Financial Analysis: Asia Pacific Breweries Limited

Nature of the business

Asia Pacific Breweries Ltd started its activities in 1932 as a local brewery manufacturer in Singapore being a joint venture of Heineken and Fraser & Neave  (Yahoo Finance, 2013). Today, the group is operating in 14 countries and maintains 30 breweries in the Asia Pacific region. The company has a brand portfolio of 40 products and is widely recognized in the international market.

The group’s headquarter is located at #21-00 Alexandra Point, 438 Alexandra Road, Singapore. Since October 2008, Mr Roland Pirmez manages Asia Pacific Breweries Ltd as the Chief Executive Officer (CEO).

The company’s financial statements are prepared on the basis of the Singapore Financial Reporting Standards. Financial year of the group is ended on September 30. Annual financial reports for the years 2012 and 2011 have been audited by the independent accounting group, PricewaterhouseCoopers LLP. According to the auditors’ report, “the consolidated financial statements of the group” represent a fair evaluation of the company’s financial position and operating results which comply with the Singapore Financial Reporting Standards and other Singapore legislative requirement s.

Strategy of the company’s management is focused on further global expansion and international brands recognition policies. Over the past decade, Asia Pacific Breweries Ltd has expanded its production business to such countries as Sri Lanka, Mongolia, Lao, Indonesia, New Caledonia, Guangzhou, and Solomon Islands. In 2011, the group was listed among the 50 most profitable Asian companies by Forbes Asia’s Fabulous.

International recognition of the company results from the close attention put on the products’ quality. The company conducts over 200 quality checks while its products are manufactures in order to confirm with the world’s quality standards such as the ISO 9002, ISO 9001:2000, and the Hazard Analysis and Critical Control Point. The excellence of the company’s products and corporate outlook has been awarded by the prestigious Brewers Association World Beer Cup 2010 Champion Brewery and Brewmaster for the Large Brewing Company category (Asia Pacific Breweries Ltd Home Page, 2013).

In February 2013, the Dutch global brewer Heineken N.V. took full control of Asia Pacific Breweries Ltd (Yahoo Finance, 2013). Before the acquisition, the latest quoted stock price of Asia Pacific Breweries Ltd has been 52.27 Singapore Dollars (SGD) stated at January 23, 2013. In the previous years, the company has declared dividends per common share in the amount of 1.150 SGD (for the year 2012) and 1.005 SGD (for the year 2010).

The current main shareholder of the company, Heineken N.V. is recognized as a leading international brewery operating all over the world. Heineken maintains 125 breweries and operated in more than 70 countries. It is referred to as the largest European and the third largest world brewing corporation.

Main products

The company’s portfolio includes more than 40 international and local brands. The firm produces, advertises, sells and distributes four products lines: beer, vodka, spirits, and stout. The group production facilities comprised 30 breweries, 2 vodka production plants and 1 distillery (for spirits) as of September 30, 2012 (Annual report 2012, p 41).

The main branded products provided by Asia Pacific Breweries Ltd are Tiger beer and Heineken. These products are represented in 60 markets all over the world and referred to as the “international premium beer category”. Other well-known brands produced by Asia Pacific Breweries are Anchor beer, Baron’s Strong Brew, ABC Extra Stout, Archipelago beers, and Bintang beer.

The company strictly follows its policy to brew only high quality beers. It imposes severe standards and rules on the manufacturing facilities to ensure that every customer “a great beer every time” (Asia Pacific Breweries Ltd Home Page, 2013). For this reason, the company has been awarded a number of prestigious accolades in its industry.

The main branded product of the company, Tiger beer obtained its first gold medal at the Brewers' Exhibition in London in year 1954. Its recent recognitions are: silver (International Smallpack Lager) at the International Brewing Awards (in year 2013), 3 Golden Stars at the Superior Taste Award arranged by International Taste & Quality Institute (in year 2012), silver at the International Beer Competition 2012  held in Japan (in year 2012), gold at the Monde Selection conducted by International Institute for Quality Selections (in years 1968, 1978-1980, 1982-1985, 1987-1988,  1990-1993, and 2009-2012), and a large number of other awards since the year 1939.

Other brands have been also recognized by a range of awards and accolades. For example, Anchor Ice obtained gold award from the Private Brauereien Bayern at the European Beer Star in year 2012. Moreover, it has even received the higher award, a gold medal, than Tiger beer at the International Beer Competition 2012 in Japan last year. This evidence shows that Asia Pacific Breweries Ltd maintains a very strong portfolio of brands which are not only competing with other products of other breweries, but with each other, as well.

Besides, the company has a range of recognized local brands. These brands are distributed in particular markets and countries and do not compete with each other. Some of the local brands are: Bintang in Indonesia; Gold Crown in Cambodia; SP Lager in and Papua New Guinea; Tui in New Zealand; and Larue in Vietnam (Asia Pacific Breweries Ltd Home Page, 2013).

Operating environment

The group operates in a highly competitive environment on the international market place. However, as the demand and national income in most of the countries of Asian region grow steadily, the company has realized strong sales and income increase over the past years.

The main operating markets of Asia Pacific Breweries Ltd can be divided into four regions (Annual report 2011, p 4):

– Indochina comprising Cambodia, Laos, Vietnam and Thailand;

– South and Southeast Asia comprising Singapore, Indonesia, Malaysia, Sri Lanka and export markets;

– Oceania comprising New Zealand, Papua New Guinea, New Caledonia and Solomon Islands;

– North Asia comprising China and Mongolia.

Indochina and Thailand is the Group’s most important region, which contributes almost one half of the company’s earnings. Export operations are maintained through a separate wholly-owned subsidiary of Asia Pacific Breweries Ltd named Tiger Export Private Limited (TEPL). This subsidiary is responsible for conducting export operations across all six continents and constantly enters new markets and regions.

Over the past two years, the company’s net sales grew by 12.64 per cent from 2,974 million SGD in 2011 to 3,350 million SGD in 2012. At the same, net income for the same period increased by 11.14 per cent and constituted 457 million SGD in 2011 and 508 million SGD in 2012.

Financial performance

Brief overview of the company’s annual financial reports shows that Asia Pacific Breweries Ltd is a positively developing entity with sufficient liquidity position and adequate leverage. Analyzing the balance sheet data, we can state that the group’s assets are equal to the sum of its liabilities and shareholders’ equity. The company’s assets are composed of current and non-current assets, while liabilities include current and non-current positions. Shareholders’ equity comprises share capital and reserves, and is equal to the net assets of the company.

Accounting policies of the company are formulated in accordance with the Singapore Financial Reporting Standards and local legislation. As stated in the accounting policy, the group evaluates revenues from sales of its products at the amount of the invoiced value (including duties, discounts but excluding taxes and container deposits).  The revenue is recognized at the time when all significant risks are transferred to the customer. Other income is recognized on the accrual basis.

Property, plant and equipment are initially booked at the cost of acquisition, and further carried at the historical cost less accumulated depreciation and impairment losses. For the depreciation calculation, the company uses the straight-line method. Intangible assets comprise brands and trademarks, special rights, licenses, software, and goodwill. Goodwill is generated through the acquisition of subsidiary companies and reevaluated at every reporting date so to reflect its fair value.

Inventories are provided at the lower of cost and net market value that is assessed as the estimated price at which the respective inventory could be sold to a customer. Raw materials inventories are represented on the standard cost basis (approximately equal to the actual cost). Other inventories are evaluated using the weighted average cost method.

The functional and presentation currency of Asia Pacific Breweries Ltd is Singapore Dollar (SGD). At the same time, the company maintains a wide range of operations (production, marketing, and selling) in the foreign currencies, as well. The currency translation differences are accumulated in the exchange reserve as a separate component of the financial statements data.