China. CR Beer profit bubbles despite flat market

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China Resources Beer, which bought out SABMiller’s joint venture stake in the company earlier this month to smooth the way for AB InBev’s takeover of the London-listed brewer, today announced a nearly 14 per cent rise in profits on its beer operations last year, despite a soft Chinese beer market.

China Resources Beer bought out SABMiller’s 49 per cent stake in China Resources Snow Breweries — the brewer of the world’s top-selling beer by volume — for $1.6bn earlier this month, ending a 22-year-old joint venture that produced voluminous vats but punier profits, writes Patti Waldmeir in Shanghai.

Last year included big strategic changes for the company. “As of 1 September 2015, the Group had completed the disposal of all of its non-beer businesses – including retail, food and beverage businesses – to its parent company China Resources (Holdings) Company Limited (“CRH”) for a total consideration of HK$30m” the company said in a statement to the Hong Kong stock exchange.

“The strategic move has unleashed the value of its market-leading beer business from the previous conglomerate structure and associated capital constraints, allowing greater flexibility to execute its business plan and to lead further industry consolidation,” the company said.

Consolidated turnover and the consolidated profit attributable to shareholders of the Company’s continuing operations amounted to approximately HK$34bn and HK$831m, representing increases of 1 per cent and nearly 14 per cent, CR Beer said.

But Jeremy Yeo of Mizuho Securities in Hong Kong pointed out that core net profit (ex-losses taken on discontinued operations) was only up 9 per cent year on year to HKD815m. “The company’s implied 2H15 net profit on continuing operations declined 6.5 per cent year on year to HK$303m”, he wrote. The results reflect “harsh competition amidst an overall sluggish demand environment. We see consolidation as the primary driver of shareholder value over the medium term,” he said.

The China beer market shrank over that period, CR Beer said, “due to slower national economic growth and abnormal weather conditions in China” but the company’s beer business “deepened its penetration into various regions, optimized its product mix, enhanced its cost efficiency by leveraging its economies of scale and a better management over selling expenses”, the statement said.

Beer production in China in the first nine months of 2015, the latest period for which figures are available, fell 6 per cent by volume year on year, according to local analysts.

CR Beer’s purchase of the Snow stake was viewed as a key milestone for AB InBev as it has been shedding assets to win regulatory approval across the globe to close the largest beer deal in history.