TTL seeks more partners

Taiwan Tobacco & Liquor Corp (TTL, 台灣菸酒公司), which controls about 80 percent of the country's US$1 billion a year beer market, is seeking overseas partners as rivals like Heineken NV and Tsingtao Brewery Co (青島啤酒) cut its sales and crimp profits.

"We're willing to talk if any international tobacco, liquor and beer company is interested," Chairman Ray Dawn (董瑞斌), 47, said in an interview in Taipei. International investors "can be our long-term strategic partners."

State-owned Taiwan Tobacco has seen its share of the beer market fall by a fifth since the island was opened to imports in 1987. Its share of the wine and hard liquor markets has declined by more than two-thirds since 2002, when private companies were first allowed to produce alcoholic drinks.

"With profit growth stagnating, the government should look for a better future for the company, such as seeking international strategic investors," said Simon Chao (趙永宏), a fund manager at President Investment Trust Corp (統一投信).

Heineken, which entered the Taiwan market in the late 1980s, "will always review the possibilities" of producing beer locally in Taiwan, though the company has no immediate plan to do so, spokeswoman Veronique Schyns said.

Taiwan Tobacco's sales will probably fall 5.4 percent from this year to NT$66 billion (US$1.99 billion) in 2006, while net income is forecast to rise 3.9 percent to NT$5.87 billion, according to its 2006 draft budget sent to lawmakers late August.

Sales of beer, which now make up 45 percent of the company's revenue, are expected to fall by 5.6 percent next year, according to the draft budget.

"Foreign companies may be interested in buying stakes in local companies such as Taiwan Tobacco & Liquor, because they have distribution networks and the markets," Chang Yue-shan (張玉山), director of the finance department at National Sun Yat-sen University in Kaohsiung, said.

"Cooperation with foreign investors can bring industry know-how for local companies," said Chang, who has studied privatization of state-owned companies in Taiwan.

Taiwan Tobacco plans to work with competitors, including using spare capacity to produce products for others, as the company aims to help the government attract buyers for its stocks by making itself more competitive, Dawn said. His company is already brewing beer for Sapporo Holdings Ltd, Japan's third-largest brewer. Dawn aims to extend such cooperation to other brewers, such as Heineken. He declined to disclose names of companies Taiwan Tobacco is in talks with for partnerships.

"If we can brew beer for Heineken, our costs can drop" by boosting capacity utilization rate, Dawn said.

Heineken is the second best selling beer in Taiwan with about 8 percent of the market. Taiwan Tobacco expects to use 71 percent of its breweries and 11 percent of its distilleries next year, according to the company 2006 draft budget.

Taiwan consumes about 475 million liters of beer a year, according to figures from Taiwan Tobacco. That equals about 21 liters for each of Taiwan's 23 million people, compared with 80 liters in Europe.

Tsingtao Brewery, the biggest beer brand on the island after Taiwan Tobacco's Taiwan Beer and Heineken, already has a partner in Taiwan, making it less likely for the Chinese brewer to tie up with Taiwan Tobacco, Dawn said.

Taiwan Tsing Beer Co (台灣青啤), which first worked with Tsingtao as a sales agent, started to brew the Chinese beer on the island in May this year. The government lifted the ban on beers from China in 2002. Since then Tsingtao Brewery has grabbed 5 percent of Taiwan's beer market, according to Dawn.

China, Taiwan's biggest trading partner, is one of Taiwan Tobacco's target overseas markets, Dawn said. Some of the company's alcoholic drinks are now available in Japan, South Korean and the US west coast, he said.

Partnerships may help Taiwan Tobacco boost sales in overseas markets, which now contribute less than 2 percent of the company's revenue, Dawn said.

"In the Netherlands, maybe Heineken can brew beer for us," Dawn said.