• Full-year net losses hit HKD68.6m (US$8.8m), versus HKD774m in 2010
• Net sales up by 16% to HKD684m
• Operating losses at HKD48.4m, down from HKD770.6m
• Brewer faces fierce competition in southern China

Auditors have warned that San Miguel Brewery's Hong Kong and China business faces an uncertain future, after gains from a Budweiser distribution deal failed to offset market pressure in its full-year.

San Miguel Brewery Hong Kong's auditors issued an "emphasis of matter" on the brewing unit's full-year figures, raising concerns about its ability to continue in business. Debt exceeded the group's current assets at the end of December, the auditors said.

It is likely that the group will be propped up by its majority owner, Philippines-based San Miguel Corp. But, the auditors' note highlights the fierce competition that San Miguel Brewery Hong Kong has encountered in southern China as multinational brewers seek to grab more share of the country's expanding beer market.

For the 12 months to the end of December, San Miguel Brewery Hong Kong remained in the red, with net losses of HKD68.6m (US$8.8m), it said today (6 February). Losses were HKD774m in 2010, when the brewer was forced to lower the value of its assets following weaker-than-expected sales, particularly in southern China.

For 2011, the group pointed to several improvements in its business. Net sales increased by 16% for the 12 months, to HKD684m.

During the year, the group maintained its lead of Hong Kong's beer market, in volume terms, thanks to the signing of a deal with Anheuser-Busch InBev to distribute the Budweiser and Harbin brands. In Hong Kong, sales rose by 16% and 24%, in volume and value respectively. The territory's total beer market expanded by 2% in volume for the year.

However, in southern China, San Miguel Brewery continued to face an uphill struggle against international rivals. "The market conditions in South China continued to be challenging as competitors utilised aggressive trade offers, especially in the wholesaler channel, to grab market share," said the firm. It continued to report losses in China for the year, but did not give specific figures.

San Miguel Brewery said that it has streamlined its business in China to return to profits and better integrate sales and marketing across different regions. Net sales in the China division rose for the year, although overall volume sales fell, it added.