China:Heineken-APB’s associate, DaFuHao Breweries aquires Chinese brewery

Jiangsu DaFuHao Breweries Co, Ltd , an associate company of Heineken-APB (China) Pte Ltd (HAPBC) has acquired the assets of an existing brewery to start up beer brewing operations in the city of Wujiang located in the Jiangsu Province, the brewer announced on August 15. HAPBC is 50% owned by Asia Pacific Breweries Ltd (APB). As agreed amongst the parties involved in the transaction, the price of the asset sale will not be disclosed.

The purchase includes a 12-hectare piece of land, upon which a brewhouse and a packaging hall are built, as well as brewing and packaging equipment. The brewery has not been in use since October 2003.

The 10-year-old brewery will undergo upgrading and expansion before it commences commercial operation in early 2006 with an initial production capacity of 500,000 hectolitres. Its designed annual production capacity is 1 million hectolitres.

"Our 40% stake in DaFuHao gives Asia Pacific Breweries (APB) access to the affluent Jiangsu beer market that makes up 5% of the total China beer market. DaFuHao is the leading brewery in the Jiangsu province with a market share of 12%. Its growth roadmap is to expand beyond its stronghold market in Nantong where its beer brands such as BBOSS and Dafuhao have already commanded a strong 80% share of the 1.6 million-hectolitre beer market," said Mr Koh Poh Tiong, Chief Executive Officer, APB.

As its beer brands are fast growing in Wujiang and the surrounding areas namely Suzhou, Taicheng and the northern region of Zhejiang Province, DaFuHao often witnessed beer demand outstripping supply during the peak season. When the Wujiang brewery becomes operational, DaFuHao will utilise its newly-acquired plant to brew and pack its brands including BBOSS and Dafuhao for consumers from these regions instead of relying on the Nantong plant that is already running at full capacity especially during peak season.

With its additional production capacity and capability in Wujiang, DaFuHao will be able to more adequately fulfil the increasing demand and maximise its growth potential in these cities. On top of that, there will be savings on costly transportation expenses when the Wujiang plant starts supplying beers to these areas instead of having them transported from its Nantong plant.

"Over the past one year, HAPBC has continued to see an increasingly positive bottomline which is attributable to better performances at our Shanghai and Hainan operations as well as our investments in Kingway and DaFuHao. We are pleased that our China strategy is working well and will maintain our pace to bolster our position and extend our network in the world's largest beer market. We believe that the new brewery acquired by DaFuHao will enable HAPBC's market share to improve and contribute towards HAPBC's improving bottom line," commented Mr Koh.

The plant in Wujiang will serve as an alternative platform to grow REEB, currently brewed at the Shanghai brewery, beyond its home ground. He elaborated, "Given the Wujiang brewery's proximity to Shanghai, it will make an ideal production base to produce REEB and other APB beer brands in the medium term as our Shanghai brewery reaches its maximum capacity. While it will render support to our existing operations, it will also extend presence of REEB beyond its home province of Shanghai."

Over the past one year, APB made significant progress in the world's largest beer market with its 'One China Organisation' strategy which has been designed to give its business activities in China undivided focus and address its long term growth in the industry. This saw all its brewery operations streamlined under HAPBC which also assumes all production, marketing and sales efforts for APB's beer brands and spearheads all business strategic activities such as investments, mergers and acquisition in the PRC.

On HAPBC's achievements, Mr Koh said, "APB's 'One China Organisation' strategy has enabled the group to enhance our operations and further extend our footprint to Guangdong and Jiangsu in the PRC over the past one year. Apart from that, our investments in Kingway and DaFuHao Breweries are part of our strategy to return to profitability for our China operations. We believe that we have the right strategy in place to combat competition and improve market share and we shall continue to forge strategic alliances with suitable domestic breweries to further strengthen APB's position in the China beer market. With our newly-attained RHQ status in China and now the addition of a new plant, we expect the accompanying advantages to accelerate our return to profitability for our China operations."

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