E-Malt.com Flash 07b. February 17

Japan: Japan's top three brewers, Asahi Breweries Ltd, Kirin Brewery Co Ltd and Sapporo Holdings Inc, all reported record profits in 2004 and pledged to sustain gains in 2005, benefiting from fresh strategies to deal with the continued decline in demand for conventional beer. According to industry data, shipments of conventional beer fell 1.6 % to 306.55 million cases last year, the eighth straight annual decline. One case holds 20 633-milliliter bottles. The same data showed that shipments of 'happoshu' or beer-like low malt alcohol, the second-category product, dropped 8.1 % to 185.25 million cases, the second consecutive year of decline, according to a statement of AFX-ASIA. Asahi Breweries, Japan's largest brewer, said it posted a record net profit of 30.6 billion yen for 2004 and a record operating profit of 101.3 bln yen on revenue of 1.44 trln yen, as the nation's top beer brand Super Dry benefited from the hot weather conditions last year. “Sales of our mainstay Super Dry beer increased for the first time in four years,” said Yoshihiro Goto, senior managing director of Asahi Breweries. At Asahi Breweries, the combined sales of its beer and happoshu fell by 100,000 cases to 204.0 million cases in 2005, but sales of high-margin beer rose 0.2 pct to 150.1 million cases. Sapporo Holdings Inc, Japan's third-largest brewer, posted a record current profit of 18.0 billion yen in 2004, net profit of 4.6 billion yen and operating profit of 23.6 billion yen on revenue of 494.9 billion yen. Because of the continued sluggish sales of conventional beer and weak sales of happoshu, the company launched its Draft One beer-tasting liquor, which falls into the so-called third category. Third-category products are cheaper than beer and happoshu as they are taxed less because they do not use malt, which is subject to high tax. For example, the top-selling drink in that category, Draft One, introduced last February by Sapporo, is made from peas. Brewers began developing third-category products when sales of happoshu started dropping last year after the government raised taxes on that product. Sapporo's shipments of beer fell 5 pct to 40.2 million cases in 2004 and shipments of happoshu dropped 28 pct to 17.75 million cases. But deliveries of Draft One reached 18.15 million cases in 2004, less than 12 months since it was launched. Sapporo Holdings senior managing director Masaru Fukunaga shrugged off the challenge posed by its rivals Asahi and Kirin in the third category product. Both Kirin and Asahi will release their own third category liquors this year. “I believe that the entry of Kirin and Asahi will help expand the market for this (third category product) segment and we will benefit from such an expansion as top-brand holder,” Fukunaga said at a news conference. Kirin Brewery, the second-largest brewer, posted record operating profit of 109.4 billion yen in 2004. Net profit of 49.1 bln yen was the second highest it has achieved and current profit of 106.6 billion yen was also the second best on record. Kirin's revenue rose to 1.65 trillion yen from 1.60 trillion yen in 2003. “We managed to post a record-breaking operating performance, thanks to the strength of our diversified group,” Kirin managing director Kazuhiro Sato told a news conference. Kirin's shipments of its mainstay 'Lagar' brand beers dropped 7.3 pct to 46.9 million cases in 2004, and shipments of 'Tanrei' happoshu declined 1.1 % to 74.7 million cases...more info

Mexico: Modelo, Mexico's top brewer, announced on February 18 it expects its fourth-quarter net profit to rise more than 35 %, above analysts' expectations, due in part to one-time tax gains. Modelo, maker of Corona beer, also said fourth-quarter operating profit, or earnings before interest and tax, should grow more than 12 %, according to Reuters. "Operating margins could expand more than 300 basis points," said the brewer, which is half owned by U.S.-based Anheuser Busch Cos. Inc. Modelo's shares ended 1.03 percent higher at 32.22 pesos on the Mexican bourse on Friday, just below 12-month highs that they touched earlier in the session. Modelo is up more than 5 percent so far this year, but has consistently lagged the gains of the market's main index. Many Mexican companies are benefiting from a recent reduction in the rate of corporate income tax. Analysts hailed the preliminary forecasts from Modelo ahead of formal fourth-quarter results scheduled for Feb. 24. "It is very good news and quite a surprise," said Credit Suisse First Boston analyst Tufic Salem. "The stock has under performed the stock market for the last 12 months." Salem said Credit Suisse First Boston had expected a 9 percent increase in operating profit in the quarter and a 150 basis point expansion for margins. "Cost reductions could explain the difference in our view," Salem said. "We believe that efficiencies, controlled marketing expenses, head count reduction and the first benefits from the changes at its distribution network could be kicking in." Modelo is seen by most analysts as a defensive stock with steady, but undramatic growth under one of the most conservative managements in Mexico. Modelo has around $1.1 billion in cash on its debt-free balance sheet. Putting out guidance publicly for the first time also went down well. "This could help increase trading activity in the stock," said Interacciones analyst Jorge Lagunas. A recent Reuters survey of analysts forecast Modelo would report a 9.5 percent increase in net profit in the fourth quarter from the October-December period in 2003. The survey also forecast a mere 2.5 percent rise in operating profit and a 40-basis point expansion in operating margins.

Thailand: Thailand's Securities & Exchange Commission has confirmed its intention to allow a major liquor and beer producer, Thai Beverage PCL, to offer shares to the public....more info

United Kingdom: Drinks group Diageo said volumes of Guinness bounced 2% in the UK during the final six months of 2004 thanks to a major TV advertising campaign and new packaging for its beer cans. A price hike in April failed to quell the renewed enthusiasm for the stout and helped push UK sales up 6%, while the decline in sales of Guinness in Ireland also slowed. Guinness has struggled to retain the loyalty of drinkers in the face of a barrage of new products in recent years such as alcopops and the growing appeal of wine, UTV posted on February 2005. However, Diageo confirmed that these trends are changing and that brands with a strong consumer appeal such as Smirnoff vodka and Baileys Irish cream were the current success stories. Baileys volumes rose 6% as drinkers stocked up over Christmas when the brand was used by UK retailers to bring more customers through their doors. In contrast, the drop-off in demand for alcopops has been so fast - 18% for ready-to-drink Smirnoff products in six months - that Diageo has slashed the amount it spends on marketing them in half. Details emerged as Diageo reported a 4% hike in sales of its top brands despite tough conditions in Europe caused by higher taxes and regulation. The improvement was driven by a strong performance in North America where Diageo captured a greater share of the markets for spirits, wine and beer and was able to cut costs. Pre-tax profits before exceptional items totalled £1.24 billion - lower than the £1.3 billion a year earlier but in line with market expectations. However, the impact of currency swings on its results was underlined by the fact that turnover would have been £303 million higher than the £4.98 billion reported if exchange rates had been constant in the final six months of 2004. Chief executive Paul Walsh said the company maintained its record of improving profitability and growing sales before accounting for the impact of acquisitions. He said: "We have made a good start to the year and we can maintain our full year guidance of 6% organic operating profit growth." Diageo trades in some 180 countries around the world and makes brands including Baileys, J&B, Jose Cuervo, Captain Morgan, Tanqueray, and Beaulieu Vineyard and Sterling Vineyards wines. It employs 24,000 people globally and 5,000 people in the UK. The company said higher taxes and regulation, health-related legislation and weak economic conditions provided the backdrop for its European performance. Volumes in Ireland fell 3% as the trend for drinkers to stay at home was accelerated by the introduction of a smoking ban in pubs and bars in March. Cool summer weather and promotional activity enabled the company to slow the rate of decline in sales of Guinness in Ireland to 1%, although some analysts were expecting the brand to return to growth in its home market. Retailers and bar owners stocking up on brands ahead of a hike in duties and prices contributed to volumes rising 1% in Spain despite a declining spirits market. In the US, Diageo said volumes were 5% higher than the same period of 2003, outstripping the 2% growth of the overall market.

USA: Before its merger with Adolph Coors Co., Molson Inc. paid more than $10 million to some executives and directors through stock options, bonuses and a special shareholder dividend offered to sweeten the deal, a regulatory filing said....more info

Denmark: Danish beer aficionados are turning their attention towards specially brewed beers while large breweries complain of falling sales. The overall sales of Danish breweries fell by 6.5 percent in 2004....more info

Malt News

Canada: Canadian maltsters and brewers are finding it hard to compete for Canada’s barley, as China's thirst for the grain surges, industry lobbyists said on Thursday, February 17, according to Reuters. Barley is one of Canada's largest crops. Local buyers want to find ways to get a more consistent supply of barley from the Canadian Wheat Board, which has a monopoly on the crop, lobbyists told a conference of barley and wheat farm groups that are staunch opponents of the marketing agency. "Right now, our reputation around the world is not very good," said Phil de Kemp, president of the Malting Industry Association of Canada, which represents the country's C$800 million malting business. Three years of weather problems combined with a move to fewer, larger grain handling facilities have made it hard for the maltsters to get consistent quality, de Kemp said. "The malting industry right now receives average quality at best versus the top quality we saw in the earlier years," de Kemp said. Canadian maltsters will buy an estimated 1.02 million tonnes of Canada's total supplies of 1.72 million tonnes of malting barley in the 2004-05 marketing year, which runs from August to July, according to wheat board figures. But in recent years maltsters in China have emerged as a big buyers, gobbling up 76 %, or 535 million tonnes, of Canada's exports from 460 million tonnes in 2003-2004, the wheat board said. Canada is the world's third-largest malting barley exporter, after Australia and Europe. Farmers don't receive enough incentives and signals to reflect the demand from Canadian maltsters, de Kemp said. Beer companies also want to make sure farmers get better prices from the wheat board so they are assured of supplies, said Luke Harford, director of economics for the Brewers Association of Canada. "When we go to the Canadian Wheat Board, they say, 'You're not our customer,"' Harford told farmers. The Canadian Wheat Board has had good discussions with brewers in recent years, said Bob Cuthbert, the board's senior marketing manager, although he noted the agency contracts with maltsters, who in turn sell malt to the brewers. The agency has worked to improve payment programs and price signals for malting barley, Cuthbert said. But he said the malting industry is facing new competition from plants in Europe, Russia and the United States and declining beer consumption in Japan. "It's really a success story, but they're under a lot of pressure," Cuthbert said. He said the wheat board gives domestic players competitive prices, and noted the newly merged Molson Coors Brewing Co. recently announced it would shut a plant in Memphis in favor of production in Canada. "That kind of counters any argument that (Canadian brewers) are not getting a fair price," Cuthbert said.

Russia is forecast by International Grains Council (IGC) to import 0.63 million tonnes of malt in 2004/05....more info

Barley News

Australia barley production is estimated by Australian Bureau of Agricultural and Resource Economics (ABARE) to be of 6.5 million tonnes in 2004-05, a 26% decline on last season....more info

World barley consumption in 2004/05 is forecast by International Grains Council (IGC) at 143.8 million tonnes compared to 145.7 million tonnes last year....more info

Theoretical malt prices.

* - 70/30 = 70% Average two Rows Spring and 30% Six Rows Winter
** - 50/50 = 50% Average two Rows Spring and 50% Six Rows Winter

Theoretical malt prices for crop 2005 are available on site www.e-malt.com/MarketPrices

Malt Price Evolution

Malt Market Price Evolution, Crop 2005

Source: E-malt.com

Malting barley prices. French barley prices.

Nominal prices.

nq - Not quoted
Prices for Danish and UK malting barley are available on site www.e-malt.com/MarketPrices

Table of the week

Canada: Barley Supply and Disposition

	2003-2004	2004-2005 f	2005-2006 f
Harvested area, '000 ha	4,446	4,050	4,040
Yield, tonne/ha	2.77	3.26	3.01
Production, '000 metric tonnes	12,328	13,186	12,180
Imports, '000 metric tonnes	36	50	30
Total Supply, '000 metric tonnes	13,838	15,344	15,910
Exports, '000 metric tonnes	2,445	1,850	2,500
Food & Industry Use, '000 metric tonnes	298	300	380
Feed, Waste, Dockage, '000 metric tonnes	8,574	9,089	9,525
Total Domestic Use, '000 metric tonnes	9,286	9,794	10,310
Carry-out Stocks, '000 metric tonnes	2,108	3,700	3,100
Average Price, CA$/tonne	138.80	100-120	110-130

Graph of the week

Agenda

February 2005:
Pianeta Birra - Beverage & Co. International Show of Beers, Beverages etc., Italy;
Seminaire Orges brassicoles 2005 à Paris-Bagnolet;
Liqma International Beverage Industry Exhibition, Spain;
Canadian Food and Beverage Show;
GrainWorld 2005. Canada. CWB.;
Beer Business Daily's Second Annual Beer Industry Summit.;

March 2005:
Night of Great thirst, Belgium;
Zythos Beer Festival, Belgium;
Institute and Guild of Brewing Africa Section 10th Convention, South Africa;
China Drinktec China International Exhibition on Beverage, Brewery and Wine Technology;
FOODEX JAPAN 2005 / INTERNATIONAL FOOD & BEVERAGE EXH;
International Food and Drink (IFE), UK;
BLACK SEA GRAIN: A NEW ENVIRONMENT IN UKRAINE AND REGIONAL PROSPECTS FOR GROWTH;
Deltabierfestival, The Netherlands;
Spring Beer Festival "Hops on Equinox", Seattle;
Brew and Beverage Industry - Beer Auction International Trade Fair, Russia;
Siebel Institute Brewing Profitability Workshop;

April 2005:
Helsinki Beer Festival;
Concise Course in Brewing Technology;
World Barley, Malt & Beer Conference 2005;
JOINT LEGISLATIVE CONFERENCE. Washington, D.C., USA;
BEER. Exhibition Pavilion Minsk.;
Craft Brewers Conference & BrewExpo America;
Classic City Brewfest, Athens, GA;
WINES, BEERS AND DRINKS Exhibition for the Beverage Industry. Krasnoyarsk, Russia;
Excursion to West-Flanders;

More events are available on site e-malt.com