New Zealand: The country's major brewers fight a beer price war

Results released recently showed DB Breweries's profit before interest and tax (PBIT) rose 3 per cent in the six months to the end of March, compared to the same period last year, Fairfax New Zealand announced on May 12.

At the same time sales volume was down 3 per cent and market share down 0.3 per cent.

DB chief executive Brian Blake said the latest results followed a strong run, during which earnings growth was 13 per cent, 16 per cent and 13 per cent in consecutive years.

That was well ahead of the targeted 10 per cent growth for earnings before interest and tax, he said.

Probably because of that success and because DB had taken market share, its major competitor – Lion Nathan – had reacted strongly, resulting in a price war during at least the past six months.

"So that earnings growth that we were seeing has been slowed significantly by the fact there's been incredible pressure on margins because beer pricing has been so low," Mr Blake said.

"We've been trying to get the margins back up again so we've been quite prepared to let a little bit of volume and a little bit of market share go to keep the profitability up."

The beer market was up about 2 per cent on last year, with a main reason probably being the low pricing of premium beers, but DB was hoping to see the end of the price war.

"As the smaller player in the market, we're trying to lead the market out of that price war but we're not getting too much response from the other players at present," he said.

As with many other industries, brewing was facing significant cost increases. The fall of the New Zealand dollar affected the price of such things as aluminium cans. Fuel increases had been "huge", the price of sugar was up significantly, and wages were under pressure.

"Like most New Zealand companies we're incurring quite a bit of cost increase and we have to recover that at some stage through the margin, through a price increase," Mr Blake said.

The three stand-out brands for DB continued to be Heineken, Monteith's and Tui, which had been growing for the past decade.

In March, for the first time, DB entered the ready-to-drink market, launching its Bourbon and Cola product Barrel 51 – a 5.3 per cent alcohol by volume mix.

In the two months it had been in the market it was "exceeding" expectations, and other RTD products would be launched by Christmas, Mr Blake said.

DB was bought in 2004 by Singapore-based Asia Pacific Breweries and when DB's result was transferred into Singapore dollars its PBIT was 1 per cent lower than for the same period last year.

APB reported an overall 11 per cent rise in PBIT to $S141.6 million ($NZ145.7 million) for the six months to the end of March, compared to the same period a year earlier.

APB said group revenue for the six months was up 7 per cent to $S809.6 million.

Return on equity and earnings per share (before exceptional items) rose from 8.6 per cent to 9 per cent and from S27.5 cents to S30.3 cents respectively.

Directors had recommended an interim dividend of S14 cents per share, after deduction of Singapore tax, to be paid on June 13. That was equivalent to a gross (pre-tax) dividend of S17.5cps.

APB chief executive officer Koh Poh Tiong said that with more than 80 per cent of PBIT coming from regional markets, the company had a well-diversified earnings base.

While most markets continued to register stronger volume, Papua New Guinea and high-growth IndoChina – Cambodia and Vietnam – had emerged as best performers.

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