Carlsberg Plans Two New Premium Brands

Carlsberg Brewery Malaysia Bhd, the country’s biggest brewery company, will look to introduce up to two new premium beer brands in the local market within the next year.

Although its managing director Soren Ravn declined to reveal the brand names, he said the company was looking to add to its present stable of premium beer brands.

Carlsberg imports international beer brands such as Hoegaarden, Stella Artois, and Budweiser through its subsidiary Luen Heng F&B Sdn Bhd.

“We are definitely looking to add more brands in the premium end of the market,” Ravn told StarBizWeek in an interview. With Carlsberg’s key brands being Carlsberg Green Label, SKOL, Danish Royal Stout and Corona Extra, Ravn said the focus this year was to grow the sales of its present brands.
Soren Ravn says Carlsberg will introduce new premium beers next year.

Carlsberg expects its results to be boosted this year as the overall domestic demand for beer and stout sees single digit growth after experiencing a decline last year due to the economic downturn, and as the effects of the consolidation of Carlsberg’s Singaporean outfit is factored into its results. Operational synergies and contribution from acquiring subsidiary Carlsberg Singapore last October was felt in the company’s first half results for financial year 2010.

“A big upside for us this year is from Singapore, as we are producing the beer for Singapore. The Singaporean team is also working hard to gain market share in Singapore and make it sustainable,” he said. While Carlsberg anticipates a single-digit growth for sales volume in Malaysia, the consolidated business growth including the Singaporean market would be higher.

Standard & Poor’s has maintained a “buy” recommendation on Carlsberg with a target price of RM6, given that Carlsberg has delivered the operational synergies and improved profitability associated with the purchase.

“Besides growth from Carlsberg Singapore, we believe Carlsberg Malaysia will also benefit from improved domestic beer and stout demand, particularly for the premium segment, on which the group is increasing its attention,” the report said. However, the research house cautioned that one of the risks to its recommendation and target price would be an unexpected increase in excise duty on malt liquor during the 2011 Budget. Instead of implementing excise duty, Ravn suggested that the Government should implement the goods and services tax (GST) to increase the Federal Government’s revenue base.

“A duty increase is not as simple as raising a percentage and getting more money. There are a lot of negative reactions from it,” he said.

Ravn added that even a single-digit duty increase could cause beer prices to rise, which would lead to other problems such as smuggling and trading down from beer to compounded hard liquor.

While Ravn said that it was not accurate to compare beer prices sold in the domestic market to regional peers, he said a more balanced representation would be to compare beer prices against the average disposable income.

“The issue in Malaysia is more of the fact that beer prices compared to disposable income and even food prices are extremely high. For instance, a foreign visitor to Malaysia buying food at a coffee shop would pay RM5 for a meal and maybe RM13 for a beer,” he explained.

Beer and stout manufactured in Malaysia are subject to an excise duty payment of RM7.40 per litre, ad valorem duty payment of 15% on the ex-brewery price for the beer products, and sales tax levied at 5% of principally the ex-factory invoice price on all products sold.

“We don’t see why there needs to be a duty increase because we are already the second highest in the world, after Norway (which has a higher disposable income of 8-9 times compared with Malaysia),” said Ravn.

He added that in keeping with the Economic Transformation Programme to increase tourism revenue in Malaysia and attracting foreign companies to set up their Asia headquarters here, the Government should consider the negative signals sent by further increasing excise duties. The last excise duty placed on brewers was in 2005.

“We don’t expect people to necessarily drink less but they will look at getting alcohol from other sources.

“So you move it from the official channel here where we are investing in the country – if volume is not coming from that channel, the whole part of the benefit and tax revenue is lost because more people are using the illicit channels,” he said.

Carlsberg deputy managing director Datuk Chin Voon Loong has suggested that the government consider an excise duty structure more specific to alcohol content levels.

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