China: San Miguel to close two South China beer operations
Beverage and food conglomerate San Miguel Corp. will close down two breweries in South China this year in a consolidation intended to reduce production costs, an Inquirer source said, according to Inquirer and INQ7.net statement on April 13.
To be closed down are Guangzhou San Miguel Brewery Co. Ltd. and San Miguel (Guangdong) Brewery Ltd., the source said.
San Miguel told the Securities and Exchange Commission recently that Guangzhou San Miguel Brewery incurred an operating loss in 2005 but San Miguel (Guangdong) Brewery has had healthy volume and revenue growths as a result of efforts to improve the market position of the "Dragon Beer" brand.
The source said a one-time "impairment" charge of roughly $35 million would be booked as a result of the consolidation of the breweries in South China, which is expected to improve efficiencies in the South China operations.
The company is restructuring its South China operations and will rationalize production capacities in the area, the source said.
Efforts will also focus on reinforcing the company's brand and strengthening sales and distribution networks, the source added. "With the single exception of Guangzhou San Miguel Brewery, our beer operations in North and South China, including Hong Kong have done reasonably well," the source said.
San Miguel reported a 14-percent increase in its international beer sales in the January-February period over the same months last year, on strong results posted by the China operations.
It said revenues from international beer operations were up six percent at $43.1 million on a sales volume of 6.97 million cases as of end-February. Sales in northern China were up 37 percent, driven mainly by San Miguel's "Blue Star" brand, the company said.
Sales in Guangzhou recovered in February through an "under-the-crown" promo and implementation of a new sales structure, it said. In Hong Kong, sales were up from last year although these were skewed toward economy brands and export segments.
Sales in Australia were the same as last year, as San Miguel had to deal with heavy competitor discounting and a recent excise tax hike. With San Miguel subsidiary J. Boag & Son not joining the price wars, volume shortfall had been offset by better average selling prices. January-February Sales in Indonesia fell seven percent, with a drop in January volumes following a price hike in December to cover a 130-percent increase in fuel costs.
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