Wake-up call for Guinness Anchor

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From left: GAB sales director Thum Chee Yuen, Essaadi and marketing director Bruce Dallas at the Tiger Uncaged media launch in Kuala Lumpur last Thursday. Photo by Mohd Izwan Mohd Nazam

KUALA LUMPUR: Guinness Anchor Bhd’s (GAB) profit and revenue plunge in the financial year just ended could actually be a good thing for the country’s largest brewer by revenue as it has to pull its socks up after a good 12-year run.

“We had a phenomenal record, hadn’t we? Yes, our record is now ended, but I am not that disappointed,” its managing director Hans Essaadi told The Edge Financial Daily in an interview.

“I am realistic to know that things are what they are. At the same time, it is a journey to get people behind you,” he said.

GAB suffered a nasty jolt when it reported an 8.9% dip to RM198.2 million in net profit as revenue slipped 3.9% to RM1.61 billion in the 12 months to June 30, 2014 (FY14) from the year before — the first time in 12 years. It blamed weak domestic consumption, increased excise duty and unfair competition from contraband beers for the weak results.

“It is not as dramatic as some people think. But it is a little bit unusual when a business, which had some pretty good times for quite a long period, has now become pressured,” said Essaadi.

He reckoned that the profit and revenue decline was more market-related than performance-related amid a challenging environment, as consumer confidence dropped to a three-to-four-year low.

Incidentally, Murphy’s Law seemed to be in effect as GAB experienced other negative surprises such as bad weather conditions, a decline in tourism numbers, a weak ringgit and subsidy reduction in FY14.

The Dutch national who took over the helm from British Charles Ireland in March 2013, acknowledged that GAB has got into a state of denial after many years of success.

“When you set a long-term strategy many years ago, you won’t change it when it is still working, right? But there will be new developments in the market and you have to look at new strategies.

“I’ve got a fresh pair of eyes on the business because I came from outside,” he said. Essaadi was previously with Heineken Group for over 20 years where he served in various capacities.

Essaadi said GAB’s growth slowdown in FY14 created an opportunity to make changes as well as address certain issues within the group.

“Some of us kept saying, ‘Things will be fine, things will be fine’, but we now know that it was not fine and everybody has decided to embrace it. Are we disappointed? No. The way I see it, FY14 was a wake-up call for us that more needs to be done. We are seeing the light at the end of the tunnel and it is not too far from here,” he said.

Essaadi hinted that GAB’s results in its first financial quarter ending Sept 30, 2014 (1QFY15) looks “encouraging” as it has seen market recovery in July and August.

“We are not claiming the victory now. It is too soon to tell. But the current trend looks more green and positive, so it bodes well for us,” he said.

However, Essaadi warned that the main obstacle that could stand in GAB’s way in FY15 is the implementation of the goods and services tax (GST) come April.

That’s because consumer sentiment is likely to be affected after the implementation of the GST, should beer prices climb drastically due to profiteering.

“I think the complexity of the GST is underestimated. If everybody starts to add along with it (the price) or rounding up a little bit because of the GST, the consumer price will be pushed up and that will give us a big effect,” he said.

“Without GST, I would have told you that we will be back to growth. The problem is that our last quarter in FY15 will be in April, May and June, which are the post-GST months.

“So, we will be cautious. If we have a disaster in the final quarter, our full-year results will be depressed,” he said.

Thus, Essaadi described FY15 as a crucial year for GAB with 4QFY15 being the most critical period. If the brewer sails through that, its financial results in the coming years will be fine.

“If we manage to achieve growth in FY15, that means we have managed the [impact of] GST and played the market share game well. If that happens, we are good to go,” he said.

Essaadi maintained that GAB will not make any profit out of the GST, but “we need to get the margins right for the distributors and we need to recommend the distributor price”.

“I can set the price to my distributors and I can even recommend them on the outlet price, but I cannot set pricing in the whole tier system,” he said.

Meanwhile, Essaadi is of the view that GAB’s share price “should not be” trading at the current price-earnings ratio (PER) of below 20 times.

GAB was trading at a PER of 25 to 26 times when its share price peaked at RM22.16 on June 20, 2013. Back then, there was speculation that some international investors will be coming into GAB, following the acquisition of Asia Pacific Breweries by the Netherlands-based Heineken NV, which is GAB’s ultimate shareholder.

Since then, the stock had fallen more than RM9 or 40% to close at RM13.12 last Friday, bringing a market capitalisation of RM3.98 billion.


This article first appeared in The Edge Financial Daily, on September 15, 2014.