Beer price wars cut DB growth

DB Breweries has renewed its plea for an easing of the beer market's price war after reporting much flatter earnings growth and lower sales volume.

Detailed financial results for DB are not made public by its Singaporean owner, Asia Pacific Breweries (APB).

But yesterday APB said DB's earnings before interest and tax were 3 per cent ahead for the six months to March 31.

That was well down on DB's double-digit growth of the three previous years, and the 11 per cent growth in group ebit for the half-year.

APB said DB's 3 per cent ebit boost was mainly because of lower overheads and marketing costs. The volume of beer sold dipped 3 per cent and, because of the lower kiwi dollar, DB's ebit was down 1 per cent in Singaporean dollars.

DB's managing director, Brian Blake, also said market share was down 0.3 per cent.

DB's beer market share is about 37 per cent, compared with Lion Nathan (51 per cent), Independent Distillers (5 per cent) and Fosters (4 per cent), with imports probably making up the rest,

Blake said his company had been prepared to lose a bit of volume and market share to protect margins.

It had signalled to the industry three months ago that there needed to be an easing of the price wars in the beer market to protect margins, but the call had not been heeded.

He said the whole sector was facing increased costs and needed to stop competing so aggressively to help ensure all did well.

"We should be focused on protecting the profitability in the industry instead of driving it through the floor," Blake said yesterday.

But there was market scepticism that DB would honour any commitment to refrain from deep discounting.

"We'll believe it when we see it," said one source.

Lion Nathan New Zealand said it would not talk about details of pricing or respond publicly to Blake's call.

But corporate affairs director Liz Read insisted Lion Nathan's pricing was independent of what competitors did.

Meanwhile, Blake said DB had been able to achieve 3 per cent ebit growth in the latest half-year, despite lower volume and market share, because of an efficiency drive across the business, including a cutback on marketing.

He did not believe the drop in marketing would hurt DB, as he suspected all beer sellers had cut back on advertising.

"So I don't think we'd necessarily be competitively disadvantaged in that respect."

Asked whether APB was concerned at DB's ebit growth being lower than the group's, Blake noted ebit growth had averaged 14 per cent for the past three financial years, and that the most recent half-year growth rate came in the middle of a "beer war".

In late March, DB launched its first ready-to-drink beverage, the Barrel 51 bourbon and dry cola mix.

It was the first of several new products DB planned to bring to market this year in an attempt to maintain stronger earnings growth.

MARKET SHARE

Lion Nathan
51 per cent

DB Breweries
37 per cent

Independent Distillers
5 per cent

Fosters
4 per cent

(Source: DB Breweries)