Drinks groups facing double 2020 sales hit

Drinks groups facing double 2020 sales hit

After gaining sweet fruits for years, giant beer and beverage companies in Vietnam are facing losses due to not only the ongoing health crisis, but also tightened drink-driving penalties. The question remains unknown as to how they get back on a level pegging.

New drink-driving regulations were already beginning to change customer habits before the pandemic

The dual pressures of COVID-19 and Decree No.100/2019/ND-CP enacted last December on administrative penalties for road traffic offences and rail transport offences have forced beer manufacturers to cut 30-70 per cent of their target profits this year. The situation has prompted the Vietnam Beer-Alcohol-Beverage Association to send a document to the prime minister and related ministries in opposition to the new decree in particular.

Well-known drinks companies in Vietnam are experiencing stormy waters. In December 2017, ThaiBev used $4.78 billion to acquired 343.62 million shares, equivalent to 53.59 per cent of Vietnam’s leading brewer Saigon Beer-Alcohol-Beverage Corporation (Sabeco) at the unit price of VND320,000 (nearly $14). However, only two years afterwards the Thai company has seen nearly half of its investment in Sabeco eroded amidst the COVID-19 pandemic and stricter regulations outlining sanctions for drink-driving. Last week, Sabeco’s share was showing a slight recovery at VND180,000 ($7.80) per unit in the stock market.

Some Sabeco members have published their financial statements for the first quarter. Among them, Saigon-Central Beer JSC decreased by 33 per cent to VND237 billion ($10.3 million), while gross profits fell by nearly half to VND41 billion ($1.8 million). Profit after tax in the period was only VND19 billion ($826,000), down 54 per cent on-year.

Another of its members, Saigon-Phu Tho Beer JSC, saw revenues drop from VND154 billion ($6.7 million) to VND27 billion ($1.2 million), down 82 per cent on-year, even with a combined loss of over VND3 billion (over $130,400) for the first quarter. The after-tax loss of Saigon-Phu Tho is nearly VND7 billion ($300,000), while it posted a profit of VND14 billion ($600,000) in the same time last year.

The dual pressures are likely to crash Sabeco’s profits this year. In 2019, it recorded a total net revenue of VND37.89 trillion ($1.65 billion) and after-tax profit and minority interests of VND5.1 trillion ($221.74 million).

But 2020 promises to be a different kettle of fish. Sabeco’s net sales reduced by 47 per cent on-year in the first quarter, explained by the unexpected coronavirus crisis.

Katsuhiko Usui, general director of Sapporo Vietnam, told VIR, “We believe that after loosening social distancing solutions, the market will quickly restart, especially in the fields of retail, manufacturing, and trading of food and beverages, as well as the restaurant business. However, a full recovery of the domestic market will take some more time.”

“Regarding business targets this year, it will be difficult for Sapporo to achieve any sales targets. However, we will make efforts in improving work efficiency and cutting costs in order to maintain profit targets.”

Usui added the domestic segment is embarking on revival activities after COVID-19 by engaging and accompanying with each customer, giving them the best value even in difficult circumstances.

Usui said the restaurant business could be quite quick to recover. “However, there is also an economic refinement, whereby inefficient business units will find it hard to maintain business operations in the coming period, leading to bankruptcy or having to adjust their business models,” he added.

Hanoi Alcohol Beer and Beverage Company (Habeco) is in the same boat as other beer groups, although its financial report for first quarter has not been released so far.

Meanwhile Bloomberg quoted that HEINEKEN, a major foreign beer brand in Vietnam, has fallen as much as 4.6 per cent in sales since July last year.

An industry insider said that while COVID-19 and Decree 100 are affecting the sales volume of the whole industry, small brands will actually be affected more.

Bao Viet Securities (BVSC) reported that 2020 will be a challenging year for Sabeco, with the two main sources of headwinds set to remain Decree 100 and the pandemic outbreak that have slowed down beer and alcohol consumption in Vietnam. BVSC has drawn up five scenarios for business results in 2020, it said, but revenues will likely decrease.

The situation of the beer industry and Sabeco in particular could be negative for the next couple of years. Specifically, beer sales volume in 2020 may dip by 20-25 per cent on-year, and the beer selling price will decrease by 5-10 per cent on-year due to the supply-demand regulation of the market.

Sabeco delayed its shareholders annual general stakeholder meeting and no new date is yet forthcoming. But even after COVID-19 subsides, the group will continue to face difficulties.

To cope with challenges, Sapporo Vietnam plans to invest in additional machinery and equipment to improve production capacity to meet the demand, especially for Sapporo’s popular premium draft beer. Meanwhile, Sabeco could ease the burden on its cash flow by not having to fully pay tax penalties and late interest payments of up to VND 3.14 trillion ($136 million) that was imposed on the group in 2019, after long discussions have been held between Sabeco and tax agencies.

VIR