By NEIL HARTNELL
Tribune Business Editor
Commonwealth Brewery has blamed a six-figure loss for the 2019 first quarter on $2.7m in one-off expenses linked to restructuring, staff lay-offs and Kalik Light’s re-branding.
The BISX-listed brewer, unveiling its results for the three months to end-March, said shareholders were experiencing temporary pain in order to realise “planned efficiencies” that will be felt in its financial results in the coming months.
The vertically-integrated brewer, wholesaler and retailer, which is 25 percent owned by Bahamian shareholders, told the capital markets that it also had to contend with flat revenues as well as increased costs during the first quarter as it lost four sales days in “going live” with its new Enterprise Resource Planning (ERP) system.
The impact from the $866,258 loss for the 2019 first quarter, representing a more than-$3m “swing” from the profits generated in the year-before period, was also felt on Commonwealth Brewery’s balance sheet.
The brewer, which is 75 percent majority-owned by international giant, Heineken, saw its cash and cash equivalents shrink by more than $7.5m in the three months after 2018 year-end, dropping from $9.09m to just $1.503m.
Commonwealth Brewery’s current liabilities of $41.31m also just about exceeded its $41.177m in current assets at the March quarter-end, although its plant and other physical assets ensured its net equity remains at a healthy $55.668m.
“Commonwealth Brewery is preparing itself to become a more streamlined organisation that would deliver increased value and efficiencies through our people and processes,” the company said in explaining its 2019 first quarter results to investors.
“Increases in the three principal operating expense lines, compared to the first quarter of 2108, relate to the restructuring and realignment exercise in process, which had an impact of $1.5m.
“In addition, the shift in consumer preferences and re-branding of the Kalik Light portfolio resulted in a net increase of $1.1m. These had been anticipated in our plan for 2019. The realisation of planned efficiencies are expected have a positive impact in the months to come.”
In mid-January, Commonwealth Brewery announced 73 jobs losses at its retail unit, 700 Island Wines and Spirits, although there were hopes at the time this could be minimised at 43 through finding as many as 30 alternative posts within the group.
The downsizing, which is likely to have been a major part of the $1.5m in “restructuring and realignment costs”, tackled what the company said were too many middle management layers amid a tough economy and competitive pressures from cheaper imported beers such as Bud Lite.
Ron Hepburn, Commonwealth Brewery’s director of retail, said at the time: “If you look at our financial position, as reported in the third quarter last year, we have been impacted by competition - mostly from imported beer brands like Bud Lite and the like. At the end of the day this is just the result of different drivers that impacted our overall business that caused us to make a decision to streamline our operations.”
His statement indicated that the impact of Bahamian Brewery and Beverage Company’s Budweiser distribution contract coup is now being felt market-wide. Tribune Business reported back in 2015 that Commonwealth Brewery’s Grand Bahama-based rival had seized the Bahamian distribution contract for Budweiser, and all brands produced by Anheuser-Busch, from the BISX-listed firm. The move effectively ended a four-decade reign by Commonwealth Brewery as the Bahamian distributor for the brands produced by the world’s largest brewery.
Commonwealth Brewery last year also made a decision to absorb a “significant” cost by choosing to “eat” the 4.5 percentage point value-added tax (VAT) hike across its entire Kalik beer product line.
This was done to maintain Kalik’s price competitiveness, and as a goodwill gesture to consumers struggling to adjust to the impact of a 12 percent VAT rate introduced with the 2018-2019 budget.
“Commonwealth Brewery reported a net loss of $866,258 for the period, mainly driven by the timing of promotion/expenses and one-off restructuring/ERP implementation costs,” the company said yesterday of the 2019 first quarter figures.
“The strategic actions undertaken thus far by Commonwealth Brewery were pre-planned and forecasted to yield growth by moderating cost development versus top-line while continuing to invest in our key brands.
Explaining its revenue performance, which stood at $32.282m for the 2019 first quarter compared to $32.317m the year before, the BISX-listed brewer added: “Commonwealth Brewery’s revenue was flat for the first quarter of the year, in comparison to the previous period, despite the loss of four days of sales due to closing in March, to allow for the go live of our new Enterprise Resource Planning (ERP) System. Without this interruption, we estimate that the first quarter top line would have realised moderate growth.”
Due to the one-off costs incurred, Commonwealth Brewery’s total expenses for the 2019 first quarter increased by just over $3m to hit $29.803m. Personnel costs increased by over $1.3m to reach $6.813m, while raw materials, consumables and services also jumped by over $1m to $21.707m.