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Beer industry

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Beer Industry global analysis, study of Big Four companies in the industry (ABInBev, SABMiller, Heineken & Carlsberg)

Beer Industry global analysis, study of Big Four companies in the industry (ABInBev, SABMiller, Heineken & Carlsberg)


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  • 1. Beer Industry «Beer is living proof that God loves us and wants us to be happy» - Benjamin Franklin Jon Øyvind Bjørnstad Christian Adeler NormannTuesday, 9 August 2011
  • 2. Agenda • History of Beer..............................................................3 • Emerging Markets......................................................36 • History of beer - last decade................................4 • Asia, Latin America and Eastern EU • Global Macro Environ Analysis.............................5 • Developed Markets..................................................42 • Global Beer Environ Analysis.................................6 • EU, North America, Asia & Oceania • How is beer made.......................................................8 • Social & Cultural Issue............................................46 • Overview of the global beer mk.........................9 • Self-Regulation.............................................................47 • Briefly - EU Beverages....................................13 • Risks...................................................................................49 • Briefly - Asian Markets...................................14 • Marketing & Advertising........................................51 • Beer the natural choice..........................................15 • Corporate Social Responsibility (CSR).........56 • Commodity prices & effects on beer • Conclusion.....................................................................57 prices/volumes........................................................16 • The BIG FOUR...........................................................58 • Production Margins..................................................18 • AB InBev.................................................................60 • Porter’s 5 Forces........................................................20 • SAB Miller..............................................................66 • Growth Opportunities...........................................21 • Heineken................................................................72 • M&A..................................................................................24 • Carlsberg................................................................80 • M&A - Our thoughts......................................27 • Ratios................................................................................87 • Investment Recommendation............................89Tuesday, 9 August 2011
  • 3. History of Beer • Beer is one of the world’s oldest beverages, recorded back to the 6th millennium • A very important drink in many cultures • Family and microbreweries dominated around the world up untill the 20th century • The hunt for taste versus the hunt for profits • The development of the beer industry in the USA • Today a global and fiercely competitive business 3Tuesday, 9 August 2011
  • 4. History of beer – the last decade • Consolidation trends going even further • The top 10 and their market share • The top 4 today dominating • Other trends • Financial crisis impact 4Tuesday, 9 August 2011
  • 5. Global Macro Environmental Analysis • Emerging markets almost 50% of global growth (4.3% Q1) • Advanced economies weak growth, 2.5% compared to 3% from last year. • Developing economies projected a strong growth, but will decline from 7.5% (2010) to 6.5% (2011) • IMF figures usually over- optimistic, so we estimate slightly weaker global growths 5Tuesday, 9 August 2011
  • 6. Global Beer Environmental Analysis • 2010 - Beer brewers sales increase of 2.6% (2009 - 9.2%). - Overall beer sales remain flat - US beer sales down 1% (only growth seen in craft beers) - US brewers 81% of US market share (imports gradually increasing share) - Consumer still remain taste conscious - Beer industry performance correlated with economy • Law and ethics: - Stricter laws = drunk driving and smoking ban - US Federal beer tax = 40% of retail cost of beer - $18/gallon barrel (if produce <2million --> discount $7 for first 60,000barrels). 6Tuesday, 9 August 2011
  • 7. Global Beer Environmental Analysis • Diversity & Global Trends: - 2011 global population 7bn --> in 2050 - 9.5bn (majority growth in developing countries) - Wealth shifting to East&South countries (Globalization) - Changes in preferences and attitudes toward beer consumption • Technology: • Advances --> necessary to maintain competitive advantage & efficiency 7Tuesday, 9 August 2011
  • 8. How is beer made? 8Tuesday, 9 August 2011
  • 9. Overview of the global beer market • The beer industry: – Consumer non-cyclical • Outputs – Beer, measured in barrels • Major trends – Consolidation – Shifting in preferences in emerging markets – Shifting in preferences in developed markets • Compound annual growth rate of 3,5% globally – two very different pictures - Emerging markets showing strong growth with 6.8% - Developed markets showing a negative growth of 3.4% 9Tuesday, 9 August 2011
  • 10. Overview of the global beer market Global per capita consumption heavily skewed towards developed countries - Global per capita consumption at 28l a year - North America 75 l - Western Europe 66 l - China 30 l - Nigeria 10 l Changes… - Growth changed in light of crisis - Who drives the growth? - Distribution changes - New segments - Global beer? 10Tuesday, 9 August 2011
  • 11. Overview of the global beer market • Where do we see growth? – Emerging markets – China the biggest consumer & producer • Fastest growing international beer brand: – Tuborg – Premium segments rising – Microbreweries – big business? 11Tuesday, 9 August 2011
  • 12. Overview of the global beer market 12Tuesday, 9 August 2011
  • 13. Briefly – European Beverages • Outperformed index – does that count? – Outperformed the Morgan Stanley Capital International Europe Index (MSCI) by 16% - but underperformed the market – Sector is estimated to trade around 30% premium to the index – Strong relative performance the last years – Top-line prospects accelerating – Earnings growth affected by grain prices – Decrease in consumption from 374 – Sales in Europe: • €110 bn • 2.1 mn jobs • 17% of production is exported • 10% of consumption is imports 13Tuesday, 9 August 2011
  • 14. Briefly – Asian Markets • Strong growth • Double-digit for all major Asian emerging markets • Number one consumer of beer • Accounted for 37.7% of global consumption in 2010 14Tuesday, 9 August 2011
  • 15. Beer the natural choice? • 95% of beer is water • 3rd most popular drink (after water&tea) • Easy to make, but standards are high •One of the healthiest drinks 0 fats & cholesterol - 94 calories (as in other drinks) - Contains vitamins (barley when malted --> vitamin B) - Fibre, antioxidants and minerals - silicon - Low in sodium(salt) and high in potassium 15Tuesday, 9 August 2011
  • 16. Commodity prices & effects on beer prices/volumes YoY % change of main commodities affecting beer companies130% 125% - Forecast to raise next decade108% (40% by 2020 - global cereal 102% stock in lowest) 87% - Guilty: -Unfavourable weather 65% -Catastrophe in Japan -Political uncertainty Africa & 46% Near East 43% 27% 35% 34% -Strong increase oil prices 22% -Uncertainty financial mks 9% and global economy 0% CARMI CF&BI Barley Maize (corn) Wheat Aluminium Rice * CARMI - Commod. Agri.Raw Material Index * CF&BI - Commod. Food&Beverage Index 16Tuesday, 9 August 2011
  • 17. Commodity prices & effects on beer prices/volumes • Corporate responses/strategies: -Consumer price increases - need of strong consumer loyalty to ensure sales -Cost-cutting - absorbing costs = cost-cutting -Supply chain M&A and strategic alliances - fix price purchasing with commodity derivatives - forward-buying --> to minimize value at risk 17Tuesday, 9 August 2011
  • 18. Risk & Conclusion Production Margins Costs Breakdown Large Brewery 2% Packaging 4%1% Tax 8% Sales&Marketing 28% Production Malt 15% Minor ingredients Adjunts Hops 17% 25% 18Tuesday, 9 August 2011
  • 19. Risk & Conclusion Production Margins COGS Margin Gross Profit Margin Gross Profit & COGS Margins as % of Revenues 100% 24% 44% 37% 75% 46% Average 38% 50% 76% 56% 63% 25% 54% AB InBev Carlsberg Heineken SABMiller 19Tuesday, 9 August 2011
  • 20. PORTER’s 5 Forces Force Key Drivers Effect on Industry Profit Intensity of Rivalry High concentration; high 0 innovation Substitutes Growing substitute industry; low - switching cost Bargaining power of Small suppliers relative to + Suppliers brewers Bargaining power of Consolidation of industry; - Buyers distribution connected to retailers Threat of Entry High capital requirements, + economies of scale, closed distribution channels, high government regulation Overall market 0 20Tuesday, 9 August 2011
  • 21. Growth Opportunities • Expansion into emerging markets (China world’s next big consumer) 100 96.00 40% Beer Consumption incremental growth (2010-2015F) in mhl Forecast contribution to industry growth (2011-2015) 80 32% 60 24% 39.7% 40 16% 20.20 17.30 20 12.90 8% 12.20 9.40 8.60 8.3% 6.10 5.30 4.60 7.1% 5.3% 4.3% 3.9% 4.2% 2.5% 2.2% 1.9% 0 0% China Brazil Russia Vietnam USA Mexico India Thailand Ukraine Nigeria 21 Plato - March 2011Tuesday, 9 August 2011
  • 22. Growth Opportunities • Saturation of traditional markets --> growth = strategic M&A • reorganised industry and strengthened the big players • Consumer preferring lighter and “healthier” beers --> new trend (40% of all beer sold) • Innovative product formats --> new trend = large packages • Sales = ALL about strong branding & marketing • Companies to be successful must focus on: - variety (only 10% men loyal to a specific brand) - relationships with distributors - innovative marketing&advertising strategies to build brand - control and reduce manufacturing costs 22Tuesday, 9 August 2011
  • 23. Growth Opportunities • Forces with strong influence over next 3-5 years: • Globalization - creates bigger market + additional competition • Consumer Preferences - bigger portfolio of products • Regulations - consumption heavily regulated • Sustainability - programs to reduce, reuse and recycle materials (environmental friendly) 23Tuesday, 9 August 2011
  • 24. M&A • Main aims = - develop economies of scale Top 10 companies as a % of market share - increase product portfolio --> 70% 63% international interest 53% 37% • High consolidation 35% - “Big four” - 50% all global 18% beer consumed 0% • “Big four” - in size, Boston Beer is 1% 2000 2010 of InBev --> minimal effects if acquired • “Too big to need financing” to expand. - Top companies profit increases of 7-12% - Buying companies “out of their main scope” 24Tuesday, 9 August 2011
  • 25. M&A • 2002: SAB PLC combined with Miller Brewing --> SABMiller - Miller #2 in US and #6 in world - SAB #4 world and brands in Africa, China and East EU. - $5.6bn deal ($2bn in assumed debt and $3.6bn in stock --> 64% stake of Miller - Phillip Morris will keep 36%) - SABMiller #2 Brewer (Miller needed it to remain competitive) - Sharper focus on selling beer - 2004: InBev created from merger Interbrew and AmBev - Interbrew paid €9.2 for 57% stake in Ambev (stock&debt deal) - Interbrew was #3 in world by volume and Ambev #5 - Deal was giving InBev approx. 25% of world beer sales 25Tuesday, 9 August 2011
  • 26. M&A M&A • 2008: Anheuser-Busch and InBev merger to create AB InBev • $52bn deal • Created Global Beer Leader and Top 5 consumer companies • Access to new local markets (geo diversity) - leader in top 5 world markets - no geo overlap • 40% revenues from the US • Coors acquires Molson in 2004 • Heineken purchased FEMSA (Early 2010) 26Tuesday, 9 August 2011
  • 27. M&A - Our thoughts • Craft beer outlook • Predictions in the future – China – Emerging markets – Developed markets • M&As 27Tuesday, 9 August 2011
  • 28. Craft Beer Outlook • Prohibition killed off diversity, but what now? • Recent growth in craft beer segment • The three-tiered future? – Macro – Regional – Micro 28Tuesday, 9 August 2011
  • 29. Predictions • China – Slowdown in consolidation • Top 3 brands market share of 52.5% • Over 80 M&As in the last decade • Fewer good acquisition targets • Opening new plants instead of acquiring businesses 29Tuesday, 9 August 2011
  • 30. Predictions • Emerging markets – Same as China in other markets? – “hotshots” slowing down M&A pace – M&A booms in “younger” emerging markets like a lot of the African countries • Developed markets – Market division settled, best targets acquired already – Acquiring craft brewers • Pros • Cons 30Tuesday, 9 August 2011
  • 31. M&A Predictions • Foster’s – SABMiller’s June 21st bid on Foster’s Group Limited – Bid valued Fosters at USD 10 billion – Market reactions to the bid and rejection – What happens now? • Foster’s is an attractive target • Could trade at values of 5.40-50 per share, pricing it as high as USD 11 billion. 31Tuesday, 9 August 2011
  • 32. M&A Predictions • Potential buyer: Asahi – Leading brewer and soft-drink company out of Tokyo, Japan – 40% of Japanese beer market – Stake in Foster’s Group already, acquired in 1990 – Cadbury Schweppes Australia acquired in 2009 – Moving into new markets – Tsingtao stake acquired from ABInBev in 2009 – Is looking to expand in Asia and Oceania, an acquisition of Foster’s would place them as a leading player in the area. 32Tuesday, 9 August 2011
  • 33. M&A Predictions • Megabrew – potential merger between ABInBev and SABMiller – A merger would have positive and negative sides • Pros: amazing growth, not much geographic overlap, one corporate HQ • Cons: culture clash, US beer category, changes causing divesting, cultural risk – Numbers don’t add up: • High leverage deal meeting currency issues • A huge amount of equity required • Net-net it is harder to pull off than BUD because: 1) SAB offers lower synergies, 2) SAB’s emerging market cash flow makes it harder to lever, 3) SAB is on a slightly higher multiple than BUD and 4) the execution risks are much higher. • Discussions of a merger are not new, there were meetings in 2007, but InBev were unwilling to pay a significant premium. – Conclusion: We don’t see the benefits of a merger outweighing the downsides. 33Tuesday, 9 August 2011
  • 34. M&A Predictions • Molson Coors moving into India – Joint Venture with Cobra India – “beginning of a long-term commitment” – Follows a 2009 deal between Molson Coors UK and Cobra Beer covering sales outside south Asia. 34Tuesday, 9 August 2011
  • 35. M&A Predictions • Opportunities in Africa – Plenty of room for growth – Heineken recently bought into the Ethiopian market – Nigeria and increased minimum wage – SABMiller entering discount beer market 35Tuesday, 9 August 2011
  • 36. Emerging Markets • Potential emerging markets – Asia – Latin-America – Africa – Eastern Europe • Main trends: – Rising disposable incomes – Economic growth – ”Westernizing” • Areas and countries in detail: 36Tuesday, 9 August 2011
  • 37. Asia ASIA • Steady economic growth for some time • China the main contributor • More developed countries stalling or declining • Two promising markets: – China – India 37Tuesday, 9 August 2011
  • 38. Latin-America LATIN AMERICA • In the long run we see tax benefits in markets like Panama, Peru and Colombia • Markets are concentrated with high entry-barriers • Especially premium segments look promising • Two promising markets: – Mexico – Brazil 38Tuesday, 9 August 2011
  • 39. Africa AFRICA • Mostly lager is produced here • Re-usage of bottles delivered in store • A lot of people, but a lot of uncertainty • Some promising countries: – South Africa – Nigeria – Ethiopia 39Tuesday, 9 August 2011
  • 40. Ethiopia - Growth Opportunity • Beer consumption rising, and it’s still extremely low at 4 l per capita a year, and much lower than its neighbouring countries • Economic progress in the country • Double digit growth rates projected and experienced in the recent years • Heineken and BGI Ethiopia • Risks – famine 40Tuesday, 9 August 2011
  • 41. Eastern Europe EASTERN EUROPE • Growth is expected to continue • Driven by Russia • Some growth in developed markets as well • Interesting markets: – Czech Republic – Russia 41Tuesday, 9 August 2011
  • 42. Developed MARKETS DEVELOPED markets • Trends: – Declining consumption – Increased health awareness • Changes in: – Tastes – Alcoholic beverages – Drinking patterns 42Tuesday, 9 August 2011
  • 43. Europe EUROPE • UK – big business, but a declining consumption trend • Netherlands – Heineken domination • France – wine… and beer? • Germany – beer a major part of the culture. • Poland – a big consumer 43Tuesday, 9 August 2011
  • 44. North America NORTH AMERICA • USA – Few players dominate – Three-tier system • Canada – International influence – Microbrewers 44Tuesday, 9 August 2011
  • 45. Asia & OCEANIA ASIA & Oceania • Japan – New products with lower tax • South Korea – High entry barriers – Microbreweries • Australia – High consumption per capita – Dominated by Foster’s 45Tuesday, 9 August 2011
  • 46. Social and Cultural Issues Social & Cultural Issues • History of opposition – Alcohol always had enemies • Sin taxes – Affecting the end-customer – Seen as a regressive form of taxation • Religion – Islam the only one with a non-alcohol policy – Some extremist churches • Science and medicine – Long term use linked to cancer, heart disease, diabetes and liver failure 46Tuesday, 9 August 2011
  • 47. Self-regulation Self-Regulation • A code of practice or set of guiding principles governing the content of advertisements. • A process for the establishment, review, and application of the code or principles. • Why do this? • Is it working? 47Tuesday, 9 August 2011
  • 48. Self-Regulationexamples.. Self-regulation Examples • Australia – Minimal legislation and requirements, self-regulatory code organized in 1998 • Netherlands – Some legislation, and Code of Beverages • UK – International Code of advertising • South Africa – Self-regulatory code set up in 1989 by ARA 48Tuesday, 9 August 2011
  • 49. RISKS Risks • Beer excise duty: • Highly taxable product --> increase in tax = increase sale price • price-sensitive consumption • Russia 200% increase implemented in 2010 --> increase prices --> russian mk share under pressure • Legal/Regulatory restrictions & changes: • Several mks have restrictions on sales, availability and advertising regulation • Pressure from authorities&stakeholders to reduce alcohol consumption --> impacting consumer behavior • Economic environment: • Global recession with weak GDP growth projected for 2011 • Poor/raising unemployment --> weak consumer demand 49Tuesday, 9 August 2011
  • 50. RISKS Risks • Commodity price volatility • Input costs skyrocketing --> sales prices increasing • Change in consumer preferences: • Strong portfolios to meet consumer needs • Critical to anticipate quickly to market needs • Management capability impairment • “Unstable” emerging markets • Customary risk • Political, economic and regulatory uncertainty • Competition •“eat or be eaten” 50Tuesday, 9 August 2011
  • 51. MARKETING & ADVERTISING MARKETING & ADVERTISING • Compete on POSITIONING: target, image, communication • Marketing-driven business --> adds not necessarily to increase demand, but to increase brand awareness --> develop brand image! Sales & Mk Expenses (in Billion $) 2009 - 2010 Beer Industry Advertising Expenditures ($ in millions) 1170 1175 1175 5 1200 4.9 1083 3.75 1090 1027 985 979 2009 980 910 2.5 4.7 2010 2.3 870 800 1.25 2.0 764 1.7 2.1 2.1 1.8 760 0 InBev Carlsberg Heineken SABMiller 650 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Source: Company Annual Reports • Successful brands --> balance of “push” and “pull” strategies • “push” - relationships with distributor - place brand on the shelf • “pull” - marketing directly to consumer 51Tuesday, 9 August 2011
  • 52. MARKETING & ADVERTISING MARKETING & ADVERTISING • “Fight for space” (shelf placement): • “Visual equity” is more important than “memory equity” • product must be in consumer’s face - literally!! • Shelf placement: (picture) “TOP AREAS”: - +20% # people seeing you & probability of been chosen “GOLDEN ZONE”: - # “Facings”/chances increased --> chances being bought = +28% --> chances low mk share brands = 67% • Strategies to claim space: • multiple packaging --> billboard effect • maximising types of beers to sell 52Tuesday, 9 August 2011
  • 53. MARKETING & ADVERTISING MARKETING & ADVERTISING • Advertising & marketing code: (follow certain ethical standards) • Portray beer in a socially responsible way • Communicating solely to adult consumers of legal drinking age • 70% audience --> to be over drinking age • Should not undervalue other competing beers • only be factual, no interpretations • Advertised at college campuses or events only when permitted • Applied also to “product placement” of beer • not portray sexually explicit activity as result of consuming beer • no graphic nudity 53Tuesday, 9 August 2011
  • 54. MARKETING & ADVERTISING MARKETING & ADVERTISING • “Basic” steps for building successful beer brand: 1. Identify target group 2. Brand message: clear & appealing 3. Creating brand image 4. Consistent quality 5. Brand recognition--> get share shelf for their products 6. Consumer ownership --> distinctive atmosphere 7. Packaging: compelling, interesting and comfortable 54Tuesday, 9 August 2011
  • 55. MARKETING & ADVERTISING MARKETING & ADVERTISING • Social Media Marketing (SMM): • Rise of social networks --> changed way people interact with brands • “one-one” interaction with customers - presence on the same playing field • specific campaigns & promotions • closely monitor customers and instant feedback • SMM -> all in the same battlefield --> the one with most strategical power --> will survive the battle 55Tuesday, 9 August 2011
  • 56. Corporate Social Responsibility Corporate Social Responsability • Promote responsibility of the brand • Sustainable priorities: • Discourage irresponsible drinking • Making more beer using less water • Reducing energy and carbon footprint • Packaging reuse and recycling • Working towards zero-waste operations • Encouraging enterprise development in value chains • Benefiting communities • Respecting human rights • Transparency and ethics 56Tuesday, 9 August 2011
  • 57. “Conclusion” Conclusion • Seek growth in Emerging markets --> critical role in global beer • Rise in purchasing power of middle class and investment in food&drink supply chain infrastructure • Developed markets: • Reinvest themselves, attracting younger generations • Strong branding & marketing with diverse portfolio • Areas of concern for success in the industry: • Unpredictable commodity prices • Changing tastes • Consolidation (M&A in emerging mks) • Political, Legal, Regulatory issues, effectively managing needs of governments • Technological dimension 57Tuesday, 9 August 2011
  • 58. The BIG FOUR! “Beer is a wholesome liquor....it abounds with nourishment.” Dr. Benjamin Rush, American physician 58Tuesday, 9 August 2011
  • 59. Regional Breakdown Comparison Asia Pacific 13% C&E EU Western EU Americas North America 31% 29% 7%Western EU 35% 8% C&E EU Africa Latin America 14% 21% 37% Asia Pacific 5% South Africa Asia 22% Latin America 31% 16% Asia North&West EU 2%Africa 43% 12% Eastern EU EU North America 41% 14% 19% 59Tuesday, 9 August 2011
  • 60. 60Tuesday, 9 August 2011
  • 61. • The leading global brewer • Top-5 consumer products • 114 000 employees worldwide • Operations in 23 countries • Strives to be the “best beer company in the world” • 36.3 billion USD in revenue in 2010 • Number one or two position in 19 countries • Committed to responsible drinking with programs operating in each market • Committed to achieving 99% recycle & reuse rate by 2012 61Tuesday, 9 August 2011
  • 62. Highlights Highlights • Q1 2011 results broadly in line with consensus • Price-mix better than expected at 6.1% • Results in North America – Slow but steady improvement • Brazil was weak as expected – margins expanded on the back of strong gross profit and cost savings 62Tuesday, 9 August 2011
  • 63. Regional Breakdown • North America – Continued suffering from unemployment – Top-line weakness offset by organic expansion and reduciton in barley costs • Latin America North – New brewery in Brazil online in Q3 2011 Asia Pacific – Volume growth in Brazil slowing down due to 13% • Heavy rain & flooding C&E EU • Deliberate volume/ share management 7% North America • Modest slowdown in GDP growth 35% • General inflation nearing minimum wage increases Western EU 8% • Latin America South – Volumes showing continued sequential improvement Latin America driven by beer 37% – Revenue growth remained strong 63Tuesday, 9 August 2011
  • 64. Regional Breakdown • Western Europe – Organic trends remain weak – Strong bottom-line margin expansion – Minor growth expected for 2011 • Central & Eastern Europe – Modest growth partly offsetting the decline last year – Price-mix up 16.5% – Projected growth of around 9% in 2011 • Asia – Trends driven by BUD’s Chinese operation – Almost 10% organic revenue growth – Expected revenue growth (Bern) of around 10% along with margin expansion of about 110 bps 64Tuesday, 9 August 2011
  • 65. RiskRisks & Conclusion & Conclusions • Risks – QE in the US leading to high inflation and dollar value falling – Intensification of competition in the US and Brazilian markets – Disposal process failing – FX risks – ZBB-cost reduction program failing to meet targets – Global crisis in oil supply could put pressure on commodities • Conclusion – Underperformed peers and MSCI Europe for the first months of 2011 – Closed the gap in April – Management has a great track record – Currently at a 4% premium to peers, we expect 10% – Rating: OUTPERFORM 65Tuesday, 9 August 2011
  • 66. 66Tuesday, 9 August 2011
  • 67. SABMiller • Basic Facts: • Covers 75 countries on 6 continents South Africa 22% Latin America 31% Asia • Employs over 70,000 people 2% Africa 12% North America EU • Well balanced portfolio (developed and 14% 19% emerging mks) • Over 200 different brands • International premium brands: Pilsner Urquell, Peroni, Miller and Grolsch • 20% market share in China 67Tuesday, 9 August 2011
  • 68. SABMiller Highlights • 6% EBITA growth • Strong FCF generation (reduction 200m in CapEx) • +80% EBITA coming from high growth emerging markets (plus MillerCoors synergies) • Positive growth prospects in emerging markets (Asia & Africa) • Strong momentum into F12 - improvement top-line growth as Colombia recovers from last years tax hike, and C&E Euro beer markets pick up •Hedged 50% their input costs. 68Tuesday, 9 August 2011
  • 69. SABMiller Regional Breakdown • Latin America: • 2% revenue growth, with flat organic volume ( Colombia 50% of region - impacted by VAT increase) • North America • Flat organic revenue growth (declining volumes) • Impact of economy uncertainty and unemployment • Benefiting from MillerCoors strong synergies/cost savings • Central&Eastern Europe: • Flat sales growth • Challenging trading conditions 69Tuesday, 9 August 2011
  • 70. SABMiller Regional Breakdown • Africa: • Strong top-line and improvement in capacity utilisation • 24% volume growth • Asia: • Very strong top-line performance • 14% org revenue growth (drivers China & India) • Increased marketing support behind key brands • South Africa: • 8% revenue growth • Market share stabilised (after loosing Amstel brand) 70Tuesday, 9 August 2011
  • 71. SABMiller Risks • The south-african governm. radically changes duty regime • A global crisis in the supply of oil could further put pressure on commodities in general and alu, energy & glass in particular. • Significant FX movements • Intensification of market battles with AmBev in South American • Further consumption slowdown in major economies such as South Africa, Colombia, Peru or Polan. 71Tuesday, 9 August 2011
  • 72. 72Tuesday, 9 August 2011
  • 73. Heineken • Owns over 125 breweries in more than 70 countries • 3rd largest brewer in the world • Employs approx. 54.000 people • More than 170 international brands (including Cruzcampo, Tiger Beer, Żywiec, Starobrno, Zagorka, Birra Moretti, Ochota, Murphy’s, Star and of course Heineken Pilsener). 73Tuesday, 9 August 2011
  • 74. Heineken Highlights • Last 10 years it has gone from trading at a 130% premium to peers in 2000 to a current 10% discount (over-exposure to low growth W Europe and over reliance in the US market) • Acquisition of FEMSA --> exposure to high-growth EM (Mexico&Brazil, but well below SABMiller) • Development of premium segment --> top-line growth • Improving margins (cost saving & synergies from FEMSA deal) 74Tuesday, 9 August 2011
  • 75. Heineken Regional Breakdown • Western EU • Challenging trading conditions (leader in UK, Netherlands, co-leader but loosing territory in Spain) • Offset by cost savings • Largest revenue & profit pool (42% & 31%) Western EU Americas 31% 29% • C&E EU • 20% & 14% in volume and profit C&E EU Africa • Improvement primarily on the back of 14% Asia Pacific 21% economic recovery 5% • Russia stabile after 27% drop in 2010 (market 6% down) • 33% market share in Romania&Poland (attractive mks) 75Tuesday, 9 August 2011
  • 76. Heineken Regional Breakdown • Americas • 29% of groups profits • FEMSA deal improves prospects (45% of Mexican market) • Opportunity to develop further the premium segment in Mexico&Brazil •Africa & Middle east: • 21% of group profits • Strong growth (notable Nigeria, Heineken #1 leader) • Strong driver for profits and huge potential consumption increase • Asia Pacific: (operating mainly through JV’s) - 5% of profits • Favorable GDP growth --> earnings growth 76Tuesday, 9 August 2011
  • 77. Heineken Relevant Info.: • FEMSA acquisition (2,5bn) changed growth profile and TCM programme (total cost management) gives triumph of hope. • YTD in line with market and outperforming peers (2010 - outperformed MSCI EU by 4% & underperf. peers by 6%) • Px way below 90s levels (driven by high US growth) • 230% premium to peers in 2000 to 10% discount today • Paying expensive prices for acquisitions • Solid export figures to the USA 77Tuesday, 9 August 2011
  • 78. Heineken Near Future • Expect moderate pressure on input costs • Significantly improved FCF generation • approx. 3x in the last 2-3 years • 5 year profit expectations • Strong deliverance mainly from FEMSA synergies and ongoing savings from CM • All regions to deliver strong growth • Lower costs 78Tuesday, 9 August 2011
  • 79. Risks • Timing and execution of cost saving programme slower than expected • Breakdown in three-tier distribution system in the USA would expose producers of beverage alcohol to greater margin pressure from retailers • Significant FX movement such as a decline in the dollar • Global crisis in supply of oil could put further upward pressure on commodities in general and especially aluminum, glass & energy • Price of oil weakening significantly could put Nigerian and Russian under pressure and be significant drag on group profits 79Tuesday, 9 August 2011
  • 80. 80Tuesday, 9 August 2011
  • 81. • Founded in 1847 in Denmark, outside Copenhagen • World’s 4th largest brewery group • Employing 41 000 people • Characterized by great diversity in: – Brands – Markets – Cultures • Ambition of becoming the fastest growing global beer company • Main regions of operation – Eastern Europe – Northern & Western Europe – Asia 81Tuesday, 9 August 2011
  • 82. Highlights • 2011 a rollercoaster in terms of quarters, we expect 2012 to be more even • 2010 performance a bit light • Net profit (pre-exceptionals) in-line with expectations • Guidance: 2-4% market volume growth in Russia. – Overall a high single-digit percentage growth in operating profit in 2011 • Adjusting EPS estimates to account for weaker than expected recovery from increased input costs in Eastern Europe 82Tuesday, 9 August 2011
  • 83. Guidance & Outlook • Operating margin targets – Northern & Western Europe at 15-17% – Eastern Europe at 26-29% – Asia at 15-20% – Carlsberg Group at around 20% 83Tuesday, 9 August 2011
  • 84. Regional Breakdown • Eastern Europe – Organic volumes declined by 9%, but revenue increased by 11% organically – Negative price mix of 2% as a response to the excise hike – Operating margins contracted 1280 bps in Q4, a total of 80bps contraction in 2010 – Net volume expected to grow 5% in 2010 – Expect significant price increase to recover from the 1 extra RUB in excise and higher input costs – Positive results from Ukraine Asia 16% North&West EU 43% Eastern EU 41% 84Tuesday, 9 August 2011
  • 85. Regional Breakdown • Northern& Western Europe – Weak top-line offset by strong margin expansion – Volumes flat during 2010 – Significant improvement in UK – Expect a 1% decrease in volume in 2011 • Asia – Strong growth in volume 14% and revenue 17% – Contraction in Q4 2010 – Margin expansion of 280bps in FY10 vs FY09 – Expected regional strength to continue with 10% organic volume growth and 13% organic revenue growth 85Tuesday, 9 August 2011
  • 86. RisksRisk & Conclusion & Conclusion • Upside risks – Geopolitical and macroeconomic factors causing FX appreciation – Faster West European recovery – Exceeding cost-cutting expectations in N&W Europe – Inflation decreasing – Recent surge in raw material prices quick return • Downside risks – Russian government putting pressure on alcohol consumption – Geopolitical and macroeconomic factors causing FX depreciation – Inflation increasing – Prolonged recession in Western Europe – Altering strategy for group, reducing value – Slips in management’s ability to deliver • Conclusion – Share price rallied in 2010, but has halted as input cost headwinds were announced – Believe that it should be traded at a discount to its peers 86Tuesday, 9 August 2011
  • 87. Risk & Conclusion Ratios ABInbev SABMiller Heineken Carlsberg 25 Breweries Average - 21x 20 15 23 25 10 16 15 5 0 P/E Bloomberg 87Tuesday, 9 August 2011
  • 88. Risk & Conclusion Ratios ABInbev SABMiller Heineken Carlsberg 20 15 10 18 12 11 5 8 9 10 8 6 6 4 3 0 0 ROE ROA ROIC Capital Ratios (%) 88Tuesday, 9 August 2011
  • 89. Investment& Conclusion Risk Recommendation! - Solid Ratios - Regional breakdown - Strong position in emerging markets (Americas & Africa) Western EU Americas 31% 29% - Share price with room to grow - Femsa acquisition synergies - All areas to deliver strong growth C&E EU Africa 14% 21% Asia Pacific 5% 89Tuesday, 9 August 2011
  • 90. 90Tuesday, 9 August 2011