Carlsberg Brewery Malaysia Berhad Cbmb
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To monitor the achievement of company's mission and vision, the management team needs to study and analyze the environment of company. One of the environment analysis models that company applies is PEST Analysis. PEST is a framework that helps to scan the macro environment in each company. PEST is acronym in term of Political factor, Economic Factor, Social factor and Technology factors. Some writer will separate the Legal factor from political become PESTEL.
Political factor derived from the decision make by government which may affect Carlsberg meeting their mission. Malaysia government has introducing several legislation & regulation to control the alcohol industry. Government introduces license system with different types of licenses in alcohol industry. For example, some licensee can only sale beer and wine, while other licensee allow to sale hard liquor. Government enforced restaurant who want to sale alcohol to apply alcohol license, and involve the restaurant liquor licenses into the business plan as a business start up cost. Other than that, Malaysia government also presents 26 types of different rates of taxes for alcoholic beverages. In Malaysia, duties tax and excise tax on beer is now RM7.40 per litre, second highest duties tax for alcoholic drinks in the world, while 20 per cent sales tax will levies by government. From 2013 budget report, Malaysia alcohol and Tobacco tax remain at the same rate, for example RM7.40 per litre.
Due to high alcoholic tax and to avoid paying any additional import charges this may indirectly encourage some of its competitors from niche market to smuggling beer or wine from surrounding countries and sale to its consumer at lower price compare Carlsberg. This may affect the revenue of CBMB and thus its profit margin. In addition, government also restricted alcohol advertisement over the broadcast media and on billboards but company sponsoring music and charity event to increase company visibility.
From political factor, government virtually encouraged black economy of smuggling. This would have adverse impact on overall economy with lower employment rate, economic depression. Alcohol price are not cheap which consider luxury beverage for human being. When economic depression, for drinker who has lower income, they are not able to demand more alcoholic drink as before, thus the revenue of the company will decline.
However, when the economy prosperity, the sale volume will be increase, this is because event or entertainment place will use more alcoholic drink as one of the beverage to serve their customers. Besides that, in special season like Chinese New Year, a larger volume of alcoholic beverage will be on sale, and the price of the products will be higher than normal day. That is because alcoholic drink in prosperity economic, due to it culture, become a necessary product, and are at affordable price to it consumer.
In addition, drinker will addicted to alcohol while they not have enough physical strength and mental in their work cause unemployment rate gradually rise up. The higher labour cost for the professional consultant, professional technicians in brewery because they need to control all the process system in brewery going smooth to prevent any sudden case happen.
CBMB has aim its target consumer at the age range from 18 to 25 years old. The major consumers are from non-Muslim. In current and foreseeable future, we notice that consumer's lifestyle and preference is changing, especially in the city life, people are start aware of healthy lifestyle, consumers are willing to spend more on buying healthy products rather than alcohol products, competitors from healthy products may threaten their financial performance. However, they are still groups of people consuming alcohol products.
Different classes of people have different enjoyment. For people who have higher education and higher income, they will pursue the quality, value, taste of the alcohol, like wine. For the people who have lower income, they only can afford for lower price alcohol to satisfy their desired. Community would like to develop alcohol or smoke rehabilitation programs and disseminate drawback of alcohol through magazines, billboard, newspaper and campaign. All these activities carry out either by government or community are threatening company's position in the market.
CBMB they have their own website which allows drinker and community to know about company condition, various products and event that going on. Through the internet, consumers can compare the quality, ingredient, and the price of beer with other company. Consumers also can through internet know the benefit offer by the company. CBMB have their own brewery industry, which installed a specialist machine and technology to brewery beer. For example, they introduce innovative draught system which produces less waste and uses less Carbon Dioxide (CO2). Many of their machines are expert by their own professional technicians to control whole the process to produce the beer and practical application are always clear in mind. CBMB would keep on upgrade existing technology to avoid impact of emerging technology.
CBMB is actively involves and committed in Corporate Social Responsibility (CSR). It has proven its good social behaviour after winning two award, for example "We are engaged with Society'' at the Winning Behaviours Award 2010 and "Asia Responsible Entrepreneurship Awards (AREA)" 2011 (8). As part of their effort to educate consumers on responsible drinking, the company had introduce 4 stands, 'Be Safe, Be in Control, Drink Smart and Drink Responsible' to combat with misuse and abuse of alcohol.
In respond to environment, the cans and bottle of CBMB are able to recycle, reuse and to reduce the pollution of environment and save earth. Its commitment and goodwill in corporate behaviour while presenting their strong financial performance should gain its confidence from employee, business partners and other stakeholder their continue support. For uncontrollable incident where there is Natural disaster that will affect the company's operation and the raw material encounter destroy. That may cause company loss the chance to produce more, and lead company stop working. Thus company should always monitor its risk management to prevent any unwanted result.
To carry out industry level analysis on the Carlsberg Brewery Malaysia Berhad (CBMB), we use Porter's five forces model to analyze the industry competitive environment. The framework provides us with an outside-in perspective on the competitive situation within the market, moreover the relationship between competitors as well as relationships with customers, suppliers and other externalities. Porter's Five Forces measure the degree of competitive forces of our competitors and us. The different structural features of the element in the Porter's Five Forces contribute to the competitive forces of the competitors. Different structural features give different strength in the competitive forces. The elements of the Porter's Five Forces are Threat of New Entrants, Rivalry among existing firms, Threat of Substitute, Bargaining power of Buyers and Bargaining power of Suppliers.
Carlsberg's distribution channel is nationwide and easy to access as they can be found in supermarkets, restaurants, pubs all over the country. This creates competitive advantage for CBMB by providing an easy way for its customer to access to its products hence creates a high barrier for new entrants to enter the industry.
Besides that, the capital requirement for entering this industry is costly and huge for new entrant to entry into this market. The equipment needed to brew beer is expensive and special in term of technology hence the barrier would be high for the new entrants to come in.
The switching cost of product is low for buyer because the price of the similar products is set at a competitive price. This enable buyers to switch to new products or similar product more easily hence it increase the competitive force of the competitors.
However, Carlsberg became one of the market leaders of beer industry in Malaysia and the high initial capital requirement set up a high barrier for the new entrants to enter into this industry. Besides that, the distribution channel also helps in stopping the competitors to entry into the industry. This would not pose any threat onto CBMB's cash flow or profit.
In Malaysia, the number of rivals is low since there is only one competitor of CBMB in the industry which is Guinness Anchor Berhad (GAB). The competition between CBMB and GAB is intense. However, the rivalry among existing firm is low because there are only two main companies in the industry.
The switching cost of beer is low because of the rivalry between CBMB and the competitors. The price that they offered is not much difference. This makes the competitor able to compete with CBMB and would causes the profit of CBMB easily affected.
The switching costs of substitute are low because there are many choices of substitutes available for the buyers to choose and easily available, for example wines, cocktail and hard liquor. This cause the profit and cash flow of CBMB to be affected.
Other than that, the buyer's propensity on substitute or beer cannot be control and it bring high risk to the company that the profit and cash flow will be negatively affected due to the change of taste of the buyer. Besides that, today customers who are more health conscious, they might change to a more healthier substitute such as red wine which believe is better for health, gradually decrease the demand for beer and poses threat to the CBMB.
Taking the substitute of wine as example, the trend of drinking wine is growing nowadays which may affect the sales of CBMB. But in some events or vacation, the sales of substitute is low because Carlsberg has its own competitive advantages over the substitute which are lower cost and more widely used in celebrating special events like Chinese New Year or football event.
In conclusion, despite as the low cost beverage among the beer, CBMB faced high threat of substitute which could bring high risk to affect the profit and cash flow of CBMB negatively.
Buyers' concentration to firm concentration ratio is high because there are only two major malt-liquor brewing company in Malaysia which are GAB and CBMB. GAB and CBMB both hold most of the market share in the industry. The numbers of buyers are many and they have no other source of product that they can obtain besides getting the product from CBMB and GAB. Hence the bargaining power of buyer is very low.
There are not much product differentiation between CBMB and its competitor because they both selling beer which only have a certain degree of product differentiation. Its price elasticity of demand is low and this decreases the bargaining power of buyers.
Because of the open and transparent prices among the market, buyers are aware of the prices of the beer and hence the awareness of buyer is high. Their bargaining power will increase because they are exposed to the information.
The buyers in this industry can choose their own preference of beer because there are many kinds of beer in Malaysia which could be the substitutes for Carlsberg and the switching cost is low. The buyers have no incentives to stick with Carlsberg and this causes the profit and cash flow of CBMB could be easily affected.
The main competitors, GAB, have launched many parties around Malaysia named Heineken Thirst, which is a music and lifestyle event that successfully attracted a huge amount of crowd. Heineken Thirst returned as a new ¬‚agship event from Heineken Music, fusing cutting edge electronic sounds and creative lifestyle content for a new and immersive way to experience music.
The bargaining power of buyers is high for Carlsberg because they have the ability to substitute their product. The price sensitivity is also a matter for their consumers. Hence, it is important for Carlsberg to maintain strong relationship with its consumers.
Based on the annual report of CBMB of year 2011, it stated that the bargaining power of buyer is low because the CBMB does not transact with a single external customer amounting to 10% or more than the CBMB's total revenue.
As a conclusion, the bargaining power of CBMB customers is low due to the addiction to beer and also the few supplier of beer in the market.
Beer is produced by water, barley, hops and yeast. These ingredients are supplied by farmers. The suppliers of raw materials are mainly farmers. The threat for power of supplier is low for the ingredients because CBMB is a big customer to the farmer where CBMB purchase a lot of barley from them. This secures their income in long term benefit.
On the other hand, the bargaining power of supplier is moderate low as Carlsberg produced and brew their beer themselves. However, they do have bottling partners working with their production department, point-of-sale suppliers working with Procurement, and transportation suppliers working with Logistics. Although the bargaining power of supplier is not high, they still manage to maintain good relationships with their suppliers for mutual benefits. The bargaining power of supplier is low and it does not pose any threat to the company.
Carlsberg, the Danish brewer, is the fourth largest brewer in the world, competing with Anheuser-Busch, SABMiller and Heineken. The Carlsberg Malaysia is placing the second market position after its main rival Guinness Anchor. The company has 4 business segments according to geographical region which are Malaysia, Singapore, Hong Kong and Taiwan.
Based on Martin Reeves' article 'Your strategy needs a strategy' in Harvard Business Review, beverage market is classified as low malleability and high predictability (refer to Appendix 1). It means the industry is predictable but you cannot change it. Therefore, classical strategy works best for company operating in this kind of environment and has a better chance to succeed. This style is familiar to business school graduates because five forces, Blue Ocean and growth-share matrix are all manifestation of it. Other strategies would be adoptive strategy, shaping strategy and visionary strategy.
Thus, we adopt BCG Growth-Share Matrix for Carlsberg Malaysia positioning analysis based on above justification.
This matrix crystallized the relationship between market growth and market share to determine the overall prospects and attractiveness for various business segments. It categorized the business segments into cash cows, dogs, star and question mark (refer to Appendix 2).
Question marks refer to the business units that are low market share but have high growth rate. The matrix proposes a life cycle where funds can be invested in the question mark in order to make them stars (tomorrow's breadwinners) or divest it.
Am-Research analyst stated that beer market in Singapore was still fragmented despite saturated with myriad brands. The Asia Pacific Breweries Ltd is the current market leader and the key brands offered are Tiger beer, Heineken, Anchor Beer and Baron's Strong Brew. While Carlsberg brewery offered Carlsberg Gold, Danish Royal Stout and Kronenbourg 1664.
Carlsberg Malaysia has obtained 19.9% of market share and place second in market position in Singapore after its main rival Asia Pacific Breweries Limited. In term of market growth rate, the annual percentage changes in sales volume have increased 11.21% in year 2011 which is slightly higher than its performance in Malaysia.
The market is still attractive as the group has achieved a stable growth in revenue mainly due to improved mix and pricing. Therefore, further investment should be taken in account.
Taiwan Beer which brewed by Taiwan Tobacco and Liquor Corporation has monopolized the domestic market under Kuomingtang rule since early of 20th centuries. In 1990, Taiwan entered its modern period of pluralistic democracy and free trade law forced the opening of Taiwan beer market. However, Taiwan Beer still remains as the island's best-selling beer which accounted 77.5% of total market share. Whereas Heineken NV, the largest imported brewery, has recorded 4.6% of the market. The third one goes to Anheuser-Busch Cos Inc which has obtained 3.8% of the whole market.
Taiwan is the hardcore-competitive battlefield for international brewery, mainly due to local consumers' drinking flavor and habits. For instance, multinational brand Jebsen & Co Ltd's Blue girls failed to advertise when launched in Taiwan. In addition, there is another player entered the beer market in 2009 - Hey Song Corp and the company planned to have partnership with current market leader. This will further post a threat the Carlsberg sales in Taiwan.
The market is relatively unattractive because of the protection of government on local breweries as well as there is less than 20% of market share for imported beers and there are many strong rivals among the imported beers. Therefore, divestment would be appropriate. The latest financial report shows that the group has completed a capital restructuring exercise to dilute its shareholdings of Carlsberg Distributors Taiwan Ltd from 50% to 0.36%. Thus, divestment could be considered.
Dogs are low market share and low growth businesses. The possible strategies include divestment, liquidation or shrinkage. Dogs may bounce back after strenuous restructuring.
The Big Two in Malaysia beer market - Carlsberg Brewery and Guinness Anchor. Prior year 1999, Guinness Anchor used to be market leader. From year 1999 to 2006, Carlsberg Brewery fought back and became number one in beer market. However, the market position of these two traditional rivals changed again after year 2006.
Based on The Star research, Carlsberg Malaysia is accounted 41% of total market share compare with Guinness Anchor's share of 59% in year 2011. For market growth, the company has increased its sale volume by 9.75% in which the company revenue rose from RM1 million to RM1.1 million in year 2011.
Carlsberg, however, still maintain its popularity in small towns and villages. It can be explained by Carlsberg's sponsor the construction of primary schools and halls for kid's education. The citizens keep supporting Carlsberg for a debt of gratitude.
The market is still attractive despite the Malaysia segment is categorized as dog. It is because it still provides a positive contribution and the contribution is the largest among other 3 segments. The opportunity cost to exit the market is too huge. Besides, there is only one rival for the group to compete in Malaysia. So, further investment is appropriate.
The brewery manufacturers have faced intense competition in Hong Kong beer market. The foreign brands in Hong Kong include San Miguel, Blue Girl, Carlsberg, Budweiser, Blue Ribbon, Lowenbrau and TsingTao. San Miguel is the best seller in Hong Kong, which brewed by San Miguel Brewery Hong Kong.
According to the report of International Market Bureau, San Miguel Brewery accounted for 35.7% of total market share; Jebsen & Co Ltd accounted 17.8% followed by Carlsberg 9.5% and Heineken 8.3% (Appendix 3). However, the market growth of Carlsberg in Hong Kong has declined 91% with the sales volume of RM14 million in 2010 dropped to RM1.2 million in 2011.
Based on Hong Kong SAR Government's research, it stated that beer is losing share to wine and whisky in the whole alcohol market. Carlsberg represent the mainstream segment and it has experienced value erosion because of gradually increase in market volume of economy segment and stable growth of premium segment.
The market in Hong Kong is unattractive as the beer market in Hong Kong is mature and fragmented as there is 6 breweries obtained more than 3% of market share. Besides, the segmented revenue is the smallest among four operating segments and it has declined 91% compared to previous year. In addition, beer is losing share in whole alcohol market in Hong Kong and it has experienced value erosion as market trend is shifting to economy segment. Therefore, company should divest it.
The Carlsberg Brewery Malaysia's managing director Soren Ravn in his recently interview said that the beer market is changing from coffee shops to trendy bars, pubs, restaurants and night clubs. And there are more female beer drinkers. The beer market trend is changing from mainstream to premium segment. The company is experienced a growth in premium beer line. The establishment of premium segment of imported beer brands such as Hoegaarden, Erdinger and Stella Artois in 2007, Kronenbourg 1664 & Blanc in 2011 and recently-launched Asahi Super Dry has contributed strong revenue growth for the group.
The generic trend is the mainstream segment would shrink while premium and discount segment will grow. Therefore, the company could introduce new products to existing market to capture this new opportunity and new market share.
The alcohol-based drinks producer in Malaysia choose not to disclose their segment reports because the competition in the brewery industry is very high as Carlsberg and Guinness are the only two alcohol-based drinks companies that have a manufacturing presence in Malaysia which has a predominantly Muslim population. As both of the companies are at a constant competition with each other to be a leader, they prefer not to disclose any segment profitability as the disclosure would reveal too much information.
Besides, the government imposed high taxes on alcoholic drinks over the last decade. Thus, by divulging the segment report might pull unnecessary attraction and might force certain parties to pressure the government to impose heavier taxes on these companies. In addition, Carlsberg decided not to reveal its other operating segments because the other segments are not significant and the group primarily operates in Malaysia for its production and sale of beer, stout, shandy and non-alcoholic beverages.
In addition, performance is measured based on segment profit as included in the internal management reports that are reviewed by the Group's Managing Director whereas segment profit is used to measure performance. This is because the management believes that such information is the most relevant in evaluating the results of the segments relative to other entities that operate within these industries. However, the segment assets, liabilities and capital expenditures information is neither included in the internal management reports nor provided regularly to the Group's Managing Director. Hence no disclosure is made. Therefore, the efficiency and effectiveness of the segment performance will be measured by other alternative ways.
The Group has three reportable segments which are the Group's geographical segments. This includes Malaysia which focuses primarily on manufacturing, marketing and distribution of both alcoholic and non-alcoholic beverages in Malaysia, Singapore and others which focus on marketing and distribution of both alcoholic and non-alcoholic beverages in their own countries. The strategic business units offer similar products but are managed separately because they require different marketing strategies due to the geographical locations.
The major competitor of CBMB in Malaysia is Guinness Anchor Bhd (GAB) . The GAB's business is primarily in Malaysia and focused only in malt liquor brewing including production, packaging, marketing and distribution of its products. Only one reportable segment analysis is prepared and approximately 1% (2010: 2%) of the total sales is exported mainly to Southeast Asian countries. Segment profit is used to measure performance as management believes that such information is the most relevant in evaluating the results of the segments relative to other entities that operate within these industries. (Refer to Appendix 3 for the financial ratio calculation)
CBMB had achieved a growth of 14.51% in the segment profit. This is due to the aggressiveness growth strategy pursuing by the CBMB. Moreover, the revenue only grows up by 9.75% but the profit had grown up by 14.51%. CBMB's operation performance is effectively and efficiency to cut down the operational expenses. Besides, there is also a growth of 7.66% in revenue from external customer. CBMB is successfully generating more sales to its local customer. This may due to the marketing strategy by campaign or promotion. This may also due to the reputation enhancement through being official beer for the Euro 2012. Besides, inter-segment revenue had been increase by 17.9%. Since the manufacturing and brewery are only located in Malaysia, the increase in the inter-segment revenue mean that there are more brewery being exported to other geographical segment. CBMB are achieving a high growth in foreign countries and there are spaces for them to growth.
However, by looking at its major competitor, GAB had achieved a better performance than CBMB. GAB had achieved a growth of 18.73% in its segment profit that is higher than the CBMB. Besides, although the growth in revenue 9.57% is lower than the CBMB, but the GAB able to generate the increase of 18.73% in profit. This show that GAB is more effectively and efficiency in cutting the operation costs by implement the Total Productive Management (TPM) in its supply chain. Besides, the increase of 8.83% in revenue from external customer is slightly higher than the CBMB too. In overall, GAB marketing strategy and operational performance is much better than CBMB.
The total assets employ by the CBMB has been reducing by 5.02%. This is due to the decrease in the cash and cash equivalents and the receivables. The receivables of CBMB has been reduced which may due to the improvement in credit control and tighten in credit policy. However, the cash and cash equivalents had been reduce largely. This is due to the repayment of loans and borrowings thus contribute to a decrease of 24.38% in total liabilities. There is also an slightly decrease of 0.48% in total equity which support the point that the liabilities is settle by cash than by issuance of shares. Therefore, CBMB's operation performance had done very well as they not only able to generate more sales, but also able to collect back the cash to repay their obligations.
On another side, GAB had achieves an increase of 3.41% in the total assets which is mainly due to the increase in receivables and cash and cash equivalents. Although there is an increase in receivables, it may due to the increase in sales and credit term to the customers. Besides, increase largely in cash and cash equivalents show that GAB is able to collect back its cash and debt which shown that GAB is very good in credit control as well. Other than that, the total liabilities had been reducing by 12.06%, which is mainly due to repayment of debt to its trade payables and derivatives. Early settlement of debt might increase the confident of supplier to GAB beyond the enjoyment of discount for early settlement. Besides, there is an increase of 9.7% in total equity that is mainly contributing from the retained earnings. This mean that GAB had achieve a higher profit thus increase the retained earnings.
Finance costs of CBMB had been reducing by 16.5% mainly is due to the repayment of the short-term borrowing, which can see from the cash flow statement of the company. Besides, loan and borrowing at the balance sheet also shown a zero amount and there are no increase in equity. Therefore, CBMB is achieving a highly effectives and efficiency in settle its liabilities by utilize its operation profit. In contrast, GAB's finance cost had been increase by 24.35%, which is due to the large amount of liabilities and obligation. Although the liabilities have been reduce but it is mainly due to repayment of debt to trade payables which doesn't include any interest charges.
Interest income of CBMB is reducing by 27.95% whereas GAB had increase by 35.43%.
Interest income is deriving from the interest charges to the borrowing made to its investment or subsidiary. Reduce in CBMB's interest income can be explain by reduction in the inter-segment borrowing which mean that the other segment is able to finance its operation by using its own operating profits. Whereas the increase in the GAB might due to the increase in borrowing to its other segment of the operation thus the interest charges are high. The other operating segment may still unable to finance its operation by using its own resources.
There are four ratios being calculated which are segment profits as a percentage of segment revenue, return on capital employed, return on total asset and return on equity. In overall, CBMB and GAB both had achieve improvement in these four ratios. However, the ratios results shown by the GAB is much healthier than the CBMB.
The segment profit as a percentage of segment revenue of GAB improved more than the CBMB. CBMB's ratio had improved slightly from 12.28% to 12.81% whereas GAB's ratio had improved from 15.07% to 16.33%. This shown GAB is more effectively and efficiently in reduce the operation expenses. Although the revenue only increases by 9.57% but the segment profit can be increase by 18.73%. As compare to CBMB, although the increase in segment profit (ie,14.51%) is also higher than the increase in revenue (ie,9.75%), both of their growth in revenue is almost the same but GAB can achieve 4% more on the growth in segment profit. This shown that GAB is more efficiency in managing the operating expenses and enjoys a higher profitability than CBMB.
For Return on Capital Employed (ROCE), CBMB had improved from 22.56% to 25.88% whereas GAB had improved from 40.73% to 44.27%. Based on the figure itself, GAB utilizes its capital employed more effectively and efficiency than CBMB because for every Ringgit Malaysia of capital employed, GAB can generate about 40% more profit than CBMB. The capital employed by both companies is almost the same (about RM500 million) but GAB is able to generate 40% more profit than the CBMB. It show that the CBMB is weak on utilize the liabilities and equity to generate the profit as compared with GAB.
For Return on Total Asset (ROA), CBMB had improved from 18.8% to 22.67% whereas GAB had improved from 30.91% to 35.49%. Based on the figure itself, GAB utilizes its assets more effectively and efficiency than CBMB because for every Ringgit Malaysia employed in the asset, GAB can generate about 35% more profit than CBMB. The total assets employed by both companies is almost the same (about RM600 million) but the GAB is able to generate 35% more profit than the CBMB. It shown that GAB is more effectively and efficiency in utilize the asset to generate more profit as compared to CBMB.
For Return on Equity (ROE), CBMB had improved from 23.21% to 26.71% whereas GAB has improved from 43.49% to 47.06%. Based on the figure itself, GAB utilize the shareholder's funds more effectively and efficiency than CBMB because for every Ringgit Malaysia contribute by the shareholders, GAB is able to generate about 40% more profit than CBMB. The shareholder's funds employed by the GAB are lesser than the CBMB but it able to generate more profit than CBMB. It shown that GAB is more effectively and efficiency in utilize the shareholder fund to generate more profit as compared to CBMB.
The current ratio and quick ratio of CBMB become worsening as compared with last year. The current ratio had slightly dropped from 1:10 to 1:0.93 whereas quick ratio had been drop from 1:0.80 to 1:0.66. This is mainly due to the repayment of the short-term debt that causes the cash and cash equivalent drop thus cause the liquidity ratio drop. Although repayment of debt can reduce the liability or gearing level of the company, but if the cash of the company does all the repayment, this might expose the company to the liquidity problem. The ability of CBMB to fund its future project or operation might be in question if the cash level of CBMB is low. Besides, an increase in the inventories is also one of the reasons. Increase in inventories indicates that more cash are being tie up with the asset and might cause the cash level drop too. It also exposes the obsolescence risk to the CBMB. However, the increase in inventories might use to finance the growth of the company and to prevent the shortage of supply.
In another side, the liquidity ratios of GAB are improving as compared with previous year. The current ratio had been increase from 1:2.65 to 1:3.32 whereas quick ratio had been increase from 1:2.17 to 1:2.84. This is mainly due to the largely increase in cash holding and the decrease of inventories holding. The credit control and debt collection had been performance well by GAB thus more cash can be collect back. Other than that, increase in revenue and decrease in operating expenses had contribute to an increase in cash holding too. For reduction in inventories holding, this might due to the tight inventory control policy implement by the GAB. However, holding too much liquidity in hand might forgo opportunity of investment income. GAB should not hold too much cash on hand as it can be invest to get more return from the investment.
Interest cover of the CBMB had improved from 30 times to 40 times. This shows that CBMB is being more able to repay its interest expenses by using its segment profit. The improvement is due to the repayment of borrowing loans that result in decrease in interest expenses. Besides, an increase in profit also makes the ratio look healthier.
In another side, GAB has a very healthy interest cover ratio that is 567 times for year 2011 and 594 times for year 2010. Although the ratio has become worsening but it still place at a very healthy level and it is much better than the CBMB. GAB has a very low interest expenses that mainly due to the low borrowing and liabilities thus a healthy interest cover generated.
The main competitor of Carlsberg Brewery Malaysia Berhad in Singapore is the Asia Pacific Breweries Limited. Starting from year 2010, Asia Pacific Breweries Limited grouped its Singapore's segmental operation into the South & South East Asia reporting region, the figure used in the calculation of the financial ratios of APB Breweries Limited is based on the figure of South & South East Asia segment (includes Singapore, Export Markets, Malaysia, Indonesia and Sri Lanka).
The figure used in the calculation of the financial ratios of the Carlsberg Brewery Malaysia Berhad is based on total operating segments of Carlsberg (which includes Malaysia, Singapore and others).
Financial ratios (Refer to Appendix )
Carlsberg Brewery Malaysia Berhad
Asia Pacific Breweries Limited
Financial year ended
Segmented Profit as % of Revenue
Growth in the Revenue
Return on Capital Employed
Return on Equity
Increase in domestic volumes
Increase in the profit before interest and taxation
The growth in the revenue of South& South East reporting region of Asia Pacific Breweries Limited ( APBL) increased by 27.3% from 2010 to 2011 whereas the increase in the profit before interest and tax from FY2010 to Fy2011 is approximately 30.4%. This contributes to the increase in the profit of APBL in the South & South East region by 0.46%. In addition, Singapore domestic volumes also grew by 3% during the intense competition. Based on the favourable results calculated above, the business of APBL proved to be profitable in the South& South East Asia operating segment.
Singapore economy remained vibrant as the tourist arrivals rose during the FY2011 and Singapore as the home of Tiger Beer continues to deliver growth in the competitive environment. In addition, APBL also focus on its strong beer portfolio to stay well ahead of the competition in the increasingly competitive marketplace. Thus, this contributes to the total domestic volumes stood at a new high with a 3.85% increase compared to a year ago.
Besides, Tiger continues to grow in volume through its marketing. As such, APBL reinforced its brand positioning in Singapore by launching its "Here's to Tiger Time" campaign. Hence, this integrated campaign includes television commercials, print advertising and active digital engagement with consumers via Facebook as APBL strategy in marketing and promoting its brand.
In addition, the increase in APBL's return of capital employed by 7.79% in year 2011 from 26.28% in year 2010 to 34.07% in year 2011 shows that APBL is efficient in utilizing its capacity to generate revenue. For example, the greater demand from the customers leads to the capacity expansion. The installation of the new fermentation storage tanks in breweries situated in Sri Lanka leads to an improvement in the efficiency of the supply chain so that the demand for the beers will be matched with a corresponding supply. As a result, it leads to higher sales volume in Singapore.
As APBL emphasize on the brand positioning in Singapore, APBL launched the JU campaign which is Singapore very first and very own version of Oktoberfest. Hence, this iconic Singapore brand brought the essence of "Togetherness" alive during the festive Chinese New Year period and this directly boosted the sales volume of APBL. The initiative also further elevated the profile of Tiger and created yet another opportunity for the brand to sustain its rapport with existing customers while winning the new ones in order to further boost its sales.
APBL also continues to remain competitive in the Singapore's market by attracting new customers and retaining the existing customer loyalty towards its beer. Tiger continued to excite football fans through its close association with the sport as one of its strategy in building and strengthen its customers' relationships. As such, APBL being the broadcast sponsor of Barclays Premier league hosted the first leg of the regional Tiger Street football Championship Showcasing which is a specially-constructed football pitch at the heart of Singapore premier shopping distinct. Thus, it gives the fans a new and unique experience centred on football, friends and Tiger beer. This explains why there is an increase in APBL's return on equity by 3.07% in year 2011.
Last but not least, APBL always focus on being innovative. Singapore became the first market in Asia Pacific to launch a locally produces Heineken Tactice Ink can due to brand's commitment in innovations. Besides, the unveiling of revolutionary of Star Bottle also gives consumers to enjoy great night out. Thus, it directly boosts up the sales volume and profit generated to APBL. Heineken reinforce the brand's premium-international positioning by launching its new global repositioning with "The Entrance" campaign.
Now let's look at the performance of CBMB in Singapore. During the year 2011, CBMB strode greatly forward on financial and operational fronts to deliver a strong performance. Hence, it succeeded in making on- target growth for three consecutive years since 2009 and a double-digit EBIT growth. It can be concluded that the robust performance is mainly due to the continuous volume growth which is in line with the growth of beer market in Singapore. The growth in revenue of 8.9% is driven by a strengthened premium brand portfolio of CBMB.
CBMB's increase in the return on capital employed by 7.58% in year 2011 (from 31.73%in 2010 to 39.31% in 2011) shows that CBMB is efficient in utilizing its capital to generate revenue. This is because CBMB made strong inroads to capture market shares in the premium segment through a profitable and efficient manner with costs growing slower than revenue. Thus, it indicates that there are good operational synergies between Malaysian and Singaporean operations. CBMB continues to tap the good operational synergies with the Group's Malaysian operations to maximise cost efficiencies. Hence, with the Malaysian operations producing the volume for Singapore, the Group is reaping several tangible benefits. For instance, the cost base is being utilised in a much more efficient manner and the Group is benefited from much higher production volume. On top of this, the reduced lead time is translating into fresher and better quality products while the associated logistics costs too have dropped. In addition, further cost efficiencies were achieved through collaborative marketing campaigns and sharing of creative production resources.
Besides, there is an increase in the return of equity of 7.91% in year 2011 from 32.65% in year 2010 to 40.65% in year 2011. This reflects that the company is efficient in generating profit given the resources provided by its stockholders. CBMB undertook integrated re- launch campaign of the Carlsberg brand that involved brand engagement activities by targeting at its core audience of young consumers in order to ensure that the iconic flagship of Carlsberg brand remained No 1 preferred premium brand. The premium brand portfolio was strengthened via the accelerated growth of the Kronenbourg 1664 and Kronenbourg 1664 Blanc variants as well as the launch of Sommers by Cider (the No. 1 cider in Denmark) in a new cider category. Hence, the investors will be more confident in their investment in CBMBto maximise their wealth and wishing for the CBMB's return on equity continues to grow.
On top of this, measures were taken to optimise CSPL's existing operational expense platforms. In addition to the above consumer, product or innovation and efficiency priorities, CSPL also focused on improving the availability, visibility and conversion of its brands with customers at the point of purchase/consumption. Efforts were made to improve the performance-based culture of the organisation through clearer measures and rewards, as well as enhancing employee engagement via talent management and recruitment activities. To this end, the rallying call of "Thirst for Great" and the 5 Winning Behaviours culture were leveraged on.
To conclude it shows that both APBL and CSPL performed well in the brewing industry. However, based on the calculations of the financial ratios, CSPL generated more profit from its sales than APBL although APBL has a higher growth in revenue. As CSPL settled its current liabilities within year 2011, its current ratio is better than APBL. This means that CSPL have more sufficient short-term assets to settle its short-term debts than APBL. CSPL utilize its cash in financing its short-term debts.
Carlsberg Singapore which is owned by Carlsberg Malaysia will most likely face the treat if Heineken manages to take control over APB stake. This is because if Heineken manages to acquire F&N, which brews Tiger, it would likely affect Carlsberg Malaysia more than Guinness Anchor Bhd (GAB) in the regional market. Thus, it will not affect the Malaysian business of Carlsberg but it will affect the Carlsberg's business in Singapore as Heineken would more aggressively promote its brand in Singapore. As such, Carlsberg's standing will be affected in due to the potential increase in competition from Heineken.
Segment reporting that based on geographical area which form the reporting segment of others include Hong Kong, Taiwan and others countries. Based on the calculation we have carried out, we compare the performance of the segment with previous year and current year financial ratio.
This segment is making loss for both years with increases of RM 945,000 losses. The losses increase by 43.5 per cent of the previous year losses. But the revenue from the external customers in this segment has increase significantly for RM 6,408,000. There is 42 per cent increase in the revenue but the total segment profit and loss is still remains at the level of losses. This indicates that this segment is weak in its working capital management. Besides that, it might also cause by the high expenses in the segment which bring down the profits to losses. The expenses that incurred is to generate the revenue of the products but the expenses incurred is greater than the profit of the product hence it generate an increasing percentage of losses.
Other than that, there are also depreciation and amortization expenses. This expenses increase insignificantly of RM 12,000 with the percentage of 8.7 per cent. This is could be due to acquisition of machinery or capital assets. The assets are depreciated and amortize during the financial year and add effect to the increase amount of the depreciation and amortization expenses.
Finance cost of this segment increases by RM 271,000 with a total increasing percentage of 71.3 per cent. The finance cost of the segment may include the cost of borrowings and also the interest that they are required to paid before the principal is fully pay back. Assume the interest of the debt is 5 per cent, this segment have borrow a short term borrowing of RM 5,420,000 to be include in the working capital to improve their cash flows.
Interest income is arisen within this year, the previous year does not have any interest income for this segment. This helps the segment to reduce the losses from the selling of product.
During the year, segment of others invest in others company with less than 50 per cent but more than 20 per cent of share as accounted association. The association generate share of profit for this segment in both year. This year the profit has increase by RM 2,480,000 with the increasing percentage of 45.4 per cent. The performance of the association is good and consistently generating profit for their shareholders.
Revenue generate from the acquired asset for the previous year is 8.71 per cent whereas for this year the percentage is 13.25 per cent. There is an increase of 4.54 per cent in the revenue over asset. This mean that for every extra RM 1 invested in the asset, it can generate extra RM 4.54 revenue for the segment. This indicates the reported segment is good in utilizing their asset to generate the maximum profit.
Besides that, based on information we gather in the annual report on the expenses, we have carried out the revenue over expenses ratio, the revenue generated has the ability of 144.5 times to pay back the expenses in the year 2011 and 110.6 times to pay for the expenses in the year 2010. There is increase of 33.9 times for the revenue to repay the expenses. This indicates the company is very liquid in its working capital and also its ability to repay its immediate liability.
Furthermore, this segment has generated enough revenue to repay its finance cost. In year 2011 the interest cover is 33.3 times but in year 2010 the interest cover is 40.2 times. There is a decrease of 6.9 times of interest cover, despite the decrease percentage, this segment is still able to generate sufficient revenue to cover its finance cost to avoid any liquidity and bankruptcy risk.
Based on the performance review of the latest quarterly annual report of Carlsberg, the revenue in Malaysia has increased 14.1% which derived from growth in premium beers and locally-produced Asahi while Singapore has increased 6.4% from product mix and pricing. This indicates that product development strategy still can be adopted by introducing new products to existing market - Malaysia and Singapore.
Nowadays the people are more healthy-conscious especially the ladies are searching for low calorie food and beverage. A bikini-friendly beer may be suited and welcomed by ladies whom like to have a sip without gaining accompanying weight.
Regular beers contain 150 to 330 calories per 12 ounce bottle. Anheuser Busch Natural Ice contains 157 calories per 12 ounce bottle while Guinness Extra Stout and Heineken have 176 and 166 calories respectively. Sierra Nevada Bigfoot contains 330 calories which is equivalent to the calories one and a half bowl of rice!
The low calories beer can be ranged from 105 calories to as low as 35.5 calories. The top ten lowest calories beers include Heineken Light and Budweiser Select which contain 99 calories while the Anheuser Busch Natural Light has 95 calories.
A few players have already joined the game. They are the old competitors of Carlsberg which include Heineken, Guinness and Anheuser Busch. There are criticisms for low calorie beers. It will lose its appealing flavor due to the process they make the low calorie beer.
The beer market in Malaysia is shifting from mainstream to premium segment. The managing director Soren Ravn said that premium beers segment will be the key growth driver of the group business. Therefore, the company should follow the market trend by strengthening its premium beer portfolio in order to grow market share.
Carlsberg Brewery Malaysia can introduce some premium beers which are much more different than Guinness Anchor, APB and San Miguel's premium brands. These brands accompany particularly well with burgers and steaks. It will be welcomed by young people, working adults as well as tourists. They are Lazy Magnolia Southern Pecan from Mississippi, Sam Adams Boston Lager, Abita Turbodog from Louisiana and Wilmer Hefeweizen from Oregon.
Today, marketing challenges are tougher because of factors that drive the consumers' attitude and behavior. Traditionally, marketers set the marketing strategy based on the quantitative data from surveys and qualitative insights from interviews. However, it is subjected to fundamental flaws because the data rely on consumers' memories. They are frequently recalled inaccurately and biased since the consumers are more likely to remember the experience of transactions which made them feel good.
Emma K. McDonald in Harvard Business Review has suggested new mobile-phone-based tool. It provides real time experience tracking which supply instant and unbiased feedbacks. Surprisingly, it reduces the surveys to just four questions. PepsiCo and Energizer has already been adopted this tool. Likewise, Carlsberg Malaysia can adopt same technique to determine the consumers' preference and potential market prior brewing its own low calorie beer and import more premium beers.
If the responses from market surveys react positively, then Carlsberg Malaysia takes further step. Among the low calorie beer, Grupo Damm Brewery has developed the lowest calorie beer - Free Damm which contains only 35.5 calories. Grupo Damm Brewery was founded in 1876 and it is one of the most successful and iconic brands with 85% market share in Barcelona beer market.
Carlsberg Malaysia can consider launching a strategic alliance with Grupo Damm Brewery in research and development of low calorie beer brewing process. This can reduce the research cost significantly as well as decrease the likelihood of failure and number of defects. This can provide Carlsberg Malaysia a competitive edge to its regional rivals.
Besides, company can form a long-term partnership with these premium beer breweries to supply the imported premium beer to Malaysia. They are Lazy Magnolia based in Mississippi, Boston Beer Company, Abita Springs Brewery from Louisiana and Wilmer Brothers Brewery in Oregon.
Many customers confess that the companies are pushing them away because of the overwhelming volume of marketing messages. A survey from IBM Institute of Business Value reveal that customers actual reasons of why they interact with company via social media are they want discount and they want purchase (Appendix 4). Patrick Spencer in his article's 'To keep your customers, keep it simple' in Harvard Business Review has disclosed some effective tactics.
First, Spencer suggest reduce the number of information and simplify the buyers' decision making. For instance, company can state that its light beer is cheaper by 20% of regular beer and only one-third calories of regular beer. Next, he advises company has to provide trustworthy source of product information. For example, company reduces the amount of calories in beer by reducing the content of carbohydrate and use rice as material instead of barley. Third, company should provide tools that allow customers weigh their options. For example, company establishes the light beer with different flavor.
To increase the performance of the company portfolio, Carlsberg Malaysia can implement market development strategy by venture into new market other than the segment reported region.
There is a list of new market that Carlsberg Malaysia can entry into. We have listed out the most possible market that Carlsberg can entry which is Solomon Island which has 523,000 populations, Fiji Island with 868,000 populations, Papua New Guinea with population of 7 million and also New Caledonia with population of 249,000. These countries are possible to be the next market that Carlsberg and venture into.
The first market that we would recommend Carlsberg to venture in is the Papua New Guinea, which has the highest population among the choices. But the market in that country has been dominated by its local breweries company.
The second market that is suitable to venture is Fiji Island. The 868,000 population market is supply by its own local 3 breweries company. There is very little competition in that country in the beer industry.
Besides these two countries, there are another two countries which we recommend to entry, the New Caledonia and also Solomon Island. But these two countries have been entered by our existing competitor which is the Asian Pacific Breweries Limited of Singapore in the year of 2010 for New Caledonia and Solomon Island in the year of 2011. Our competitor has entered into the market and started their operation earlier than us, therefore it will be more difficult for us to capture the market shares in that country.
For the first two markets, we would recommend Carlsberg Malaysia to acquire the local company to entry into that market. By acquiring the local companies, CBMB is able to capture all the market shares of the country instead of enter into that market to compete with them. This can ease the process of entering the market and the consideration paid to acquire the local company will cover the capital asset expenses that needed to brew beer.
But for the other two countries, we would recommend Carlsberg to implement price penetration strategy. By implementing price penetration strategy, we will able to capture some market shares in the country and after we capture the market shares we will gradually increase the price of the product back to the equilibrium market price.
All the options above will be supported by the logistics and supply chain for the Carlsberg's product. All the products will be supply from the manufacturing country which is Malaysia and gradually switching the manufacturing process to the respective country to lower down the logistics cost.
CBMB has improved its profitability and performance as compared to previous year. However, the company still have a room to improve in market position compare to its main rivals in each geographical segment. The company should continue to improve in term of profitability, efficiency, effectiveness and market position by using benchmarking with world -class companies such as GAB, APB and San Miguel. CBMB shall adopt product and market development by introducing new products to existing market and new market to gain more market share in order to achieve its objective.
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