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Budweiser, Hong Kong's biggest IPO in 2019, reports lower profit on weaker `nightlife channel,' price fight in South Korea

Chad Bray chadwick.bray@scmp.com

Budweiser Brewing Company APAC said on Friday that its profit fell 22 per cent in the third quarter, the first time Asia's most profitable brewer has issued its report card since its revived US$5 billion initial public offering in Hong Kong last month.

The regional arm of the world's largest brewer said that its volumes declined 6.5 per cent in the three months ended September 30 as it faced "softness" in its nightlife channel in China and a competitive and challenging environment for the industry in South Korea.

Budweiser reported a profit of US$257 million in the latest quarter, compared with a profit of US$329 million in the prior-year period. The results included US$53 million in non-recurring costs associated with its Hong Kong listing and business restructuring. Its normalised earnings before income tax, depreciation and amortisation, which do not include some non-recurring items, rose by 4 per cent on an organic basis to US$633 million in the quarter.

Hong Kong's economy, which had slowed as the US-China trade war escalated this year, has also been hit hard by anti-government protests and civil unrest that have raged of five months. Restaurants, hotels and spirits makers have all said the demonstrations have weighed on their results as fewer tourists visit the city. Budweiser is the third-largest brewer by volume in China after China Resources Snow Beer Holdings and Tsingtao Brewery.

Chief executive Jan Craps said the company sees a lot of potential for acquisitions in the region and would look to pursue "potentially transformational M&A to capture inorganic expansion opportunities." Budweiser previously said the listing would make it easier for the company to pursue acquisitions in Asia.

"We are confident that our strong commercial plans, unparalleled brand portfolio, robust route-to-market and, most importantly, our talented people, position us well to deliver long-term sustainable growth in Asia-Pacific," Craps said.

Budweiser prices stock sale at bottom of price range at HK$27 A share

Budweiser shares slumped 2.6 per cent in early trading on Friday morning, to HK$29.70, after hitting as low as HK$28.15. They have rallied 13 per cent since their debut on September 30 through Thursday.

The company's IPO was the biggest listing in Hong Kong this year and the second largest globally behind Uber Technologies' US$8.1 billion offering in New York in May. It followed a turbulent summer that saw several companies delay their offerings as Hong Kong endured one of its worst political crises, which put the city's reputation as an international financial centre at risk.

Budweiser, which counts Corona, Goose Island and Stella Artois among its brands, had hoped to raise as much as US$9.8 billion earlier this year, but scrapped its listing in July after it was unable to attract the valuation it desired.

Before its slimmed-down offering in September, Budweiser sold its Australian operations to Japan's Asahi Group Holdings for A$16 billion (US$11 billion). The transaction is expected to close in the first quarter of next year.

The Budweiser IPO was a boost for Hong Kong Exchanges and Clearing, the bourse operator, after the venue fell behind the New York Stock Exchange and Nasdaq in the first half of this year in the annual race to be the world's capital for global fundraising.

On Monday, ESR Cayman, the logistics real estate developer backed by Warburg Pincus, said it was looking to raise as much as US$1.45 billion in what would be the second biggest listing in Hong Kong this year. It is one of several companies that have revived listing or applied to raise funds in recent weeks as the city's IPO market trickles back to life.

Hong Kong has been grappling with social unrest since June in response to a controversial extradition law that would have made it easier to send criminal suspects to mainland China for trial. It has evolved into a broader discussion over income inequality, affordable housing and Beijing's influence over the city.

In the third quarter, Budweiser said its revenue fell 4.7 per cent to US$1.82 billion, according to its financial statement. It attributed a decline in volumes in its China business to shipment phasing in the second quarter ahead of summer activations, and softness in its nightlife channel.

"While we have observed continued softness in this channel, we do not believe this is a structural change for the medium or long term," Budweiser said.

As it sought to entice investors earlier this year, Budweiser touted the growth potential of its remaining Asian operations. Apart from China, it counts India, South Korea and Vietnam among its principal markets.

In South Korea, Budweiser said the overall industry has declined, primarily driven by weaker consumer sentiment. It also faced a price gap with its main competitors after raising prices in April, which hurt sales of its Cass brand.

"As of October 2019, we have decided to roll back the price increase implemented in April 2019 to revitalise the domestic beer industry during the economic downturn which has recently intensified," the company said. "The brand equity of Cass remains strong and we are accelerating our support for the brand."

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2019 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2019. South China Morning Post Publishers Ltd. All rights reserved.