The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Commonwealth Brewery yesterday attributed its almost-2 per cent sales volume decline in 2013 to a “significant increase” in beer and spirits smuggling, its chief executive warning that this was “bad” for both company and the Government.

Nico Pinotsis told Tribune Business that the BISX-listed brewing and retaining conglomerate “has the impression” that parallel imports increased year-over-year, based on the “eyes and ears” of its 400 employees.

“Let’s put it this way,” he said. “We are always concerned when people bring in products and don’t pay their due duties, as that does not create a level playing field.

“Last year, we had the impression that more came in than the year before. It’s what our eyes and ears see in the market. We have 400 people in this company, and they walk around, and see and hear. That’s 800 eyes and 800 ears.

“We see the packaging of products we don’t carry for brands that we do carry, sold against prices that are cut prices. It all adds up, and people selling it cheaper than we do, we get a few ideas,” Mr Pinotsis added.

“It is a big problem for the Government, which is losing revenue if people don’t pay their duties. And, of course, it’s a problem for us as well, as it puts us in a strange light with our customers as well. It’s bad for our company’s image.”

Commonwealth Brewery’s 2013 financial performance was essentially flat in comparison to 2012, with the company attributing the increase in smuggled liquor to a 2 per cent drop in its sales volumes.

“This volume decline has been mainly caused by higher parallel imports of both spirits and imported beer brands, which has increased significantly compared to 2012,” the company said in its management analysis of the 2013 results.

Mr Pinotsis, meanwhile, indicated he was not satisfied with Commonwealth Brewery’s results, as the 0.9 per cent drop in net income from $19.317 million to $19.149 million suggested the company had “not made progress”.

“We’re pretty much in line with 2012, and pretty much in line with expectations,” he told Tribune Business. “It was not a spectacular year.

“It all depends on where you put your expectation level. It was a steady year. If you keep revenue more or less stable, you keep your costs more or less stable, the exchange rate differential costs you a bit, and you end up with profits the same as the previous year, you have not made progress.”

He described the “vision” for Commonwealth Brewery as steady growth in profitability, and “if we didn’t do that last year, we stabilised”.

Looking ahead, Mr Pinotsis said Commonwealth Brewery was eyeing “a couple of location changes” in its retail network, and alterations to how it operated this aspect of its business.

“The market is changing, the world is changing fast,” he added. “We’ve got to be innovative if we’re going to do things differently.”

With the change in the US dollar/euro exchange rate in the past year, Mr Pinotsis said this had meant price increases for imported brands.

“I’ve not seen many price decreases, let’s make that clear,” he added. “But that’s normal.”

The brewery, Mr Pinotsis said, was “still far below maximum capacity” in terms of production. “That is one of the things where we are looking at what we can do,” he added.

“We have excess capacity and we need to see what happens in our game. I have a couple of ideas, but having an idea is no so challenging. Executing an idea is a much more difficult proposition.”

Despite the drop in sales volumes, Commonwealth Brewery said top-line revenues increased slightly by 0.7 per cent to $119.124 million, compared to $118.468 million in 2012.

Average revenue per hectolitre increased from $595 in 2012 to $608 in 2013, while export revenues increased by 9.5 per cent due to intensified sales and marketing efforts.

“The economic challenges many Bahamians are experiencing, and relatively weak 2013 Spring Break season, have combined to retard the growth of the alcoholic beverage market,” the Brewery said in its 2013 results analysis. “The economic environment in 2013 was generally unfavourable.”

Total costs rose slightly, from $99.539 million in 2012 to $100.336 million, an $0.8 million or 0.8 per cent rise. The Brewery said these were driven by “higher personnel cost ($0.5 million), excise duties and taxes ($0.3 million), distribution and marketing expenses ($0.5 million) and other expenses ($0.3 million).

“These were mainly compensated by reductions in cost of inventories ($0.6 million), royalties ($0.1 million) and insurance ($0.1 million).”

Inventory costs also reduced, but balance sheet cash dropped year-over-year by $5.1 million or 43 per cent at December 31, as inventories rose by $2.4 million and there was a $3.1 million drop in accounts payables and accrued expenses.

The company added: “Commonwealth Brewery remained debt-free with $6.8 million in cash and equivalents following a $7.5 million interim dividend payment to shareholders in December 2013.

“The decrease in the cash and equivalents aggregate was mainly caused by higher year-end stocks, which were a result of slower than anticipated fourth quarter sales for wines and spirits, as well as a decrease of accounts payable during the year.

“Commonwealth Brewery’s cash flow generation from operating activities in 2013 amounted to $ 15.8 million, of which $ 1.7 million was used for replacement investments. The remaining cash flow was allocated to dividend payout.”