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Volume pressures ease in global beverage

The outlook for the global beverage industry remains stable, reflecting the industry's resilient performance and companies' continued focus on reducing capital investments and costs amidst a still difficult - albeit regionally variable - consumer environment, says Moody's Investors Service in its latest Industry Outlook update.

Although there are signs that consumer spending trends have started to improve (or at least to stabilise), the rating agency does not envisage changing the industry sector outlook to positive in the
near term.

"Moody's does not anticipate a marked pick-up in demand for the global beverages industry in 2010, although volume performance should improve after a very challenging 2009. However, regional differences remain: a decline in volumes continues in most mature, developed markets such as the US and Western Europe, whilst Asia and Latin America have shown more resilience, supporting top-line growth for companies exposed to those regions," says Yasmina Serghini-Douvin, a Paris-based Moody's assistant vice president-analyst.

Moody's observes that Eastern European countries, including Russia, have experienced slower-than-expected economic growth which is projected to only gradually recover in H2 2010. The rating agency also notes that business conditions in Japan have stabilised, although domestic growth opportunities in that country remain limited.

Moody's predicts that volumes will likely remain soft in 2010 across all segments of the global beverage industry, although the rating agency believes that volume trends have already reached a trough. Nonetheless, Moody's highlights that governments are seeking to wipe out national deficits via excise duty on alcoholic beverages, and cautions that the tightened regulatory environment in Europe - where a number of duty increases on alcoholic beverages came into effect in January 2010 - will create an additional burden for the industry.

Moody's expects corporate activity to continue across the global beverage industry in the next 12 to 18 months, although not on the scale of 2007-2008. Recently, the North American market witnessed significant developments from leading soft beverage companies which led Moody's to take rating actions. The Coca-Cola Company (rated Aa3, stable) and PepsiCo (Aa3, stable) reshaped their relationships with some of their key bottlers, as well as with others in the industry such as Dr Pepper Snapple. Overall, the rating agency believes that beverage companies will maintain prudent financial policies overall, with moderate returns to shareholders and investments.