read on
Belgium –
Michel Moortgat of Duvel brewery named “Manager of the Year”
Our colleagues over in Belgium picked a real winner. The
Flemish-language business magazine Trends named Duvel CEO Michel
Moortgat “Manager of the Year 2010”. Not enough. The title
“Marketing Manager of the Year 2010” went to Johan Van Dijck,
who heads marketing at Duvel. This being Belgium, the Walloons
could not be left out. Hence Trends’ sister publication
“Trends-Tendences” chose Nicolas Lambert, Marketing Manager at
Heineken’s Alken-Maes brewery as its “Marketing Manager de
l'Année 2010”.
Belgium’s brewers huffed and puffed. Three brewers out of four
were Trends’ award recipients – that’s almost like having a
straight flush at poker (well, not quite, but you get the
drift).
Read on
Turkey –
Diageo’s Turkish delight (irony intended!)
When Turkey's Islamist-rooted conservative government introduced
another 30 percent tax hike on alcohol in October 2010, amidst
protests from café owners and beverage producers, many market
observers thought that Diageo’s then rumoured deal with Turkey’s
raki maker Mey Icki would fall through. But no. Diageo agreed on
21 February 2011 to buy Mey Icki for GBP 1.3 billion (USD 2.1
billion). Given that Diageo declined to buy Swedish vodka
Absolut in 2008, the Turkish move is the first
multibillion-dollar deal by Diageo in more than a decade. What
is more, it is indicative of a major change in policy at
Diageo’s. For the first time, Diageo was prepared to spend loads
of money on a drinks business in an emerging market as “complex”
(ahem) as Turkey’s.
In
recent years, the conservative government has raised taxes
frequently and tightened regulations on the sale and promotion
of alcohol.
Read on
Australia –
Foster’s in search of a buyer
Who will buy Foster’s beer business? That’s a really good
question as the Foster’s Group prepares for its demerger.
Already, Japanese beer group Asahi Breweries has taken itself
out of the running to buy Foster's beer arm, calling the assets
too expensive, as did Coca-Cola Amatil’s boss Terry Davis who
also thinks Foster’s looks a little too pricey. Which thins the
ranks of the usual suspects down to SABMiller.
However, as Australian hacks have recently discovered, any buyer
of Foster’s twin beer or wine unit will actually acquire a
company that’s still joined at the hips to its former sibling
through a shared IT platform, on which the core operation of
each business, including orders, delivery, receivables and sales,
are enmeshed. What a mess. And who’s responsible for that? Step
forward: Foster’s current management.
The Managing Director of Coca-Cola Amatil (CCA), Terry Davis,
has again played down the likelihood of a billion-dollar grab
for the brewing operations of Foster's but has refused to
confirm or deny speculation that his brewing partner SABMiller
was about to make a bid for the Foster’s beer unit CUB.
In
February 2011 the CCA-SABMiller joint venture, Pacific Beverages,
recorded its maiden profit since its formation in 2006: AUD 1.5
million for the 12 months to 31 December 2010 against a loss of
AUD 2.3 million in 2009.
As I
reported in February 2011, SABMiller has spent the past few
months working with lawyers to sort out legal and commercial
issues relating to its joint venture which had prevented it from
making a lone bid for Foster's.
At
the end of February, Australia’s hacks discovered that the
in-principle agreement between CCA and SABMiller, which will
only come into effect if SABMiller bids for Foster's, is
understood to include SABMiller paying CCA a sum of money, which
some believe could reach AUD 350 million. Plus SABMiller would
relinquish its 50 percent stake in the joint venture and walk
away from the newly-built AUD 120 million Bluetongue Brewery
near Sydney.
If
this is really the nature of the in-principle agreement
according to people familiar with the matter (which we at
Brauwelt find hard to believe), it will make CCA a tidy one-off
profit.
Against this backdrop, the big question is whether SABMiller or
another potential bidder will circle in on Foster's before or
after it releases its scheme booklet (which will give details of
the demerger) in late March.
Whatever the case, a demerger appears to be more complicated
than most had believed given some poor management and board
decisions at Foster's over the past couple of years, including a
decision to push on with the rollout of a single integrated
platform, known as project Core Operations, across its beer and
wine businesses even after it said last April it would demerge
the businesses and list them separately on the Australian stock
exchange.
Instead of adjusting the rollout from an integrated platform to
two platforms in April 2010, the Foster's CEO, Ian Johnston, and
the board proceeded with a common platform, Australian media
said.
This decision is the key reason why the beer and wine businesses
will remain joined until June 2013. According to estimates, it
will cost Foster's AUD 42 million to separate the IT platform.
And the overall costs of demerging could run to AUD 150 million
- far higher than previous demergers.
This also makes it more complicated for any bidder to buy the
beer or wine business. Whoever acquires one of the two units at
the end will need to have a good relationship with the other
owner because of the platform.
No
matter what advice Johnston and the board got about the joint
platform, they are ultimately responsible for this muddle. To
make matters worse, Foster's head of IT left in December 2010,
it was reported.
Seems
like Foster’s executives could not organise a piss-up in a
brewery let alone the demerger.
Russia - Beer
to be classified as alcohol for first time in Russia
Readers will be forgiven for not watching Russia’s daily talk
show “Let them speak” hosted by Andrey Malakhov, Russia’s answer
to Oprah Winfrey. If they did, they would be aware of the plight
of many Natashas, Tatjanas and Galinas who regularly call in to
this show to tell tear-trenched stories about their husbands’
alcohol problems. Alcoholism and under age drinking in
particular have taken on epidemic proportions in Russia. So much
so that the Kremlin has pushed for a bill in the Duma that will
classify beer as an alcoholic drink.
Read on
Australia -
Days of cheap wine are over
It’s
a sad sight to behold. Walk into any Australian alcohol sales
outlet and you will notice immediately the promotion offers
clinging on to wine bottle necks. It cannot have been fun being
an Australian wine producer these past years as the industry
suffered from overproduction and a rising Australian currency
which seriously hampered export sales. On 15 February 2011
Foster’s reported that during the first half of its current
financial year (ended 31 December 2011) wine profit from sales
in Australia and New Zealand rose 7 percent to AUD 39.6 million.
Profit from wine in North America and South America gained 24
percent to AUD 54.2 million while in Europe, the Middle East and
Africa wine turned to a loss of AUD 500,000 from a profit of AUD
12 million a year earlier.
Read on
Belgium –
AB-InBev launches Jupiler Force
That’s what we call serious bad timing. Just as Belgium’s
anti-alcohol debate is gathering pace AB-InBev put its first
Bionade-taste-alike soft drink into the market. Although Jupiler
Force, introduced on 18 February 2011, should have pleased the
anti-alcohol lobbyists, many of them, women in particular, still
thought they smelt a rat. Because - if it’s a soft drink that
should not be confused with a beer, why on earth did AB-InBev
have to call the product Jupiler Force after Belgium’s major
beer seller Jupiler? Why couldn’t they slab the label Manneken
Pride or Ardeur d’Ardennes on it - if they were desperate for a
naff double entendre?
To
make matters worse, AB-InBev also said Jupiler Force is
explicitly aimed at men. Our congratulations to AB-InBev’s
marketing men. If they had tried to antagonise Belgium’s female
politicians who spearhead the anti-alcohol campaign, they could
not have done better.
Read on
Netherlands –
“You cannot cut yourself to greatness” says Heineken CEO
Words
of wisdom from Jean-Francois van Boxmeer on cost-cutting. Which
is another way of saying: How far can you cut into the flesh
before you strike the bone? Yet you could see London’s finest
and sharpest analysts get hot under their EUR 140 shirt collars.
What could this possibly mean? That Heineken intends to put more
money behind its brands in Europe? Indeed, that’s what
Heineken’s CEO told analysts at its 2010 results meeting on 16
February 2011. Mr van Boxmeer said Heineken plans to invest in
advertising to reverse a slide in sales volumes in Europe, where
Heineken is the largest beer seller, a move that will hurt
short-term profits in the region.
Read on
USA – Will
August Busch IV lose his seat on AB-InBev’s board?
Mr
Busch must have gone through a version of hell while he was
being chewed over by the world’s press following the death of
his girl-friend just before Christmas 2010. On 9 February 2011
the St. Louis County prosecutor Bob McCulloch said that cocaine
and oxycodone were found in Adrienne Martin's system as a result
of an accidental overdose. However, no charges will be filed.
Some relief for August Busch IV.
Following the release of the medical examiner’s report on Ms
Martin’s death, the U.S. blogosphere was rife with indignation.
Many bloggers complained that in the U.S. there was one set of
laws for the rich and privileged, another set for everybody
else.
What
bloggers disliked was the seemingly quick dismissal of any and
all responsibility for this of Mr Busch, whereas anybody else
would have been investigated for months and likely prosecuted
just for allowing it to happen.
Still, the fact that no charges will be pressed against Mr Busch
does not mean that he will come out of this sad affair unscathed.
As I
already wrote in my review of Julie Macintosh’s book “Dethroning
the king” in December last year, the question remains of whether
August Busch will be able to hold on to his seat on AB-InBev’s
board of directors following the revelations about Ms Martin’s
death.
Many
beer industry analysts think we shall know the answer before the
end of March when AB-InBev will send out invitations to its
General Shareholder Meeting scheduled for 26 April 2011.
According to AB-InBev’s regulations, shareholders will need to
approve any changes to its board.
Another board director pegged to resign is Jean-Luc Dehaene, the
former Belgian Prime Minister (1992-1999), who joined
Interbrew’s board in 2001. Mr Dehaene turned 70 last summer and
thus reached the board’s statutory retirement age.
Denmark –
Carlsberg’s profits fall on Russian tax increase
Obviously, it did not pay off for Carlsberg that it did not
immediately pass the massive tax hike in Russia on to consumers.
The world’s number four brewer waited until the summer before it
finally raised prices. On 21 February 2011, Danish brewer
Carlsberg reported a fall in fourth-quarter net profit. Net
profit for the last three months of 2010 fell to DDK 301 million
(USD 55 million; EUR 40.4 million) from DKK 383 million in the
same period 2009. The brewer gets almost half of its earnings
from eastern Europe, where operating profit dropped 56 percent
in the quarter. Carlsberg said beer volumes in eastern Europe
last year fell by 9 percent.
Read on
Mexico - Grupo
Modelo’s sales rise in 2010 but profits remain under pressure
It
could have been worse. Mexican brewer Grupo Modelo reported on
18 February 2011 that its net sales for the full year ended 31
December 2010 rose 3.9 percent to MXN 85 billion (EUR 5.1
billion; USD 7.0 billion), thanks to an increase of 4.0 percent
in domestic sales. However, operating income dropped 0.2 percent
to MXN 21.6 billion (EUR 1.3 billion; USD 1.7 billion) because
of higher costs.
Read on
France -
Pernod CEO says acquisitions are off the agenda
French spirits group Pernod Ricard on 17 February 2011 reported
a 10 percent rise in first-half 2011 net profit (ended
31December 2010) to EUR 666 million (USD 903.4 million) against
a year-ago profit of EUR 648 million. First-half sales for the
group rose 13 percent to EUR 4.28 billion, lifted by strong
growth in emerging markets, an improvement in Europe and a
gradual recovery in the United States. However, Pernod Ricard’s
share price fell 4.3 percent to EUR 67.61 as Pernod Ricard had
missed analysts’ profits estimates. Too bad.
A few
days later, on 23 February 2011, CEO Pierre Pringuet was quoted
as saying that mergers and acquisitions were not foremost on his
mind in the short-term. Instead the French group would focus on
reducing debt and growing organically in rebounding markets
around the world.
Read on
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