The Tribune

By NEIL HARTNELL

Tribune Business Editor

COMMONWEALTH Brewery is this year targeting a "modest increase" over the 187,000 hectolitres it sold in 2011, its managing director yesterday saying it was ramping up marketing activity and remained "moderately positive" about its near-term prospects.

Nico Pinotsis, speaking to Tribune Business after the BISX-listed beverage supplier/retailer unveiled its 2011 annual report, said the 2012 second quarter - set to close on June 30 - would provide a "good indication of what's going on" and Commonwealth Brewery's prospects for the second half.

Emphasising that the first quarter, which generated a year-over-year 44.2 per cent net income rise to $4.505 million, was not the best indicator of full-year performance, given that it contained the peak tourism and Spring Break season, Mr Pinotsis said the company had "no reason to complain so far" about 2012.

And he told Tribune Business that Commonwealth Brewery had "increased" marketing activity for both its Kalik and Heineken brands, although it had done so in a way that did not involve expansion of the promotional budget.

"Our first quarter results were extremely good, and in our business the first quarter is one that has to be taken with a bit of caution both ways," Mr Pinotsis said.

"Let's see what the results will be in the second quarter. After the first half year, we will get a good indication of what is going on. Unless any unforeseen circumstances occur, we're moderately positive about the future."

While Commonwealth Brewery's total revenues rose year-over-year from $25.757 million to $28.391 million for the 2012 first quarter, total operating expenses were also up by 4 per cent, rising from $22.96 million to $23.891 million - an increase of just under $1 million.

The top-line growth rate, though, exceeded the expenses rise to produce a year-over-year net income increase from $3.06 million to $4.505 million for the 2012 first quarter. Earnings per share (EPS) rose from $0.10 to $0.15.

In a bid to enhance brand loyalty and awareness among Bahamas-based and tourist consumers, Mr Pinotsis told Tribune Business: "We have increased some marketing activities, having already done a couple of things, and there are a couple more in the pipeline.

"With Heineken we have revised our activities in the first half of the year, coming out on TV, reintroducing the Heineken bus. Other things have started already, and other things will be coming up.

"You'd see the same with Kalik. We are making our plans for the summer promotions, reinforcing our activities at the regattas, which is typically a good activity through which to communicate with Bahamian consumers.

"It's not a matter of spending more; it's a matter of how we spend it."

Commonwealth Brewery's sales, as measured in volumes of hectolitres, were down 12.2 per cent in 2011 from the 213,000 hectolitres achieved in 2008, although they remained flat against the prior year.

Acknowledging that the volume decline had resulted in an increase in spare capacity at the Clifton Pier-based Brewery, Mr Pinotsis added: "We know we can produce more. How much more? A lot more.

"We see that our volumes are growing right now. Revenue increased in the first quarter, and we are happy with the volumes. I think we're looking at a modest volume increase this year. We saw stablilisation of volumes last year, and the first couple of months this year are giving indications of volume growth."

On the expenses side, Mr Pinotsis said both energy and raw materials/commodities costs continued to rise, these being issues afflicting Commonwealth Brewery and all other manufacturers in the Bahamas and elsewhere.

In its 2011 annual report, Commonwealth Brewery said the total $7.6 million increase in expenses seen last year was broken down into a $3.5 million rise in inventory costs; a $1.1 million growth in Excise taxes; some $0.7 million in utility cost increases; a $1.1 million spike in personnel costs; and a $1.2 million rise in other expenses.

To partially counter this, Commonwealth Brewery said it had generated cost savings on insurance, repairs and maintenance, lower depreciation and bad debt expense. It reduced office costs by consolidating its headquarters space, and renegotiated transport contracts.

"Stepping up marketing efforts, Commonwealth Brewery managed to stabilise a declining sales volume trend triggered in 2o10 by the increase of Excise Tax on beer," the annual report said. "Average revenue per hectolitre increased to $606, up 3.6 per cent year-over-year."

This was partly due to increased wines and spirits prices, with revenue from Kalik sales in the US falling year-over-year by 8 per cent.

Buoyed by its debt free status, Commonwealth Brewery reduced its overdraft facilities from $4 million to $2 million earlier this year due to its "robust cash flow development".

Cash flow generated from operating activities hit $21.1 million in 2011, of which $1.1 million was used for investment. Balance sheet cash fell 31 per cent to $11.4 million at year-end, following payment of a $7.5 million dividend.