China boosts A-B's fortunes

Related tags Beer market China Anheuser-busch

International brewery giant Anheuser-Busch is predicting double
digit returns for shareholders this year, citing strategic growth
in the booming China market as one of the main reasons.

In June this year A-B​ won a hard-fought battle against rival brewer SABMiller for a controlling stake in China's Harbin Brewery, one of the oldest brewers in China and a leading player in the all-important North-Eastern provinces. Although many analysts believe that A-B paid a high price for the stake its value in strategic terms is said to be almost priceless.

In a pre-results statement at a conference in the US company executives said that the year 2004 would represent the sixth straight year of solid growth. Despite the general slowdown in spending for consumer products this summer in its world markets, the company said that for the bottom line earnings per share for the full year are expected to grow approximately 11 per cent. The company added that this estimate includes dilution from its acquisition of Harbin.

At the conference W. Randolph Baker, vice president and chief financial officer, spoke of Anheuser-Busch's international strategy, emphasising its expanded participation in the Chinese beer market.

"China is the world's largest beer market in terms of volume and growth. Over the past five years, the Chinese beer industry has grown more than 5 per cent annually. The country's relatively low per capita rate of consumption has been increasing and is supported by an expanding economy and rising disposable income."

Anheuser-Busch entered the Chinese beer market in 1995 with the purchase of a brewery in Wuhan for brewing and packaging the Budweiser brand. Baker commented that, unlike most foreign brewers' brands, the sales of the company's flagship brand in China have developed into a very profitable business.

"To expand our participation in this major growth market, we have made investments in two leading Chinese brewers,"​ Baker continued.

In 2002, Anheuser-Busch formed a strategic alliance with Tsingtao, the leading brewer in China with a 13 percent share. Anheuser-Busch will ultimately gain a 27 per cent ownership interest in Tsingtao. In recent months, Anheuser-Busch has acquired ownership of Harbin Brewery Group, China's fourth largest brewer with a 5 per cent share of the Chinese beer market.

"With its strong market position in Northeast China, Harbin is a good complement to our successful Budweiser operations and Tsingtao partnership,"​ Baker added.

"Our international beer segment is making a significant contribution to Anheuser-Busch's earnings growth, and we are strategically well positioned for long-term growth with our expanded position in China,"​ observed Baker.

"We remain confident in our ability to achieve double-digit earnings per share growth over the long-term, along with continued improvements in return on capital," said Baker, who also emphasized the increasing importance of the Mexican market to the company, where it is well represented by its 50 per cent stake in brewer Modelo.

Speaking in broader terms about the company's operations, A-B said that it would be announcing a number of initiatives aimed at increasing beer sales volume and market growth. In October new additions to the Bacardi Silver family brand will be made as well as other new products featuring different flavours and varying levels of carbohydrates, together with a number of new innovations in packaging.

Commenting on the domestic market the company said that sales in the US had picked up after a soft 2003. Parellel to this there was also a warning that the mid-summer months were expected to see a slight lull in demand, something that had affected the whole US drinks industry on account of abnormally cool weather.

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