China: China Resources Beer Holdings cuts capacity, reports 16.9% decline in 2018 net profit

China Resources Beer Holdings is preparing to close down more breweries and introduce higher-priced products amid efforts to increase its share of revenue from premium beers, the Nikkei Asian Review reported on March 20.

The company - maker of the Snow brand of beer, the world's largest by sales volume - on March 20 said it closed down 13 of its 91 breweries last year, cutting capacity by 1 million kilolitres to 21 million kilolitres. Its number of employees fell to about 40,000 at the end of 2018, down from 52,000 the year before. Company officials pointed to stock exchange announcements when asked about the number of employees laid off.

At the same time, CR Beer will launch at least one premium brand of beer from its own stable, and four from the Heineken stable in 2019, pushing further a drive to upgrade the product portfolio, they said.

"We will continue to close down plants, but the intensity and magnitude will not be as strong as in 2018," Chief Executive Jason Hou told reporters in Hong Kong on March 20, after the company released its results for 2018.

Chairman Chen Lang, who wasn't present at the briefing, said in a statement earlier that the group's financial performance is "expected to be affected by the implementation of production capacity optimization continuously."

CR Beer had in August announced a long-term collaboration with Netherlands-based Heineken under which the two companies will combine their beer operations in the mainland, giving CR Beer the license to sell Heineken beer in China, Hong Kong and Macau. Heineken agreed to take a 40% minority stake in CR Beer's controlling shareholder, while offering a 0.9% stake in itself to CR Beer's parent group.

In addition to its eponymous brew, Heineken also sells beer under brands including Amstel, Sol and Tiger.

CR Beer, a member of the state-controlled China Resources group, has been brewing beer in China since 1993. The company has in recent years been striving for a bigger presence in the premium end of the market. Demand in that segment has been increasing amid a growing middle-class, rising incomes and evolving consumer preferences in favour of higher-value and personalized beers.

Earlier on March 20, CR Beer reported a 16.9% decline in its 2018 net profit to 977 million yuan ($145.4 million). The decline came amid an increase in costs as it incurred compensation and staff resettlement expenses of about 483 million yuan related to production capacity optimization and organizational restructuring, and also a one-off provision related to a new annuity plan, amounting to 117 million yuan.

Revenue grew 7.2% to 31.87 billion yuan, driven by a 12.3% increase in the average selling prices, although its sales volume decreased 4.5% to 11.29 million kilolitres.

While it may not be possible for CR Beer to implement nationwide price increases, the group will raise prices in selective regions, CEO Hou said on March 20. An increase in the company's average selling prices is also intended through the introduction of new premium products. The aim is to create a portfolio of premium drinks, Hou said.

He described premium beer as brands that retail for a price of between 10 yuan and 20 yuan per bottle. The new self-owned brand that CR Beer plans to launch in May will retail for between 10 yuan and 15 yuan per bottle, he said.

Although Heineken has agreed to use its global distribution network to sell CR Beer products outside China, under the pact the two companies announced in August, international sales is "not a priority" for CR Beer at present, Hou said.

CR Beer cut its final dividend for 2018 to 0.03 yuan per share from 0.07 yuan per share a year ago. The total payout for 2018 stood at 0.12 yuan per share, compared with 0.14 yuan the year before.

Its shares rose 1.7% to HK$32.90 in Hong Kong after the results were declared, while the city's benchmark Hang Seng Index lost 0.5%.

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