Los Angeles, California, May 18, 1998 --- CBR Brewing Company,
Inc. (OTC: CBRB), the largest foreign label beer producer and marketer
in China, today reported financial results for the Company's first
quarter ended March 31, 1998.
Net sales for the three months ended March 31, 1998 decreased approximately
8% to $34,413,554, compared with net sales of $37,457,291 for the
year-ago quarter. Net income for the quarter decreased approximately
23% to 852,412 or $0.11 per share, compared with $1,108,165 or $0.14
per share for the three months ended March 31, 1997. The Company
sold 55,979 metric tons, or 475,822 barrels, of beer to its distributors
in 1998, compared with 58,537 metric tons, or 497,565 in 1997. Approximately
99.3% of total beer sales during the quarter were provided from
the sale and distribution of beer products under the Pabst Blue
Ribbon brand name, compared with 99.7% in the first quarter of 1997.
The decrease in net sales and net income is primarily attributable
to a shift in the sales mix to lower value products in 1998 caused
by changing market conditions and increased competition as evidenced
by an approximate 4% decrease in sale per metric ton.
"CBR Brewing continues to outperform its peers and is solidifying
its position as the largest locally produced foreign brand, the
only brewery with a nationwide distribution network and, through
our Pabst Blue Ribbon brand, one of the best recognized premium
foreign beers in China," said Chen Zi Shou, President of CBR
Brewing Company. "Our first quarter results were in-line with
our expectations, considering the recent decline in China's economy
and the stagnation in the premium beer market. We expect both trends
to continue in the short-term and believe that our competitive advantages
will help us to emerge as a dominant force in the Chinese beer market
upon its revitalization ," continued Mr. Chen.
Gross Profit
For the three months ended March 31, 1998, total gross profit was
$6,064,272, or approximately 17% of total net sales, compared with
$6,592,964, or approximately 17% of total net sales in 1997. The
slight decrease was a result of a shift in the sales mix to slightly
lower price and lower margin products in 1998 in response to changing
market conditions. The Company noted that it expects continued pressure
on gross profit margins during 1998 as a result of a general softening
of consumer demand in China as a result of a generally less favorable
economic climate in Asia and continued competition from foreign
premium brand beers.
Operating Income
Operating income for the first quarter of 1998 was $452,198 or
1.3% of net sales, compared with operating income of $744,328 or
2.0% of net sales. The decrease in operating income is primarily
attributable to the shift in sales mix to lower margin products
and the increase in compensation costs from issuance of warrants,
stock options and common stock for services rendered.
Selling, General and Administrative Expenses
For the three months ended March 31, 1998, selling, general and
administrative expenses decreased approximately 9% to $5,338,681
from $5,848,636 in the year-ago quarter. Selling costs include costs
relating to the advertising, promotion, marketing and distribution
of Pabst Blue Ribbon beer in China. Selling expenses decreased in
1998 compared to 1997, both on an absolute basis and as a percentage
of sales, as a result of the Company's strategic marketing plans
which call for allocating marketing expenses to the cyclically high
selling season of April through September.
Current Market Conditions
"The beer market in China is experiencing a steady overall
growth rate. However, this growth has recently shifted from premium
beers to lower priced beers as a result of the recent economic turmoil
in Asia which has adversely affected China's economy," said
Mr. Chen. "Consequently, demand for goods and services by Chinese
consumers has been weakening, causing a softening of the premium
beer market in China. Furthermore, as a result of the weakened economy,
breweries across the nation which are undercapitalized and that
are not able to endure this temporary recessionary period, are offering
to sell at bargain rates.
"Both situations provide CBR with a tremendous opportunity
to significantly increase its market share. Our unique nationwide
distribution network will enable us to efficiently penetrate the
lower priced beer market while our financial flexibility, with unique
access to the American capital markets, will allow us to accelerate
our acquisition activities in 1998. By leveraging the current market
conditions, we are positioning CBR to emerge as a dominant force
in the Chinese beer market," continued Mr. Chen.
Acquisition Strategy
As part of this strategy, the Company has already announced two
acquisitions in the first quarter of 1998 and expects to complete
additional transactions by the end of 1998. Through acquisitions
such as these, the Company expects to be able to increase capacity,
instantly gain market share of the local brands that were formerly
produced at the breweries, diversify its brands across China.
The Company's two acquisitions during the first quarter were: the
Zao Yang High Worth Brewery and the Sichuan Brewery. The Company
noted that both acquisitions are expected to be accretive to CBR's
earnings in late 1998 and represent the type of transactions that
CBR Brewing is seeking in an effort to expand the Company's operations.
During the first quarter of fiscal 1998, CBR Brewing, through its
High Worth JV subsidiary, entered into a joint venture contract
with Zao Yang Brewery in Hubei province to establish a new brewery
in the province with an initial annual production capacity of 40,000
metric tons or 340,000 barrels of beer. The new brewery will be
designated Zao Yang Blue Ribbon High Worth Brewery Ltd. with a total
capital investment of $3,527,711, 55% allocated to High Worth JV
and 45% to Zao Yang Brewery. Production at the Zao Yang brewery
is expected to commence in June 1998.
Following an agreement reached on December 30, 1997, CBR Brewing,
through its High Worth JV subsidiary, has been in process of acquiring
an equity interest of 60% in Sichuan High Worth Brewery. As part
of this agreement, Sichuan Brewery will be restructured and renamed
as Sichuan Blue Ribbon High Worth Brewery E Mei Limited ("Sichuan
High Worth"). E Mei Brewery will own the remaining equity interest
in Sichuan High Worth of 40%. E Mei Brewery is the local brewery
in Sichuan.
Outlook for 1998
"We plan to capitalize on our market position and significantly
increase our market share by implementing a strategic and opportunistic
three-pronged approach consisting of acquisitions, an effective
marketing strategy and a diversification of our products. We expect
this strategy will increase the Company's market share in both the
premium and local branded sectors and steadily improve our financial
and operating results. Our vision is to become China's King of Beers,
and in doing so, generating consistent and superior returns for
investors in the months and years ahead," concluded Mr. Chen.
CBR Brewing is a US company whose subsidiary companies are engaged
in the production, distribution, and sales of Pabst Blue Ribbon
Beer in China, via license from Pabst Brewing Company USA. CBR is
the largest locally produced foreign brand brewery and the only
brewery with a nationwide distribution network in all of China,
which has recently become the world's second largest beer producing
country. Pabst Blue Ribbon was first produced in China in 1990 and
is now the second leading premium beer in China behind 80-year-old
Tsing Tao Beer. Pabst Blue Ribbon is the leading foreign label beer
sold in China today.
(Note: Statements in this press release which are not historical
may be deemed forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Although CBR Brewing
Company, Inc. believes the expectations reflected in any forward-looking
statements are based on reasonable assumptions, it can give no assurance
that its expectations will be attained. Factors that could cause
actual results to differ materially from CBR Brewing Company, Inc.'s
expectations include completion of pending acquisitions, continued
availability of acquisitions, the availability and cost of capital
for acquisitions and for renovations, the ability to maintain existing
licenses, competition within the brewing industry, foreign exchange
fluctuations, China's economic conditions, and other risks detailed
from time to time in CBR Brewing Company, Inc.'s SEC reports, including
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
Annual Reports on Form 10-K.)
[Financial Tables Follow]
