Carlsberg and GAB taking divergent paths for profits

The Star Business By DANIEL KHOO  Saturday March 3, 2012

Carlsberg will bank on its overseas operations, in particular the growth from Asean markets, to drive its profits as it aims to transform Kuala Lumpur into its manufacturing hub, while GAB intends to continue its streak on focusing on the local market.

Analysts covering the stocks say that this will neatly pan out the heated competition at home.

At the same time, it would ensure that both companies continued grow, and that both the companies did not cannibalise each other's market share in Malaysia where growth (relative to the region) is perceived to be mature on the back of historical population trends.

In a recent press briefing on its financial results for its financial year 2011, Carlsberg says it intends to begin production of all of its premium beers locally once it sorts out final details of its production capacity.

In addition to already producing its flagship Japanese branded Asahi Super Dry locally, Carlsberg intends to begin production of its other premium beers Kronenbourg 1664 and Kronenbourg Blanc at its Kuala Lumpur facility within the next three to six months.

By doing this, Carlsberg managing director Soren Ravn says that the company would be able to save on tangible and intangible costs related to these products. Currently, Carlsberg imports the Kronenbourg 1664 andKronenbourg Blanc while it has just begun local production of the Asahi Super Dry.

This will potentially see Carlsberg increase its cost savings of RM5 per litre of imported beer, reduce its expenditure on logistics and substantially cut transportation costs.

Ravn recently told the press that the intangible savings would be a fewer occurrence of Carlsberg running out of stock of those brands during peak periods, and that it would be able to sell beer fresh to its customers.

Carlsberg is also poised to launch two more premium beer brands for its customers some time this year. It is learnt that the company is collaborating with various artists - both local and international and is poised to ink a marketing and promotion campaign with them in conjunction with this launch.

Meanwhile, Carlsberg, which is beginning to reap the fruit of the consolidation of its Carlsberg Singapore Pte Ltd as a wholly-owned subsidiary, sees future growth coming from outside of Malaysia instead of from within the country due to the local market being already “saturated”.

“Next year we expect that Singapore will grow twice as fast as Malaysia, and Malaysia will see single-digit growth. Market growth this year will only be a couple of percent (while) Singapore will grow around 6%,” Ravn says.

On this note, Carlsberg intends to eventually transform Kuala Lumpur as its regional manufacturing hub to cater for all of the Asian region.

“Asia is quickly becoming a global leader and the Asean region holds significant potential due to burgeoning economic prosperity. Focus is on Asia and how it can contribute towards global growth, on this score, we are strategically increasing the number of brands to be manufactured in Malaysia,” Ravn said in an interview with StarBizWeek.

“To produce here is a lot more profitable. We are looking to be a regional hub but we will take this step by step. We will start with Singapore, which is under me now,” Ravn said.

“Last year, we produced almost 1.4 million hectolitres and we can still expand on that and we still have some exports that we can manage without having any capacity issues to supply to the domestic market in the next five years,” Raven adds at the recent press briefing.

GAB's managing director Charles Ireland says the company will continue to focus on the Malaysian market and is confident of it because of growing wealth which will eventually translate into higher disposable income for the populace.

“We will keep aiming to grow at our past five years' compounded annual growth rate of 11.5%. Some say that the market is saturated but we still see it otherwise and we can prove it with our track record in the past 10 years,” Ireland says, adding that GAB continues to see the Malaysian market as its future due to the potential upside growth from very low levels of per capita consumption of beer.

GAB contends the high excise duties imposed on beer, despite Malaysia having one of the lowest disposable incomes per capita, is keeping consumption of beer in check. However, it still sees Malaysia as a long term investment.

“We will keep investing in Malaysia as this is producing superior returns for our shareholders. Feedback from our majority shareholder and the minorities have been positive - they have been happy with our performance over the past 10 years and they are confident we will be able to deliver returns for them,” Ireland adds.

GAB also sees the domestic market recording a mid single-digit volume growth for the next five years and expects sufficient capacity to meet demand. At the same time, however, GAB says that it will invest RM75mil for its financial year 2012 ending June 30 to ensure it will have sufficient “brewing capacity flexibility”.

In a press statement to Bursa Malaysia in conjuction with the announcement of its recent half year financial performance, Ireland says its performance is in line with expectations and that its domestic business is performing well despite seeing a reduction in its duty free and export volume due to its strategy to focus on the local market.

“We are certainly ramping up our various initiatives to ensure that our position remains solid and that we are able to deliver the performance our shareholders have come to expect,” Ireland says in the statement.

GAB recorded growth of 17% year-on-year in its net profit to RM121.03mil from RM103.33mil on the back of revenues also surging by 16% to RM913.95mil in its first half financial performance.

On a quarterly basis meanwhile, GAB said that its net profit grew by 2% due to “a one-off reversal of costs over-accrued in the previous financial year” on the back of quarterly revenues growing by 11%.

“With the exclusion of this reversal, the like-for-like profit before tax for the quarter ended Dec 31, 2011 grew by 18%,” GAB says in the statement.

Despite the changing dynamics and the different routes for growth both Carlsberg and GAB are adopting for growth, one thing in common for both companies at present is that the Malaysian market continues to be the main contributor to earnings.

Recent developments indicate that both Carlsberg and GAB will diverge from here and tap future growth from different geographical sources.

Differing strategies for growth still do not change the fact of the unique value that each individual brand possesses.