Business

Thursday July 30, 2009

Acquisition boost for Carlsberg

By ELAINE ANG


SHAH ALAM: Carlsberg Brewery Malaysia Bhd’s acquisition of Carlsberg Singapore is estimated to boost the company’s profit after tax (PAT) by some RM37mil or nearly 50% in financial year ending Dec 31, 2010 (FY10), said managing director Soren Holm Jensen.

“This is based on Carlsberg Singapore’s PAT of RM24mil in 2008 and estimated savings from sourcing and operational synergies of RM22mil post-acquisition as well as a RM9mil deduction on funding costs and interest foregone.

“We are assuming that PAT in FY09 and FY10 remain the same as in 2008 for both companies which means no further development in the business in these two years,” he told a press conference on the proposed acquisition Wednesday.

Jensen said Carlsberg Malaysia was in the midst of appointing the relevant advisers and starting due diligence for the acquisition.

“We hope to call for an EGM by end-October for independent shareholders’ approval and complete the proposed acquisition in November,” he said.

Carlsberg Malaysia announced on Tuesday that it had entered into a memorandum of understanding (MoU) with its holding company Carlsberg Breweries A/S to acquire the entire equity interest in Carlsberg Singapore Pte Ltd for RM370mil cash.

The terms of the MoU give Carlsberg Malaysia the manufacturing and distribution rights for sales of Carlsberg products in Singapore, effective Jan 1, 2010.

Jensen said the acquisition was strategic for Carlsberg as it enabled the group to utilise spare production capacity with minimum investment.

The spare capacity was partly due to the loss of a supply contract by Carlsberg Singapore for the Singapore market in 2008.

Manufacturing products for the Carlsberg market in Singapore would boost Carlsberg Malaysia’s current production capacity by another 160,000 hectolitres from its current one million hectolit res.

Jensen said in addition to sourcing Carlsberg products for Carlsberg Singapore, it would also experience double tax deduction on advertising and promotion activities as well as operation synergies.

“Early indications show that about RM20mil to RM25mil in savings can be obtained from the synergies.

“The sourcing and operational synergies are so significant that they will be one of the deal breakers for the acquisition. If we cannot realise or justify them, we will not proceed,” he said.

The acquisition is also expected to generate a net return on investment of 10% for Carlsberg Malaysia versus a return of less than 2.2% per annum on its current surplus cash of RM260mil.

“Our cashflow is growing every month and especially strong during year-end so the cash pile should be sufficient to finance the RM370mil purchase once the deal goes through.

“However, we may need to borrow in the short term for working capital purposes,” Jensen said.

On concerns that the group’s dividend payout would be lower postacquisition, Jensen said one of the terms of the MOU was for its majority shareholder to support any board proposal to declare a dividend of 50% to 70% of Carlsberg Malaysia’s net PAT for a duration of five years.

“We can resume a healthy dividend payout as per previous times.

“Although the dividend payout ratio is lower than our normal 100% of PAT, base earnings will go up postacquisition so dividend will still be about the same amount in absolute terms,” he said.

The Singapore beer and stout industry has been growing at a comp ounded annual growth rate of 4% from 2000 to 2008, a strong rate for a matured market.

Carlsberg Singapore has a 21% share of the beer and stout market after market leader Asia Pacific Breweries, which has a 63% market share.

Based on internal estimates, the total Singapore beer market generated a profit before tax of about RM200mil in 2008 versus RM285mil in Malaysia, according to Jensen.

OSK Research analyst Lim Vi Ming views the acquisi tion as a boost for Carlsberg Malaysia’s earnings.

“The acquisition price of RM370mil is a fair price. If we take into consideration the estimated savings from sourcing and operational synergies that can be obtained, it is a good deal.

“The profit guarantee for 2009 and 2010 is a good sweetener,” he said.

However, he cautioned that the Singaporean beer and stout market was very competitive and growing market share might be difficult as the Tiger brand had a strong presence there.

Carlsberg Malaysia ro se 38 sen to close at RM4.24 with 1.12 million shares traded yesterday. The 9.8% jump was the highest gain since March 22, 1999.
CARLSBG : [Stock Watch] [News]

  • E-mail this story
  • Print this story