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

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China Resources Beer, the country’s biggest beer maker, offset lower sales due to floods and a deteriorating economy with improved cost efficiency to report a 45.1 per cent rise in net profit for the first half of the year.

CR Beer reported a net profit of 605 million yuan compared with 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 filing to the Hong Kong exchange. 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 across many parts of the country 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.”

Before the results announcement on Friday, CR Beer shares edged down 0.26 per cent to settle at HK$15.60 by the lunchtime break. The shares have risen 22.8 per cent in the past six months.
No interim dividend was declared, as was the case a year earlier.

In July, CR Beer raised 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 player, while CR Beer revealed in July its interest in buying smaller peers at home or abroad.

“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.