China Resources Ltd, the country's largest brewer of beer through a partnership with SAB Miller, posted a 14 percent slide in quarterly earnings as it struggled to balance rising costs with booming consumer demand.

The conglomerate - which vies with Tsingtao Brewery and Yanjing Brewery and also processes meat, operates supermarkets and owns container ports - posted a loss at its brewery division.

The company will continue to grapple with rising costs for barley and other production inputs this year. The worst snowstorms in decades affected sales along the affluent east coast, helping push its beer division into the red in the period, the firm said yesterday.

Analysts say the strength of its premium brand in the domestic market - the world's largest - should help it pass costs on to consumers, while its retail arm should benefit from a Beijing-driven shift toward consumption-led economic growth.

Others raise the possibility China Resources will continue to explore acquisitions locally to spur growth, particularly as the fragmented beer and retail arenas consolidate.

The beverage-to-ports conglomerate, which brews "Snow" with SABMiller, posted a net profit of HK$639 million in the first quarter, versus HK$740 million a year earlier.

Excluding the revaluation of properties held and sales of assets, China Resources said it would have posted a 3.8 percent net profit growth in the quarter - still meager compared with 79 percent in 2007.

"Beer demand in these regions declined while electricity supply and transportation were also interrupted," the firm said in a statement.

"To cope with continuous pressure from rising raw material costs of barley and hops since the second half of 2007, the group increased its beer selling prices during the quarter."

China Resources added that it saw "minimal impact" from the worst earthquake to hit the country in more than three decades, though it said several breweries in quake-hit Sichuan province had lost stock or incurred asset damage.

The firm's retail arm, including a joint venture with No 4 global fashion retailer Esprit, has held up well and could benefit from the Beijing Olympics in August.

In the January-March quarter, China Resources' retail division posted a 59.5 percent leap in net profit to HK$268 million. In contrast, the firm's beer arm lost HK$32 million in the first quarter, despite growing volume sales 11.4 percent to 1.3 million kiloliters.

Reuters

(HK Edition 05/23/2008 page2)