Сектор потребительских товаров

According to a press release made by the State Statistics Committee of Ukraine, milk production in October has decreased 11.2% to 962.7 thsd mt. Moreover, in the last ten months, milk output has declined 3.9% YoY to 10.3 mln mt.

Our view: The decline of milk production in October is mostly of a seasonal nature, as historically starting from October, milk output decreases.

The other reason for the decline in milk output is that the number of milk cows has drastically decreased over the last ten years (8% CAGR over the period 1997-2007). We forecast a 6% decrease in the number of milk cows for 2008 and a slight decrease in milk output to approximately 12 mln mt. We believe that milk output will stay around the level of last year on the back of increasing milk yields per cow (7% CAGR over the period 1997-2007).

InBev, one of the leading global beer producers – second in terms of beer output in Russia and first on the Ukrainian beer market – issued an official press release on its financial results for 3Q08. Its revenues in volume terms declined 10.5% on the Russian market and 8.5% on the Ukrainian market. The Russian and Ukrainian beer market’s stagnation are the reasons for plummeting sales. The company’s market share in Russia was squeezed in the last nine months. Nevertheless, InBev has retained its strong positions as leader on the Ukrainian beer market.

The company is going to concentrate on the premium beer segment, especially in Russia, where it sells premium beer brands like “Klinskoye” and “Siberia Crown”.

InBev’s consolidated revenues in 3Q08 in volume terms decreased 0.2% to 61.6 mln hl and its consolidated net income dropped 13.9%, amounting to EUR 447 mln. Net revenues increased 7.7% to EUR 3.95 bln.

Our view: We see the following reasons for the fall in InBev’s revenues in Ukraine and Russia. Firstly, unfavorable weather conditions (a rainy September and October). Secondly, decreased consumer spending on the back of the global crisis. Thirdly, a slowdown of the Ukrainian beer market growth and the stagnation of the Russian beer market.

In our view, InBev’s revenue growth in money terms is contributed mostly to increasing sales in the premium beer segment. Nevertheless, we expect a decrease in sales in this segment in the short run.

Domestic wheat prices in Ukraine are following the global downgrading trend, reaching USD 136.8 per mt of industrial wheat (-53% MoM). As for coarse grain, prices began their downfall much earlier and have reached their lowest marks in three years. Prices for fodder wheat slipped to USD 105.3 (-12% MoM), while corn ended up at USD 87.7 (-33% MoM).

As of October 28, Ukraine had harvested an overall amount of 50.369 mln mt of grain (+70% YoY). According to Interfax, a total of 14.327 mln ha or 93% of arable land were processed. The average grain yield amounted to 3.52 mt per ha, compared to the average yield of 2.27 mt of grain per ha achieved in 2007.

Our view: We see the following reasons for the prices being downgraded. Firstly, the 2008/2009 marketing year has been trumped as year of good harvest globally and consequently, prices have begun to decline on the back of growing supply. Secondly, the global liquidity crisis has negatively affected the ability of Ukrainian banks to provide financial funds to Ukrainian agricultural companies. This has occurred at the height of the sowing campaign, when the acquisition of working capital is so needed. On the one hand, the companies prompted the sell out of their own crops in order to support their financial needs. On the other hand, exporters have decreased their activities due to problems with liquidity and the shrinking demand on European commodity markets.

We believe the soft commodity prices will downgrade further and waffle for some time. Their prices will regain their positions later this season. Those companies that have storage facilities and sufficient debt leverage will benefit from the current situation. Moreover, we believe that the depreciated hryvnia will encourage Ukrainian exporters to increase their exports.

Obolon, one of the top three breweries in Ukraine, is going to reconsider its strategic plans for 2009. According to Interfax, the company is going to finish the investments projects it commenced in 2008. As for projects in 2009, Obolon’s management had not clarified what the probability is that new projects will not be initiated next year. At the moment, the company does not have any problems with respect to cooperation with international financial institutions.

Earlier in August, at its conference, the Carlsberg Group Ukraine stated that the company is not going to expand its output facilities in 2009.

Our view: The growth of the Ukrainian beer market is slowing down. We see several reasons for this. Firstly, unfavorable weather conditions (a late and cool summer and a rainy autumn) has negatively affected beer consumption, which resulted in relatively moderate growth in beer sales. Secondly, the global crisis has negatively affected Ukrainian financial institutions. Currently, these institutions are experiencing problems with liquidity, which is restraining their capabilities regarding debt financing.

We retain our positive view on Ukraine’s beer companies. The companies are taking steps to prevent the possible negative consequences of the market slowdown and reducing their dependency on debt financing.

According to Ukrainian News, the Ministry of Ukraine has endorsed import quotas on raw cane sugar in the amount of 263 thsd mt for 2009 and 267 thsd mt for 2010. The Ministry amended article 1 of the law on tariff import quotas for raw cane sugar. The quota for 2008 of 260 thsd mt has also been confirmed. Earlier in July, the Ministry of Economy initiated the introduction of import quotas on raw cane sugar at the level of 263.9 thsd mt for 2009 and 267.8 thsd mt for 2010, with a customs duty of 2%.

In May 2008, Ukraine became a member of the World Trade Organization (WTO). In compliance with WTO agreements, Australia required 263 thsd mt of raw cane sugar annually to be allowed for import to Ukraine and taxed at 2% of its declared customs value. Imports in excess of the quota levels are to be taxed at 50% tax. We estimate that the final cost of sugar made from imported raw cane, after having been subject to a 50% tax rate, will cost 20-30% more than sugar made from sugar beets. This would, of course,make the import of raw cane in excess of quotas inefficient. Moreover, Ukraine is currently facing a possible sugar deficit. The country is going to produce 1.6-1.7 mln mt of sugar in the 2008/09 marketing year. Taking into account the country’s annual sugar consumption of approximately 2.0-2.2 mln mt and sugar from national reserves, Ukraine will experience a deficiency of 0.58-0.6 mln mt of sugar. With the help of Australian raw cane sugar, the country will be able to cover the sugar shortage.

Our view: In May 2008, Ukraine became a member of the World Trade Organization (WTO). In compliance with WTO agreements, Australia required 263 thsd mt of raw cane sugar annually to be allowed for import to Ukraine and taxed at 2% of its declared customs value. Imports in excess of the quota levels are to be taxed at 50% tax. We estimate that the final cost of sugar made from imported raw cane, after having been subject to a 50% tax rate, will cost 20-30% more than sugar made from sugar beets. This would, of course,make the import of raw cane in excess of quotas inefficient.

Moreover, Ukraine is currently facing a possible sugar deficit. The country is going to produce 1.6-1.7 mln mt of sugar in the 2008/09 marketing year. Taking into account the country's annual sugar consumption of approximately 2.0-2.2 mln mt and sugar from national reserves, Ukraine will experience a deficiency of 0.58-0.6 mln mt of sugar. With the help of Australian raw cane sugar, the country will be able to cover the sugar shortage.