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Hong Kong company reporting season

China’s CR Beer says cost controls boosted first half profit by 45pc despite lower sales

PUBLISHED : Friday, 19 August, 2016, 1:54pm
UPDATED : Friday, 19 August, 2016, 10:18pm

China Resources Beer, the country’s biggest beer maker, said recent sweltering summer weather could beef up beer consumption as it reported a 45.1 per cent rise in first half net profit as a result of improved cost efficiency.

“It felt fairly hot in July, and normally when the temperature is higher, beer tends to sell better,” Lai Po-sing, executive director and chief financial officer said in a press briefing.

CR Beer reported a net profit of 605 million yuan, up from 417 million yuan for the same period a year earlier, while revenue dipped 1.8 per cent to 15.21 billion yuan, according to the company’s statement. The revenue figure fell short of analyst consensus estimates of 19.61 billion yuan.

The state-owned beer maker, which co-owns the world’s largest selling Snow beer brand with London-based SABMiller, blamed the flagging economy and severe flooding in China as factors pressuring the company’s earnings, but highlighted cost control measures that boosted profitability.

“We expect a slower growth in sales volume than before and progressive consumption upgrades in the future,” said Chen Lang, chairman of CR Beer, which is a subsidiary of Hong Kong-based state-run conglomerate China Resources.

“Riding on the group’s track record in mergers and acquisitions, we will evaluate potential investment opportunities to expand our business and extract value through synergies,” Chen added.

Zhu Danpeng, an associate with China Branding Research Institute, said; “The entire beer market is struggling in China, but CR Beer fares better than its domestic peers as it receives solid backing from the government when competing with foreign rivals such as AB InBev.”

CR Beer shares closed Friday up 0.26 per cent to settle at HK$15.68. The shares have risen 30.23 per cent in the past six months.

No interim dividend was declared, as was the case a year earlier.

The endgame will be that the domestic market will be dominated by a single player.
Zhu Danpeng, China Branding Research Institute

In July, CR Beer said it planned to raise HK$9.5 billion to buy the remaining 49 per cent stake in China Resources Snow Breweries, a joint venture with SABMiller, and to gain full control of the Snow beer brand. The acquisition of SABMiller’s stake is anticipated to be completed by the end of this year.

The mid-to-high-end Snow brand is the world’s largest selling beer, accounting for 23.2 per cent of the beer market in China in 2014, outpacing its smaller rival Tsingtao Brewery and AB Inbev’s Harbin Brewery, according to research firm Euromonitor.

But CR Beer is facing a shifting preference among middle class Chinese consumers who are turning to foreign brands such as Denmark’s Carlsberg and AB InBev’s Budweiser in the premium market segment.

A merger and acquisition frenzy has swept across the global beer market, with AB Inbev’s US$108 billion takeover of SABMiller set to create the world’s biggest brewer, while CR Beer revealed in July its interest in buying smaller peers at home or abroad.

CR Beer’s Lai noted on Friday that the company was “no longer paying attention to small players” when looking for an acquisition target.

“CR Beer may be eyeing companies like Beijing Yanjing Brewery in this wave of consolidation,” said Zhu. “The endgame will be that the domestic market will be dominated by a single player.”

Shenzhen-listed Beijing Yanjing Brewery is the country’s third-largest beer maker. The Beijing municipal government-backed brewer was said to have been reaching out to companies, including overseas ones, for a potential stake buyout since early 2015.