Business

Thursday April 9, 2009

Carlsberg to raise prices slightly

By ELAINE ANG


SHAH ALAM: Carlsberg Brewery Malaysia Bhd plans to increase the price of its products soon to mitigate escalating costs, said managing director Soren Holm Jensen.

“We will see a very marginal price increase – a few per cent – on some products. It is not across all products and categories,” he said in an interview.

High raw material costs especially in the past year have been eating into the profits of local brewers.

Due to Carlsberg Malaysia’s forward hedging policy in 2008, the group had locked in purchases of raw ingredients at high prices although spot prices have plunged to their lows.

Jensen said the beer industry had also been plagued with a big change in foreign exchange rates especially the US dollar.

“The beer industry in certain parts of Asia, including Malaysia, buys a majority of its raw materials in US dollars. The currency has strengthened since last year and it has affected costs,” he added.

Last year, Carlsberg Malaysia increased product prices across the board by about 3% in April (30 sen per large bottle of 640ml to 650ml) as raw material costs such as the malt and hops surged by some 250% in the first quarter of 2008 versus the first quarter of 2007.

OSK Research analyst Vincent Lim said the price increase would help cushion the effects of rising costs on Carlsberg Malaysia’s bottom line, which led to operating costs surging 8.6% in the fourth quarter of 2008.

“I expect demand to be resilient as the quantum of increase is small and consumers down trade their alcohol purchases to the less expensive beer in the current economic downturn,” he said.

Nevertheless, consumers do pay more for beer in the country due to the high excise duty, ad valorem duty and sales tax imposed. About 45% from the RM12 price of a 640ml to 650ml bottle of beer goes to taxes.

Carlsberg A/S president and chief executive officer Jorgen Buhl Rasmussen said the group was also looking at increasing product prices globally.

However, the price increases globally would be less significant than what the group used to have.

“Globally, the average price increases will be lower than last year for all our markets.

“We do not expect a slight increase in price to affect demand much as beer is a low cost item in most of our markets,” Rasmussen said, adding that the price increases would also help improve the bottom line.

He noted that although prices had come down for raw materials such as aluminium and barley, the group hedged their purchases and was still faced with cost increases on a number of raw materials this year.

Carlsberg Malaysia recorded a 3% drop in net profit to RM76.1mil for the year ended Dec 31, 2008 while revenue was up 7% to RM960.2mil.

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