HONG KONG: Kingway Brewery, a leading beer maker on the mainland, recorded bleak results last year amid weak consumer spending, although performance in the first five months of 2009 was better than a year ago, company officials said Friday.

Meanwhile, higher barley prices due to bad weather along with millions of factory workers losing jobs in Guangdong province, Kingway's key market, cast shadows over the brewer's outlook.

Without giving details, chief financial officer Liang Jianqin said lower raw materials prices will reduce the production cost of beer. "Compared with last year, wheat germ's price slumped by a double-digit percentage because of good harvest. We cannot say how much the percentage is as it may affect our share price," Liang told reporters in a press conference.

Chairman of Kingway Brewery Li Wenyue said sales for the first five months of 2009 was better than the same period last year. Sales in Guangdong improved slightly from 2008, he said but refused to comment further.

"The whole performance of the company has had a year-on-year climb. Beer sales volume for the whole country is more-or-less the same as last year," he said after the annual general meeting.

China's beer output rose 5.5 percent to 41 million kiloliters in 2008, the slowest growth in almost three years, according to beverage analysts.

Li said many factories in Guangdong closed down amid the financial crisis, which has hugely affected sales in Guangdong. "Two to three million factory workers lost their jobs as factories in Shenzhen and Dongguan were shut down. This decreased beer consumption in Guangdong in 2008," he said.

Beer sales volume of Kingway Brewery dropped 13.4 percent to 641 million metric tons while its gross profit recorded a 42.5 percent year-on-year fall in 2008.

The global economic crisis followed by continuous natural disasters, such as snowstorm and heavy rainfall in the first half of last year, affected the company's performance last year.

Moreover, fierce competition in the mainland beer industry with rivals Tsingtao, Snow Breweries and Yanjing lowered the operating results of the company.

"Consolidation and merger is the way for China's beer industry to go. Heavyweight players Tsingtao, Snow Breweries and Yanjing Beer should make acquisitions in order to gain a larger market share on the mainland," Cho Fook-tat, an analyst at Taifook Securities, said.

With a difficult year ahead, chairman Li said the company has a strategy to improve its bottom line. "We will widen the product price range and launch various priced beers. For example, beer sold for 5 yuan is not welcomed by the market. We will keep it circulated and introduce a brand-new 3 yuan beer. Diversifying the beer's price range is our tactic to survive," he said.

Kingway, in which Heineken International owns a 21 percent stake, said it prefers organic growth to growth by acquisition.

"Unlike Tsingtao beer, we don't buy out existing factories and its sales network. Building factories costs less though we have to commit more time and effort to develop our sales network."

China Daily

(HK Edition 06/13/2009 page2)