Carlsberg extends Chinese presence

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and the Danish Industrialization Fund for Developing Countries
(IFU) have drawn up an agreement with Lanzhou Huanghe Enterprise
Group to acquire 50 per cent of the LanzhouHuanghe Brewery's
operations in the Gansu and Qinghai provinces.

The deal includes three breweries in the Gansu province that have a total capacity of approximately 2.5 million hecolitres of beer and a 36 per cent market share, which is said to be rising significantly. Further to this, the deal also includes one more brewery in the Gansu province.

For over two years, the Lanzhou Huanghe Brewery's sales in the Gansu provincehave developed very positively, Carlsberg says. The group's strong regional brand Huanghe (translated as Yellow River) is one of only three Chinese beer brands which have been given the title 'China's Most Famous Trademark'.

According to market research information, during the next 10 years, the present per capita consumption of 8.5 litres of beer in the Gansu province is expected to increase to approximately 20 litres. This is in line with the current average per capita consumption in China.

In the neighbouring Qinghai province, a green field brewery with an initial capacity of 0.5 million hecolitres of beer a year will be constructed, of which Carlsberg and IFU acquire 40 per cent through the acquisition. Carlsberg says that construction will start this summer and until the new brewery is finalised, themarket will be supplied from the Gansu province. Currently the per capita consumption of beer in Qinghai province runs at 12 litres, and over the course of the next 10 years it is expected to develop in line with that of the national average.

Carlsberg and IFU said that the four breweries in the Gansu and Qinghai provinces had been acquired for a total price of DKK 115 million (€15.4m). The price equals $17 (€13.7) per hecolitres installed capacity. In 2004, the breweries' sales are expected to reach a total of 1.6 million hecolitres of beer and once the construction in the Qinghai province is finalsed, the total capacity of the four breweries will be approximately 3 million hecolitres of beer.

In a press statement Carlsberg said that the acquisition of the production facilities together with a well-known brand fitted into the company's strategy to establish a strong position in the western Chinese provinces. Previously the company has made other acquisitions in the Yunnan province and Tibet. The company added that the latest acquisition contributes to the company's growing portfolio in the country.

IFU also participated in Carlsberg's previous acquisition in Tibet. The organistation says that the investmentin the Gansu and Qinghai provinces is in line with its objective to enter intoprojects amongst regions in need of economic and social development.

Carlsberg's acquisition is the latest in a string of deals by multi-national breweries, all clambering to grow their foothold in what is now the largest beer market in the world by volume. At the end of May the beer-buying frenzy reached its climax when Anheuser-Busch out-bid SABMiller in the battle to win a controlling stake in Harbin brewery. Hot on the heels of that announcement, Scottish & Newcastle announced that it had purchased a 19.5 per cent share in China's Chongqing Breweries.

The frenzied buying by the multinationals has been fuelled by rapid growth in the China beer market. Since 1997, the country has witnessed a 40 per cent increase in the consumption of beer, a market increase that few international beer companies can afford to ignore.

Analysts predict that the ultimate goal of investors is to maximise profits by producing globally recognised own-brand beers. This means that local brands will come under increasing pressure from global beer brands. With significant brand strength and marketing power behind these brands, the Chinese beer market looks set for significant change in the coming years.

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