New | Flush with cash, China Resources Enterprise is ready to splash out on new beer brands
China Resources Enterprise is geared up for acquisitions in the domestic brewery market after selling all of its loss-making non-beer assets for HK$30 billion.
CRE, part of state-owned conglomerate China Resources (Holdings), yesterday said it would join hands with ally SABMiller to strengthen its already top position in the mainland market, where its Snow brand continues to be the most popular beer.
“With some HK$10 billion stand-by credit from our holding group and support from our partner SABMiller, we have plenty in our war chest for acquisitions in the domestic market,” said chief financial officer Frank Lai Ni-hium.
CRE reported a HK$4.3 billion net loss for the first half of this year, battered by a bloated retail division that the company sold back to parent in a radical restructuring in April.
The non-beer business, containing supermarket, food and beverage, was hit with a HK$5.4 billion deficit, of which HK$2.5 billion was goodwill impairment on Tesco China, which CRE bought last year.
The brewery division, the sole business left in CRE, recorded HK$528 million in net profit, up 30 per cent from the year-ago level.
With a 23.2 per cent market share, Snow is the best sold beer on the mainland, the world’s largest beer market. Snow was founded in 1994 in a 51-49 joint venture between CRE and the UK’s SABMiller, the world’s second-largest brewery. Snow overtook Tsingtao over the past decade, with a 26 per cent compound annual growth rate.
“The beer market is incredibly resilient to economic downturn, as shown in the 2003 SARS outbreak and 2008 financial crisis. So we’re not worried about the current growth slowdown in the mainland,” Lai said.
An analyst at Guotai Junan International, who declined to be named, said: “CRE has been very decisive when it comes to striking a deal. It is unlikely, though, CRE’s nationwide rivals such as Tsingtao and Beijing Yanjing would be up for sale. So CRE’s best chances are with the local and regional breweries.”
Other than acquisitions, CRE will also focus on organic growth, especially in the mid-to-high end segments. “One of our advantages is a full product mix of mainstream, medium, premium and super premium brands.”
Its mid-to-high end bottles contribute 41 per cent sales last year, up from 29 per cent in 2012.
“Our super premium bottle can be regarded as China’s version of craft beer,” said Lai, referring to the fad overseas for independent breweries that is yet to spread to China.
“Beer sales appeared to be unaffected by an overall saturation in the domestic market. Still, a cutback in luxury spending in the mainland may pose some headwinds for CRE’s push into premium products,” said the analyst.
