Beer Monopoly





  International Reports








Posted May 2011

Ethiopia – Heady days, heady prices

Readers, hold on to your seats. Diageo is said to have offered USD 200 million for Ethiopia’s state-owned Meta Abo brewery which in its last financial year made a profit of USD 2.6 million on beer sales of perhaps 600,000 hl. That’s a multiple of …. sheer madness.

Ethiopian media reported on 10 May 2011 that Diageo outbid four rivals in the government auction. Heineken is said to have offered close to USD 100 million, while BGI (Castel) and SABMiller offered USD 90 million and USD 70 million respectively.

Diageo reportedly will pay the sum in two instalments of USD 95 million and USD 105 million. Read on


Brazil – Schincariol for sale after all?

They may deny the rumour till Judgement Day but Schincariol’s refutations are beginning to sound a bit hollow. Relations seem to have turned from terse to sour between Schincariol’s thirty something owners, the brothers Adriano and Alexandre Schincariol and their cousin Gilberto over the past few weeks ever since the London Sunday Times reported in April 2011 that SABMiller was interested in buying Brazil’s number two brewer.

Apparently the two family groups are in dispute over whether to sell the company or take it to the stock exchange through an IPO. The company, in fact, has been seeking to improve its governance and formalise its processes in preparation for a stock market listing.

Brazilian media reported that Adriano and his brother Alexandre are the major shareholders of the privately-owned company, with a 51 percent stake, while the other branch of the family, headed by their cousin Gilberto Schincariol holds the remaining 49 percent. Guess who has more of a motive to sell their stake? Brazilian media think it’s the brothers Adriano and Alexandre. Read on


USA – Will they all chew gum now?

Does salvation lie with the brewingly non-adjusted? Anheuser-Busch obviously thinks so. On 10 May 2011the U.S. unit of AB-InBev named chewing gum executive Paul D. Chibe, 45, to become its marketing executive as of 1 June 2011, filling the post vacated by Keith Levy’s sudden departure in January. Mr Chibe has been Vice President and General Manager of U.S. Gum and Mints at Wm. Wrigley Jr. Co. in Chicago, where he worked for more than eleven years.

He also worked in marketing and new products at Quaker Oats in their ready-to-eat cereal and convenience foods businesses. And he worked for six years at Leaf Inc., maker of Whoppers, Milk Duds, PayDay and Jolly Rancher candies, it was reported.

St Louis media wondered why Mr Chibe, who seems to be an experienced marketer of consumer goods – from gum and cereals to confectionaries - was chosen to now try his hand at beer.

However, Mr Chibe’s non-adjustment to beer may be part of the attraction for the brewer. AB-InBev’s CEO Carlos Brito has frequently talked about the need for new ideas and innovation in beer marketing. Read on


UK – SABMiller CFO Malcolm Wyman calls it a day

It may be the dawn of a new era at SABMiller with SABMiller’s Chief Financial Officer Malcolm Wyman retiring at the end of August to be replaced by internal candidate James Wilson, 51, who currently works as finance director at SABMiller Europe. Not only does the personnel change announced on 4 May 2011 throw the spotlight on when Chief Executive Graham Mackay decides to retire. The London Financial Times says that that Mr Mackay, 61, is widely expected to retire in the next year or two.

It also underlines a broader shift at the world’s number two brewer.

Mr Wyman leaves after 25 years at SABMiller, becoming CFO in 2001 some two years after the group's listing in London.

While Mr Wyman has shown he is a dab hand at Merger & Acquisition financing, Mr Wilson seems to be more operationally focused. Mr Wilson, 51, has worked in the global drinks industry for 23 years in a range of roles from finance director of Famous Grouse Scotch whisky group Highland Distillers, then moving to brewer Scottish and Newcastle, before joining SABMiller in 2005.

The big initiative for SABMiller now is to get its business capability programme up and running, which is more a story of getting efficiencies right.

SABMiller’s business capability programme, launched in 2009, centralises a number of functions that had been devolved to the various regional heads, and standardises other functions.

Some analysts think that Mr Wilson’s appointment signals that SABMiller will be more focused on organic growth than on M&A on the near future, although that does not necessarily rule out some acquisitions – as announced by Mr Mackay at the end of March 2011.

Investors are waiting to see how the subsequent succession develops, and whether the brewer will appoint an external candidate as CEO – possibly from a fast-moving consumer goods background as is all the rage among brewers these days – when Mr Mackay stands down.

In the past the company preferred to promote its regional heads to the top spots to keep it all in the family, so to speak.

Mr Mackay has been at the group's helm since the brewer moved to London. Judging from the interviews he has given in recent months he shows no sign of wanting to step down.


Australia – Should you invest in wine?

Foster’s former wine unit, Treasury Wine Estates, which still happens to be the world’s number two wine company with vineyards from Hunter Valley near Sydney to California's Napa Valley, ended its first day on the stock exchange (9 May 2011) with a market value of AUD 2.18 billion (USD 2.32 billion), near the top end of brokers’ valuations.

But if the record of the wine industry is anything to go by, investors should proceed with some scepticism.

Both Foster's and Constellation, which is the largest wine company worldwide, have suffered massive losses in their wine business.

Family-owned wine companies, on the other hand, have fared better and have maintained profitability and sales, which seems to suggest that wine is too unusual a business for publicly owned companies; that it cannot compete on the stock market. Read on


Germany – How much could Carlsberg get for Holsten

Now that Carlsberg’s exit from the German market seems imminent – the Danes are rumoured to be in finishing talks with Radeberger Group over the sale of their Holsten unit - it’s time to ponder Carlsberg’s motives for entering and leaving.

Many think that Carlsberg’s strategy to go south into Germany “went south”, metaphorically speaking, because the Danes did not properly take into account the many problems associated with being an “also-ran” in Germany’s perennially declining and still highly fragmented beer market.

That would mean that Carlsberg failed in its original plan to become a big time mover in Germany, but eventually saw sense and sold out to the highest bidder.

Consider for a second that Carlsberg never intended to consolidate the German beer market by continuing the Holsten strategy of buying up market share. What if the Danes just wanted to milk the Holsten assets dry? What does this make Carlsberg? Think! The answer is that this would make Carlsberg a private equity outfit by another name.

Remember that when Carlsberg bought Germany’s then number two brewing group Holsten AG in 2004 , they paid EUR 38 each for 13.75 million shares. That’s EUR 522.5 million. Add to that the expenses for the subsequent squeeze-out plus a few extra costs, and the total purchase price came to perhaps EUR 550 million. At most.

However, the immediate sale of the Licher and König breweries and the non-alcoholic beverages unit flushed at least EUR 400 million into Carlsberg’s coffers.

All in all, we are probably right in assuming that the Holsten purchase paid for itself.

The draw-back was that what remained of the original Holsten only warranted the group’s rank as fifth largest brewer in Germany.

Since then Carlsberg’s rank has dropped further as over the past few years Carlsberg has sold off or, rather, got rid of three more breweries, which all went to private label producers for a song.

Carlsberg’s policy of scaling down its discount label business (read “offloading of underperforming units”) has left Holsten with two breweries: one in Hamburg and one in north-eastern Germany, Lübz.

Though small, these are profitable businesses with a turnover of perhaps slightly under EUR 300 million.

So far private equity would not have done things any differently.

To what extent Carlsberg has been extracting cash from Holsten (another thing private equity does) we will probably never find out – unless Radeberger does a “kiss & tell” once Germany’s number one brewing group runs the show at Holsten.

Unfortunately, the final exit – the sale of the remaining two breweries – does not seem to be running as smoothly as the Danes may have hoped. We heard on the grapevine that Carlsberg has been offering Holsten to everybody like sour beer and that Radeberger Group is the only one to have shown any interest.

Which raises an interesting question: how much could Holsten be worth to a buyer? In situations like this where there is only one buyer...and the seller is desperate to get out … there is ample downward pressure on multiples. We would not be surprised if Carlsberg’s German unit went for less than 5 times EBIT or about EUR 100 million, give or take a few million.

Rest assured that the Danes are not going to make a killing. But since they have never put any dosh behind Holsten, whatever they realise through a sale will be an extra bonus.

Who’s to say that Carlsberg does not know how to act like private equity?

South Africa – Africa’s tax men investigate SABMiller

ActionAid’s campaign against SABMiller struck target. After having been accused of tax dodging by the London charity ActionAid in November last year, the authorities in five African states have decided to work together to examine the brewer’s tax affairs. On 6 May 2011 SABMiller again rejected any claims of tax avoidance in Africa after officials from South Africa, Ghana, Zambia, Tanzania and Mauritius had come together in a South African-led African Tax Administrative Forum to look at the group's tax payments.

The world’s number two brewer reiterated that it had not done anything wrong. Instead, it was a major direct investor, employer and taxpayer in Africa and in its financial year to end-March 2010 had invested more than USD 500 million in Africa on new breweries and acquisitions. Read on


UK - Getting corporations to cough up on tax

Each time us lesser mortals receive our annual tax statements and can see for ourselves how many of our hard-earned dollars or euros end up in the taxman’s grubby hands, who does not feel like going over to the taxman’s office and turning Viking? You know: burn, ransack and pillage.

In Britain “doing a Viking” has become a popular form of protest for campaigners out to name & shame companies for tax dodging.

On 26 March 2011, during broader protests against government cuts, a group called UK Uncut made headlines when about 1,000 people rushed into the Fortnum & Mason store in London, famous for its picnic hampers, because its owners are at the centre of a GBP 40 million tax avoidance row. Read on


Australia – caffeine-laced alcopops could be banned

Do they quicken your pulse? Or get you into a state? Pre-mixed energy drinks with alcohol like “Pulse” have been quite the rage in recent years. Many people have been asking themselves: what's the point of selling pre-mixed alcoholic energy drinks? Why mix stimulants (guarana, caffeine) and depressants (alcohol)? As these drinks send mixed messages to the nervous system, they could soon be banned. These fizzy drinks are popular with young people and contain alcohol and high levels of caffeine, allowing consumers to drink longer and harder.

Australian media reported in early May 2011 that pressure is mounting on the Australia New Zealand Food Regulation Ministerial Council to prohibit the sale of these drinks and follow similar moves made by some U.S. states. Read on


USA - The Budweiser-InBev culture clash

The world's number one brewer AB-InBev on 4 May 2011posted a sharply higher net profit for the first quarter, but the results were skewed by a 0.4 percent drop in volume to 91.45 million hl compared to the year-earlier quarter.

Price increases and a push to get consumers to trade up to more expensive beer brands helped the maker of beers such as Stella Artois and Budweiser to compensate for sluggish beer sales in the United States, where high unemployment continues to rattle demand. Read on


Germany – Polishing the figures

Many raised an eyebrow when AB-InBev reported its first quarter 2011 figures. While in the U.S. the world’s number one brewer lost about one million hl in beer output compared to the same quarter last year, beer sales in Western Europe were up 0.4 percent. In Germany, sales rose almost one percent.

Is this the proverbial silver lining that things are turning to the better in Germany?

Hardly. What AB-InBev failed to tell the analysts was that towards the end of 2009 their German unit had artificially raised sales figures by forcing wholesalers to stock up on their brands. This meant that executives met their bonus targets in 2009. However, sales in January 2010 dropped massively as wholesalers tried to empty their warehouses stocked to the roof.

It’s because of this low 2010 base that the first quarter comparison for Germany looks so favourable. Read on


Australia - Foster's shareholders back beer and wine split

Foster’s is no more. Shareholders of Australia's Foster's Group unanimously voted on 29 April 2011 in support of splitting the firm's beer and wine operations, a decision that marks an historic event. The move will create Treasury Wine Estates, with AUD 1.9 billion (USD 2.1 billion) in revenues, while the new Foster's will remain Australia's largest brewer with revenues of AUD 2.6 billion (USD 2.8 billion).

Perhaps shareholders were so glad to see the demerger finally go ahead that they did not complain about the high costs of executing the split – reportedly AUD 151 million/USD 164 million – or the payout to CEO Ian Johnston, who stands to take home up to AUD 10 million in cash and shares when he leaves the company in July. Read on

Argentina – Warsteiner says bye-bye to all that

There’s only a thin line between high hopes and heartbreak. Having already sold its brewery to SABMiller in November 2010 for an estimated USD 45 million (EUR 30 million), Germany’s brewer Warsteiner has now disposed of its wine company Casa Orfila in Mendoza. In April 2011 Warsteiner clinched a deal with the local beverage company Cepas Argentinas SA for an undisclosed sum.

The deal marks the completion of Warsteiner’s exit from Argentina – a market it entered in the mid 1990s with the construction of a one-million-hl-brewery near Buenos Aires and the purchase of the wine brand “Suc. Abel Michel Torino“ in 2005. Read on

Russia - Russia may ban sales of beer in plastic bottles

Huhu, so Russia’s legislators are thinking of banning the sale of beer in plastic bottles from January 2013. Could this ban hurt brewers’ sales? You bet it will. Russian brewers sell nearly half their beer – over 45 million hl - in plastic bottles, it was reported. Should brewers have seen this coming? Of course. Selling beer in multi-litre plastic bottles has always been risky, if not to say insidiously obscene. Beer is not a soft drink. Hence it should not be packaged like one. Read on


Australia – Foster’s wedding gift

The royal wedding – arentyousickofit? But it ain’t over yet. Now the world has been put into the know that Foster’s has sent a bottle (number 2904) of Foster’s 2011 Crown Ambassador Reserve Lager as a wedding gift to Prince William and Kate Middleton … the number marks their marriage date (29 April).

Head brewer John Cozens was quoted as saying that the high alcohol beer “will develop more complex flavours in the royal cellars in the next three or four years.” Read on

Czech Republic – The price isn’t right

On the beer front, the Czech Republic seems to be in a stalemate. No news in public about Budvar and any eventual privatisation. Or about Staropramen and how it is faring under the private equity regime of StarBev. Instead, there are worrying signs that the Czech beer export boom is over.

In 2010 beer production of those breweries associated in the Czech Beer and Malt Association (CSPS) dropped by 7.9 percent over 2009. Draught beer volumes took a major hit. They declined over 12 percent year-on-year. Read on


USA - Fortune Brands to go by the name of Beam Inc after separation

Conglomerates, daaahlings, are so yesterday’s fashion. Which is what Fortune Brands found out to its detriment when the activist investor Bill Ackman told the board that the aggregate value locked up in its three divisions (golf/home products/drinks) was higher than the company’s total.

He may be right: after all, bourbon, shower heads and golf clubs are not exactly synergistic businesses.

Fortune’s board, ever so obedient, immediately responded by announcing in December last year that it would split the company into three. Read on


Scotland – Whisky exports up 10 percent in 2010

How to drag the UK economy out of the doldrums? Easy. Export more whisky. 2010 was a record year for Scotch whisky exports with global shipments rising by 10 percent to reach a value of GBP 3.45 billion (EUR 3.8 billion), according to figures published by The Scotch Whisky Association (SWA). The performance confirmed Scotch whisky as one of the UK’s top exporting industries. Scotch whisky exports have increased by 60 percent since the turn of the century, adding an extra GBP 1.29 billion in value (EUR 1.4 billion). Read on



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