The brewer of the mainland's best-known beer, Tsingtao Brewery, has posted a disappointing net profit of 28.39 million yuan (HK$26.42 million) for last year, after providing for long overdue accounts receivable. The earnings represented a 10.5 per cent year-on-year increase, but they were substantially below the consensus forecast of 85.5 million yuan and the highest prediction of 120 million yuan contained in the latest edition of The Estimate Directory. The H-share made an exceptional loss of 17.81 million yuan, after deducting 37 million yuan in provisions for accounts receivable of three years or more from a 19 million yuan gain arising from interest waivers due to its acquisition of the Xian Brewery. In 1996, it made provisions of 10.9 million yuan. Provisions aside, annual profit would have been 65.4 million yuan, compared with interim earnings of 56.61 million yuan. Turnover rose less than 1 per cent to 1.44 billion yuan. Earnings per share added 10.3 per cent to 32 fen. No final dividend was proposed. The provisions indicate Tsingtao extended credit for too long at a time when it was keen to expand domestic market share. Credit Lyonnais Securities Asia analyst Ken Ho said: 'In an effort to penetrate the market, the company has sacrificed the accounts receivable. Its expansion plan does not live up to expectation.' He said Tsingtao's problems lay in its failure to build up a distribution network in a market full of competition. Analysts are concerned other H shares may have to make similar provisions for bad debts. Tsingtao has embarked on an ambitious acquisition plan to capture domestic market share, especially in its home base of Shandong. However, the strategy has not won praise from analysts who believe the firm has underestimated the significant management resources involved in such acquisitions. In addition to the Pingdu Brewery and Rizhao Brewery Factory it acquired this year, it plans to buy more breweries in Shandong. Analysts said Tsingtao should earmark more resources for advertising and promotion and establish a distribution network. Company secretary Zhang Xueju said the provisions were enough to cover the bad debts arising from ageing accounts receivable incurred in previous years. He said the brewery had strengthened its control over credit sales and recovery of receivables as it no longer allowed customers to buy on credit. He expected the receivables to be substantially lower this year. Chairman Li Guirong said the Xian Brewery swung back into profit last year, but did not mention previously loss-making Yangzhou Brewery. He said Tsingtao would set up a preliminary nationwide sales network aimed at fully expanding into the upper, middle and lower-end market segments. The brewery would focus on markets in Shanghai, Shandong and Beijing and fully utilise state preferential policies to acquire and merge with other breweries, he said. Last year, Tsingtao increased annual production 13.6 per cent to 415,000 tonnes with export sales rising 7.8 per cent to US$18.39 million.