San Miguel’s Hong Kong brewery cuts losses, but sales lower

BY RUBY ANNE M. RUBIO, BusinessWorld Senior Reporter SAN MIGUEL Brewery Hong Kong Ltd. substantially cut losses during the first half to HK$2.87 million, 90% lower than in the same last year, following a restructuring of its South China operations, company Chairman Ramon S. Ang said in an interim report to the Stock Exchange of Hong Kong. While turnover declined by 3.69% to HK$358.39 million, the subsidiary of food and beverage giant San Miguel Corp. reported an 11.68% increase in gross profit to HK$183.08 million as a result of its decision to push for high-priced products in South China. Volume slackened on lower export volumes and a shortage in the supply of San Miguel’s Guang’s pineapple beer in Guangzhou. Southeast Asia’s largest publicly listed food group began restructuring of its South China operations last year and is set to close brewing operations in Hong Kong by the end of the month. It will stop brewing in the Yuen Long district due to relatively high production and operating costs compared to a brewery in mainland China. Mr. Ang said production will shift to the Foshan (Shunde) Brewery in China to streamline operations and improve capacity utilization, and boost gross margins as a result. The company will come up with "detailed" restructuring plan, including an alternative use for the Yuen Long brewery and its assets. Established in 1948, San Miguel Brewery Hong Kong listed at the Hong Kong bourse in 1963. "Collectively, our restructuring initiatives are designed to result in improved efficiencies and fixed- cost savings that align with our strategy of strengthening long-term operating performance," Mr. Ang said. San Miguel Brewery Hong Kong is still cash positive as net cash balances as of end-June amounted to HK$215.7 million. Total net assets remained at HK$1.99 billion while debt-to-equity ratio stood at 0.11. Mr. Ang said the growing popularity of wine and whisky continued to "chisel away" at the share of beer in Hong Kong’s alcoholic beverage market. The beer industry’s volume declined by 3.3% last June but San Miguel Hong Kong Brewery said it performed better than competitors, gaining 0.5% in market share based on an AC Nielsen Retail Audit last June. Total local sales volume for the first six months of 2007 was "almost at par" with 2006, Mr. Ang said. "Nevertheless, the San Miguel brand still possesses strong brand equity, recording double-digit growth in both May and June 2007, that largely mitigated the decline in volumes to 4.6% over the same period last year. Our imported premium brands’ volumes grew 21.3%, while low-priced brands grew at a slower 1.4%. Macau continued to maintain a double-digit volume growth over the previous year," he added. A new marketing campaign, will be launched soon, including new television commercials. South China operations recovered strongly after the restructuring in 2006 with turnover growing by 5.2% over the previous year. Profit before tax reached HK$7.4 million against a loss of HK$19 million in 2006. San Miguel (Guangdong) Brewery Co. Ltd. reported an 84% increase in volume, driven by double-digit growth of its Dragon and Valor brands. The Guangdong brewery repackaged the Dragon Gold beer and completed a review of selling and distribution activities. Advertising and promotion expenses were also cut. Phase one of the expansion of the Guangdong brewery is almost complete, increasing capacity to 1.3 million hectoliters, just in time for the peak season, Mr. Ang said.