Thursday 17 November 2011

Premium beer next growth driver for Carlsberg

KUALA LUMPUR: Carlsberg Brewery (M) Bhd expects its premium beers to account for 40% of its revenue within the next three to five years, once it starts brewing them in-house, said managing director Soren Ravn.

Currently, Carlsberg’s mainstream beer accounts for around 80% of its revenue but premium beers will be a key criteria for future growth, he said after the company’s third quarter results briefing yesterday.

Its brands such as Hoegaarden and Kronenbourg have a market share of close to 20% in the premium beer segment, according to Ravn.

“My stretch [market share] target is 50% in the premium beer segment,” he said, adding that the target is expected to be achieved in five years.

From 2007 to 2010, Ravn said Carlsberg increased its market share in the premium segment by 14%.

Carlsberg currently imports its premium beer brands. Ravn said the company will only start to see significant contributions from its premium beers when its starts to brew them in-house.

“We are getting the volume growth now from premium beers but to translate that into a big chunk of our earnings we need to get the production here,” he said.

By brewing the beers locally, Carlsberg will save on logistics costs and an exemption on the RM5 per litre import duty, said Ravn.

He said the company should be producing two premium beer brands within 12 months.

Ravn and models posing with Carlsberg brands.


According to Ravn, Carlsberg has an annual production capacity of 150 million litres.

On production costs, he said malt, which accounts for 30% of Carlsberg’s raw material costs, has seen prices increase by 30% to 35% this year. Carlsberg expects to hedge 80% to 85% of its 2012 malt requirements by year-end, he added.

Ravn said the beer industry is resilient and will not be severely affected by an economic downturn.

For its 3Q ended Sept 30, Carlsberg reported a 43.3% jump in net profit to RM48.85 million from RM34.09 million a year ago, due to stronger sales and better margins. Its revenue rose 21.9% to RM401.66 million from RM329.49 million.

For the nine-month period ended Sept 30, its net profit grew 25.4% to RM128.81 million from RM102.75 million a year ago, while revenue improved by 10.8% to RM1.15 billion from RM1.04 billion previously.

Ravn attributed the strong 3Q results to the successful 2011 global Carlsberg brand packaging change and consumer promotions under the tagline “That Calls for a Carlsberg”, which is now aligned in 140 countries.

According to calculations by The Edge Financial Daily, pre-tax profit margins for Carlsberg for 3Q rose to 17.16% from 14.21% in the previous corresponding period.

In a research note on Nov 10, CIMB increased its target price for Carlsberg to RM8.10 from RM7.10.

However, the research house remained “neutral” on Carlsberg because of risks from higher raw material costs and a possibility of an off-budget duty hike.

It said these “negatives” will be balanced by higher margins from Carlsberg brewing its premium beers in-house.

It said the brewery might raise selling prices by 3% to 4% to pass on the higher cost to consumers. The small price increase should have a minimal impact on sales, it added. It expects a total industry growth of 3% to 4% for the beer sector in 2012.

The research house expects Carlsberg to post a net profit of RM151 million for FY11 and RM163 million for FY12. It expects revenue to come to RM1.419 billion in FY11 and RM1.516 billion in FY12.

CIMB expects gross dividends of 32 sen and a dividend yield of 4.51% for FY12.


This article appeared in The Edge Financial Daily, November 17, 2011.



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