Carlsberg in China

Carlsberg in China
Sunny Wong
CEO, Carlsberg China
Agenda
• China Beer Market
• Our outlook of the beer market
• Carlsberg in China
- West China businesses
- Carlsberg brand business
• Year 2006 - Strengthening & Optimizing
• Focus areas in the next 5 years
Overview of the China Beer Market
• World’s fastest growing beer market – +10% in 2005
• World’s largest beer market – 306 million hl in 2005
• Per capita consumption of 23.4 liters per capita in 2005
• Compared to Europe, the potential for growth is very high
Global Beer Volum e Grow th CAGR 1999 - 2005
G lo ba l
We s t e rn E uro pe
N o rt h A m e ric a
A s ia - P a c if ic
e x- C hina
C hina
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
S o urc e : T s ingt a o , C a nda de a n, M e rill Lync h e s t im a t e s
5.0%
6.0%
7.0%
Potential of China Beer Market
• Average annual growth estimated at around 5 to 6% per year
• West China provinces are expected to grow at faster rate
Potential of China beer market
HL'000
400,000
+10%
+10%
350,000
300,000
+2007A to 2009F
CHG PA of +5%
379,257
343,997
+2005A to 2007F
CHG PA of +6%
252,547
306,156
277,567
250,000
200,000
150,000
100,000
50,000
2003A
2004A
S o urc e : C hina S t a t e S t a t is t ic s B ure a u
2005A
2007F
2010F
Low per capita consumption in west China provinces
Agenda
• China Beer Market
• Our outlook of the beer market
• Carlsberg in China
- West China businesses
- Carlsberg brand business
• Year 2006 - Strengthening & Optimizing
• Focus areas in the next 5 years
Economic fundamentals supporting beer
market growth
• Increasing consumption levels across China continue to drive overall
beer market growth
• Central government shifting focus from growth to creation of
‘harmonious society’, increasing rural incomes and consumption
• Continued support to West China narrows disparity between East and
West, increasing economic activities in West – therefore, expectation
of higher beer market growth rate in West China
• Emerging lower middle-class / middle-class allows for premiumisation
of the category
Competition will continue
• Consolidation trend and fight to increase market share will
continue
- Consolidation of owners, capacity and brands
- Smaller and less effective brewers would not stay
- Number of breweries and brands will decline over time
• Brewers are becoming better at branding and management;
and more conscious to deliver better results (particularly for
listed brewery companies)
Price is increasing over time
Factors pushing increase:
Driving need for every brewer in China to raise pricing
Elimination of weakest breweries – either acquired or unsustainable due
to loss
Consolidation creating dominant provincial players
Gradual tightening of tax system reduces size of ‘grey market’
Economic growth, urbanization and higher disposable income allows for
portfolio strategy and premiumisation to increase average price
Greater professionalisism on advertising and branding
Brand consolidation and investment – small brands of acquired breweries
are being replaced by main brands of acquirer to increase average selling
price
Agenda
• China Beer Market
• Our outlook of the beer market
• Carlsberg in China
- West China businesses
- Carlsberg brand business
• Year 2006 - Strengthening & Optimizing
• Focus areas in the next 5 years
Carlsberg Has A Long History In China
1876:
1981:
1995:
From 2003
- Carlsberg first
entered the
Chinese market by
exporting Carlsberg
Beer
-Carlsberg
-Carlsberg
Carlsberg carried
out “West China
Strategy” started
investing in local
breweries in
West China
Brewery
Hong Kong was
established,
supplying
Carlsberg Beer to
the Chinese and
Hong Kong market
Commence
establishment of
sales & distribution
network in China
-
acquired
Huizhou Brewery in
Guangdong,
Started to brew
Carlsberg Beer
there, and supply
both China and
Hong Kong
markets.
-
Huizhou Brewery
is now one of the
best quality brewery
brewing Carlsberg
Beer around the
world
-
Carlsberg’s Vision in China
To become the leading brewery group in West
China, and a major brewery group in China
To make Carlsberg a leading international
premium brand in China
Through:
growing existing and new businesses
Carlsberg’s Strategy in China
• Acquisition of controlling shareholding and
establishment of JVs in selected
provinces/markets
• Establishment of strong position /
dominance in such provinces/markets
• Explore potential synergies among
operations/provinces
• Develop and strengthen Carlsberg brand
position nationwide and as part of portfolio
in West China
Agenda
• China Beer Market
• Our outlook of the beer market
• Carlsberg in China
- West China businesses
- Carlsberg brand business
• Year 2006 - Strengthening & Optimizing
• Focus areas in the next 5 years
Carlsberg investment in China - YUNNAN
2006 Wind Flower Snow
and Moon exported to and
sold in Hong Kong
XINJIANG
GANSU
Jiuquan
QINGHAI
TIBET
NINGXIA
Xining Lanzhou
Tianshui
SHAANXI
Lhasa
Dali Brewery
• Market leader
• Main beer brands: Dali beer,
Wind Flower Snow & Moon
Kunming Huashi Brewery
Dali
Kumming
YUNNAN
Carlsberg Brewery Guangdong
Carlsberg Investment in China - TIBET
XINJIANG
GANSU
Jiuquan
QINGHAI
TIBET
Lhasa Brewery
• Market leader
• Beer brand: Lhasa beer
NINGXIA
Xining Lanzhou
Tianshui
SHAANXI
Lhasa
Dali
Kumming
YUNNAN
Carlsberg Brewery Guangdong
Carlsberg Investment in China
– GANSU & QINGHAI
XINJIANG
GANSU
Jiuquani
Jiuquan
QINGHAI
TIBET
NINGXIA
Xining Lanzhou
Lhasa
Lanzhou Huanghe Brewery Group
(3 breweries in Gansu, 1 brewery in
Qinghai province)
• Market leader
• Main beer brand: Huanghe beer
Tianshui
SHAANXI
Tianshui
Dali
Kumming
YUNNAN
Carlsberg Brewery Guangdong
Carlsberg Investment in China - XINJIANG
Xinjiang Wusu Brewery Group
(10 breweries )
• Market leader
• Main beer brands: Wusu, Xinjiang beer
XINJIANG
GANSU
Jiuquan
QINGHAI
TIBET
Xining Lanzhou
Tianshui
SHAANXI
Lhasa
Dali
Kumming
YUNNAN
Carlsberg Brewery Guangdong
Carlsberg Investment in China - NINGXIA
XINJIANG
GANSU
Jiuquan
QINGHAI
TIBET
NINGXIA
Xining Lanzhou
Ningxia Xixia Jianiang Brewery
• 2 breweries
• Market leader
• Main beer brand: Xixia beer
Tianshui
SHAANXI
Lhasa
Dali
Kumming
YUNNAN
Carlsberg Brewery Guangdong
Carlsberg Investment in China
- Geographically covering half of China
- Market leader in all West China provinces where Carlsberg invested
Ningxia Xixia Jianiang Brewery
Xinjiang Wusu Brewery Group
XINJIANG
GANSU
Jiuquan
QINGHAI
TIBET
Lhasa Brewery
NINGXIA
Xining Lanzhou
Lanzhou Huanghe Brewery Group
Tianshui
SHAANXI
Lhasa
Dali Brewery
Kunming Huashi Brewery
Dali
Kumming
YUNNAN
Carlsberg Brewery Guangdong
Agenda
• China Beer Market
• Our outlook of the beer market
• Carlsberg in China
- West China businesses
- Carlsberg brand business
• Year 2006 - Strengthening & Optimizing
• Focus areas in the next 5 years
Carlsberg Chill launched in August 2004 to reach the
large segment for “lighter tasting beer”
– very well received in the market
Cosmopolitan, Witty,
Passion for excellence, Contemporary
Carlsberg Green label
Authentic
European beer
taste, more
intellectual
Carlsberg Chill
Easy-to-drink
Fun-loving
Carlsberg has #1 or 2 market leading position
(premium segment) in 12 provinces/cities
Solid leading international beer in West China
Province/City
Ranking
Province/City
Ranking
Xinjiang
No. 1
Chengdu
No. 2
Gansu
No. 1
Chongqing
No. 2
Qinghai
No. 1
Sichuan
No. 2
Tibet
No. 2
Xi-an
No. 2
Yunnan
No. 3
Shenzhen
No. 2
Tianjin
No. 2
Shenyang
No. 2
Harbin
No. 2
Agenda
• China Beer Market
• Our outlook of the beer market
• Carlsberg in China
- West China businesses
- Carlsberg brand business
• Year 2006 - Strengthening & Optimizing
• Focus areas in the next 5 years
2006 - executing improvement
projects to upgrade operations
and profitability
Common goal as JV partners enable
strong co-operation & successful
improvement projects implementation
• Brand & Portfolio improvement
• Investment in brands
• Commercial excellence projects
• Production efficiency improvement
• Continue emphasis on environment
Brand and portfolio development:
Building & Releasing the value of
local brands
• Yunnan
- Application of HQ Commercial Excellence tools
- Reorganize portfolio to maximise revenue
- Successfully launched two new variants
• Gansu
- Launched Huanghe beer new brand ID with substantial
marketing support
• Xinjiang
- Brand re-launch focus to capture the growing local premium
and mainstream plus segment
Increased market share and improvement margin
Brand building and innovation:
• Launched new Carlsberg Chill can design
• Launched Sol beer, very well received
Marketing investment in Chill pay off
better than expectation
Production Excellence and
Cost Control
• Joint procurement project to leverage on
economies of scale in procurement
• Several projects in 2006 to upgrade capacity
and equipment standard.
- More such projects in the pipeline in 2007
• Carlsberg technical team work with local team
right from the start
- In Yinchuan greenfield brewery & other
expansion projects
• Provide training to JVs on quality improvement
project
Attention to the environment
Carlsberg – China Environmental
Program
• Traditionally China environmental
standards have been weak
• However new Government legislation
and enforcement is tightening and
approaching Western standards
• All breweries as a minimum are required
to install SO2 reduction systems (main
energy source is coal) and Waste Water
Treatment plants within next 2 years
Environmental Next Steps
• Carlsberg Central Technical Function place
high priority on performing Corporate
Responsibility Audit (Environmental and
Health & Safety) of all breweries including
JV’s
• Minimum standards will be established that
surpasses local government directives
• Key Performance Indicators and targets will
be established
• Measures will be supported by Capex spend
over next 3 years
• Monthly reporting system will establish up to
date Environmental Protection System
• All 100% owned companies will look to adopt
ISO14000 next year as part of corporate
policy
• This year, Carlsberg Brewery Guangdong
obtained ISO14000 certification & Lhasa
Brewery expected to complete by year
end
Agenda
• China Beer Market
• Our outlook of the beer market
• Carlsberg in China
- Develop West China businesses
- Carlsberg brand business
• Year 2006 - Strengthening & Optimizing
• Focus areas in the next 5 years
Building long-term sustainable
growth
– Consolidate and integration to yield synergy among
breweries
– Develop and train local talents to ensure adequate pool
of high caliber management team to support growing
business
– Continuing evaluation of further acquisition and cooperation opportunities
– Continue 2006 efforts in knowledge transfer &
implementation of improvement projects (all functional
areas)
– Commercial enhancement programs in the pipeline for
different breweries to maintain robust in-market strategy
and skill development
– Continue brand building and portfolio improvement
based on market demand and innovation to create new
opportunities
Therefore, we expect continued growth in our results
Despite
Competitive
beer market
Beer market growth
& maturity
+
On-going
improvement
projects
+
Focus on cost
Volume &
EBIT growth
West China strategy …
• Created value to local community,
employees & JV partners
• Carlsberg appreciates the good cooperation and support from Chinese
local government
- Continue building good and
constructive relationship with
Government
• Carlsberg to continue developing in
China
Carlsberg Breweries
Probably the best beer
company in the world