HANS Essaadi, who was recently appointed Guinness Anchor Bhd (GAB) new managing director, knows he has a huge task ahead of him.
Not only does he need to ensure that the company maintains its position as the country's leading brewery by market share, Essaadi knows he has to ensure GAB's decade-long-plus earnings continue on its upward trajectory.
For the past 11 years, GAB has been recording consecutive revenue, volume and profit growth over half of which was spearheaded by former managing director, Charles Ireland.
Essaadi, who has been in the country for about two months already, looks calm as he gears up to take over the reigns from Ireland.
"I admit I've taken over a unique business and I know I do have huge shoes to fill," he tells StarBizWeek. Essaadi took over as GAB managing director on March 1.
Essaadi attributes GAB's 11 years of growth to the company having a "winning mentality."
"It's a legacy that I'm taking over!"
Essaadi has been with the Heineken Group for over 20 years and has served in various capacities across several different business units and regions around the world.
He was most recently the general manager of Sirocco, Heineken Region Africa & Middle East a joint venture between Heineken and Emirates in the Gulf region.
On his taking over operations in Malaysia, he is quick to admit that the business will not be without its challenges.
"There will always be challenges, but then that's what makes for a fun working environment. Otherwise it will be a boring marketplace," Essaadi says.
Financial momentum
GAB recorded a 1.6% net profit growth to RM122.99mil for the first six-month period ended Dec 31, 2012. In the corresponding period last year, it recorded RM121.03mil in net profit.
Revenue in the first half of the year slipped to RM821.73mil from RM912.95mil in the previous corresponding period.
For its second quarter, the company recorded a net profit of RM66.16mil compared with RM65.82mil a year earlier. GAB registered 8.3% lower revenue of RM429.4mil from RM468.3mil a year ago in its second quarter.
In its notes accompanying its financial results to Bursa Malaysia last month, the company said it expected the Malaysian economy to remain stable and domestic demand to remain robust.
"Despite increasingly competitive market environment, the group believes it has the right strategies, network and resources to achieve sustainable growth in the current financial year."
It added that the investment in information technology systems, once embedded, would give GAB a strategic competitive advantage.
Analysts covering the stock say the brewery's earnings were within expectations.
Maybank Investment Bank Research in its report following the company's results said GAB's first half 2013 net profit was in line with its earnings forecast.
"Net profit was sustained by better product and channel mix along with improved cost controls, compensating for a 10% year-on-year drop in sales.
"We understand the weaker sales were due to sales only captured in January (GAB's third quarter) due to the later Chinese New Year (February 2013 vs January 2012); as well as a further decline in duty-free volume (10% of volume vs 20% in 2012)."
The research house also said earnings were lower due to overall product sales softness.
CIMB Research, in its report, said it was "scaling back" its sales forecasts but was raising margins for a better product and channel mix.
"We are not perturbed by the 10% year-on-year decline in its first half revenue as it resulted from the timing of CNY, which was three weeks later this year compared with last year.
"GAB indicated that January 2013 sales were 80% higher year-on-year. However, since revenue for the seven months to January 2013 were only up slightly, we have cut our financial year 2013 sales growth forecast from 5% to 4%."
The research house notes that earnings before interest, taxes, depreciation and amortisation margins jumped from 19.2% in the first half of 2012 to 22.6% in the first half of 2013, reflecting a better product mix due to increased sales of premium beer like Heineken compared with mainstream beer such as Tiger.
"A better channel mix also contributed to higher margins as beer sold in bottles costs less than canned beer," said CIMB.
It adds that it expects the company's premier beer brand, Heineken, to lead GAB's near-term sales growth, especially after changes to its bottle in July 2012.
"This will benefit margins as selling prices for premium beer like Heineken are 15% higher than for mainstream beer like Tiger. Currently, Heineken makes up 10% of sales.
Following a briefing session with GAB recently, CIMB says the beer company still expects to outperform the malt liquor market in its current financial year, even though it is already the market leader with some 60% market share.
"GAB believes any excise tax increase would be moderate. There is not much scope for a big increase since Malaysians already pay the second highest excise duty in the world after Norway. There is no certainty that GAB will raise its selling prices this year as management is taking a wait-and-see approach."
In sync with the economy
Essaadi says he is optimistic about the company's prospects for the remainder of its financial year. For a start, he is thankful the Government has not raised excise duties for the past seven years.
"Our excise duties are quite high and I'm glad there has been no increase in the past seven years. But there are other challenges, like competition we get from grey importers and traders who are giving us unfair competition.
"We're not crying about it but it's a challenge and we need to find ways to remain competitive," he says.
Still, the biggest challenge, says Essaadi, is to continue to grow the business.
"What we need to do is to keep growing. We've already achieved 11 consecutive years of growth. Now the challenge will be to go into a 12th, 13th and more years of growth," he says.
Ireland seems cautiously optimistic about the prospects for GAB for the remainder of its current financial year.
In the near term, he believes that the impending general election has softened the beer market a little.
"The impending general election is making people a little bit more careful with their spending," Ireland says, adding that anticipation of the general election was creating ambiguity in the marketplace.
"The stock market doesn't like ambiguity and people don't like ambiguity," he says.
Ireland believes that consumers are holding back their spending a little bit as they await the outcome of the general election.
"People are keeping their hands in their pockets a little bit," he says.
Ireland feels that the recent bad Malaysian weather has also not helped.
"Other factors that may have contributed to softer sales include the dreadful weather. It has been pouring and there has been flash floods everywhere. Because of this, people are not in pubs drinking when they are stuck in traffic jams. So that has affected the business as well."
On the outlook of the local malt liquor market, Ireland says this segment correlates closely with the performance of the country's gross domestic product (GDP).
"It's true that the malt liquor market shadows GDP quite closely and the latest figures have been quite solid."
According to reports, Malaysia's economy recorded a spectacular performance in the last quarter of 2012, growing 6.4%. This is the highest quarterly growth in 2 years and was boosted by the manufacturing and construction sectors.
This supported the overall economic growth for 2012 that expanded to 5.6% compared to 5.1% in 2011.
Based on reports, all sectors registered positive growth with the services, manufacturing and construction sectors continuing to be the key drivers in the supply side.
According to Bank Negara, there are emerging signs of improvements in the global economy where the latest economic indicators also suggest further stabilisation in growth performance in Asia.
"GDP growth in the region is also quite solid," says Ireland, who is optimistic about the local beer market for the rest of this year.
He says the various ongoing Economic Transformation Programme projects currently are goods signs that the Malaysian economy is in good shape.
"All (the projects) that's going on is great and the Malaysian economy is solid. But we do believe things will pick up further after the elections and people will start spending a bit more."
Essaadi is also optimistic, saying that GAB will drive growth and boost earnings through various promotional campaigns.
"Looking at our full promotional calendar, we will be leveraging our brand through various platforms, such as sports and music," he says, without disclosing what the company's various campaigns will comprise.
"There's a lot of anticipation. We're ramping up our activities to make sure we come out of the year in a sustainable and positive way."
Banking on corporate responsibility (CR)
It is no surprise that GAB invests substantially in CR-related activities. The brewery has won multiple accolades for its push for social responsibility.
Ireland says investing in CR has various benefits.
"A few years ago, we looked at how we wanted to move the company forward and looked at CR as one way of doing that. We felt there was both a business and responsibility benefit. Part of the reason our brands are popular with people is because we strive to do the right thing with our brands, to be socially responsible.
"Furthermore, it's also important to be viewed as a socially responsible company. When we interview prospective employees, being socially responsible is on the list of why people want to join organisations these days."
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