Brewers face a wait to see a return on their investment in emerging markets

Brewers face a wait to see a return on their investment in emerging markets

Beer volumes in emerging Asian markets will continue to grow strongly but it will take ten years before they "materially matter" to global brewers' profits, according to an analyst.

A UBS report, released yesterday (11 February), says it expects margins in markets such as China, India and Vietnam to "significantly lag the global average" due to higher fixed costs and regulations. But, the report adds: "We believe there is 'hidden value' for the brewers who have already developed leading positions in China, Vietnam and India.

"The cost to replicate the current business scale would be significant for SABMiller/CRE (China Resources Enterprise) in particular, but also for Anheuser-Busch InBev and Carlsberg's emerging Asian businesses."

Heineken, meanwhile, is close to taking full control of Tiger brewer, Asia Pacific Breweries

The report - 'European Beverages - 2013: running out of steam?' - also flags that brewers were the best-performing sub-sector in 2012, outperforming other industries on average by 19%. Soft drinks outperformed the overall market by 15% and spirits by 9%.

However, UBS suggested that this year the drinks category is likely to be a "relative underperformer". "After the intense M&A activity of 2012, 2013 is likely to be a year of integration," the analyts said.

Western Europe remains the biggest risk for dragging earnings. Carlsberg and Campari are expected to see earnings per share down by around 5%, Heineken by approximately 3% while, for A-BInBev and SABMiller the impact should be negligible, the report predicts.

Input costs should be "less of a headwind" for brewers in 2013, UBS said.