The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Commonwealth Brewery’s managing director has expressed concern about a 2013 first quarter increase in spirits smuggling, although total sales remained “higher than historical trends”.

Speaking to Tribune Business after the BISX-listed company saw slight year-over-year net income and revenue declines for the three months to end-March 2013, Nico Pinotsis said that period was traditionally the slowest for sales.

He added that, for the remainder of 2013, much would depend on beer sales in the second and third quarters, plus wines and spirits consumption in the run-up to Christmas.

But the ‘grey market’ has long been a major concern for Commonwealth Brewery, the feeling being that smuggled beer and liquor could account for up to 15 per cent of the Bahamian market.

With this eating into the profits of legitimate suppliers, Mr Pinotsis told Tribune Business: “There were a lot of additional players in the wines and spirits market.

“We had the feeling there was a little bit more parallel importing, smuggling, over the last few months, particularly on the spirits side.”

He did not suggest, though, that the suspected smuggling increase had any impact on Commonwealth Brewery’s 2013 first quarter top-line. Total revenues dropped 2.8 per cent year-over-year, falling from $28.213 million to $27.423 million.

Mr Pinotsis said 2013 was up against strong comparatives from last year, and the first quarter top-line remained above both 2011 levels and historical trends.

“We had a spike last year in our first quarter sales,” he said. “There was a lot of activity in the market in the 2012 first quarter.

“As I remember, sales then were up 9-9.5 per cent over the year before. They dropped a bit this first quarter, but they were higher than historical trends and the 2011 first quarter. The top-line for the first quarter was not unhealthy; we had an exceptionally good first quarter last year.”

Commonwealth Brewery’s 2012 first quarter benefited from both a strong Spring Break season and “a couple of one-off situations” that also boosted the Bahamian market.

“The first quarter is our smallest quarter sales wise,” Mr Pinotsis told Tribune Business, indicating that the full-year performance “will depend very much on what happens in the second and third quarter.

“Beer sales are certainly higher in the second and third quarter, and the fourth quarter for wines and spirits is where everything happens.”

Helping to compensate for the top-line fall was the 2.8 per cent drop in Commonwealth Brewery’s total operating expenses, which went from $23.891 million in the year-before period to $23.227 million this time around.

This was led by the decline in raw materials, consumables and services costs, which dropped by just over $650,000 to $18.582 million.

Mr Pinotsis added that a drop in sales volumes was typically matched by a drop in input costs, with Commonwealth Brewery “getting more beer bottles back from the market via our retainables system”.

The end result was that Commonwealth Brewery’s net income for the 2013 first quarter fell 3.5 per cent to $4.345 million from $4.5 million the previous year.

On the balance sheet side, the main move was in accounts payables, which increased by more than 50 per cent to $19.997 million from $13.202 million at year-end 2012.

Mr Pinotsis described this as a ‘timing issue’, telling Tribune Business: “That spike is actually a planning issue. It has to do with our policy when we declare a dividend.

“We declared it in February, but did not pay it out until 10 days ago, and that means according to accounting principles we have to put it into accounts payables. It is a timing issue, nothing else.”

Mr Pinotsis said it was “too soon to tell” what impact the proposed implementation of a Value-Added Tax (VAT) would have on Commonwealth Brewery’s business, as the company had yet to see the legislation and the fine details.

“Nobody knows about it. Government is very cautious to say,” he told Tribune Business.

Upgrades to the Burns House store at Harbour Bay Shopping Centre were now complete, Mr Pinotsis said, with work on the outlet at Lynden Pindling International Airport’s (LPIA) US departures terminal scheduled to finish within the next two months.

Other stores are being eyed for upgrades, and another Burns House store is likely to open at year-end in LPIA’s domestic and international departures terminal.