China: China Resources Beer weighing possible acquisition of minority stake in AB InBev’s Asia Pacific unit

China Resources Beer Holdings is weighing the possibility of acquiring a minority stake in the Asia-Pacific unit of the world's largest brewer Anheuser Busch InBev, although a final decision had yet to be taken, its Chief Executive said on August 16.

The Chinese company is "paying a high level of attention" to the possibility of a stake sale by AB InBev and has conducted some research, CEO Jason Hou told reporters in Hong Kong on August 16. "So far, we haven't arrived at a conclusion."

CR Beer, a member of the state-controlled China Resources Group and maker of the Snow brand - the world's largest selling by volume - has been striving for a larger share of the premium beer market in the mainland amid a growing economy, rising disposable incomes and changing lifestyles. The company decided in August 2018 to acquire Heineken's Chinese operations under a broader agreement that would also give the Dutch brewer a 40% stake in CR Beer's controlling shareholder.

AB InBev had last month signaled its willingness to sell a minority stake in its Asia Pacific unit Budweiser Brewing APAC. In a statement announcing the sale of its Australian unit Carlton & United Breweries to Asahi Group Holdings at an enterprise value of A$16 billion ($11.3 billion), the Belgian brewer had on July 19 said that it continues to believe in the "strategic rationale of a potential offering of a minority stake" in Budweiser Brewing APAC, provided that it could be completed at "the right valuation."

Budweiser Brewing APAC, owner of several popular beers including the eponymous brew Budweiser and others including Corona, Harbin and Stella Artois, had earlier in July called off a multi-billion-dollar initial public offering in Hong Kong because of factors including prevailing market conditions at the time.

While CR Beer owns the world's largest selling beer by volume, Budweiser Brewing APAC had the biggest share of the premium beers in the mainland last year. According to a prospectus it had issued before pulling its IPO in Hong Kong, Budweiser Brewing APAC had a 46.6% share of China's premium beer market by volume in 2018, more than three times the share of its nearest competitor, Tsingtao Brewery.

Hou said on August 16 that the company, which currently has a market share of around 15% in the mainland's premium beer market, aims to more than double that share to one-third in three to five years' time.

He was speaking at a news conference after CR Beer posted a 24.1% increase in its half-yearly net profit to 1.87 billion yuan ($265.8 million), driven by higher volume sales and an increase in average selling prices of its beers. Revenue for the period increased 7.2% to 18.83 billion yuan, with the overall average selling price of its products having increased 4.5% from a year ago.

CR Beer's sales volume in the mid- to high-end beer segment expanded by 7% while overall sales by volume grew 2.6% to 6.4 million kiloliters, outperforming the mainland beer market, the company said. CR Beer has an aggregate annual production capacity of about 21.6 million kiloliters.

Hou said CR Beer, which has been cutting staff and closing down some of its manufacturing facilities in recent quarters, aims to improve productivity. The company, which had closed down 13 of its 91 breweries last year, could shut some more facilities over the next two to three years, he said.

CR Beer also reduced the number of total employees to 35,000 as of June 30, from 40,000 at the end of 2018 and 52,000 the year before.

The company wants to bring its productivity per employee closer to that of international competitors, Hou said.

CR Beer had achieved most of its targets for headcount rationalization, and expects the planned reduction to be completed by the end of this year, Hou said. He didn't detail how many further jobs would be cut.

Shares of CR Beer jumped 7.8% to HK$39.20 in Hong Kong on August 16, while the city's benchmark Hang Seng Index gained 0.9%.

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