Business

Thursday January 22, 2009

Tough market a boon to Guinness Anchor

CEO OUTLOOK


Guinness Anchor Bhd managing director Charles Ireland says a more challenging market means more retailers have to go for the best selling product range.

WHAT is your outlook for the economy?

I expect the economy to slow down and the gross domestic product (GDP) to decline but we will not fall into a recession. I expect a modest growth next year.

Charles Ireland

What is your outlook for the company?

The malt liquor market (MLM) is such that when the economy booms, it does not grow as much and conversely, when the economy slows, the MLM is not as affected as other industries. The MLM is robust and relatively independent of the economic conditions.

However, should the overall economy go into a recession, the MLM will decline.

We expect the MLM to be relatively flat, perhaps registering a modest growth.

With the current global financial crisis, people are changing their spending patterns where they potentially do not go for big ticket spending but will still spend on everyday things. We believe they will find ways to treat themselves to compensate forgoing certain luxuries and this would include relaxing at a neighbourhood pub or coffee shop with their favourite brew. Therefore, we do not expect too much impact on our business on this front.

Strategies to stay competitive despite higher raw materials cost and concerns of higher taxes?

We think the worst is over in terms of escalating raw material costs. We suffered badly in the last couple of years with the cost of some of our raw materials increasing by as much as 800%. Forward contracts are coming down and our input costs are finally stabilising.

As for taxes, we think the Government would be making a big mistake if they increase taxes at this point as there is already enough stress on the people. Increasing taxes would impact the MLM and force the usually resilient MLM into a recession. We are confident that the Government understands that taxes on beer and stout are already high enough. Our consumers are currently paying RM1bil in taxes annually. This is a large burden for a small pool of consumers to bear.

Any further increase in taxes could make Malaysia the country with the highest level of taxes in the world. This would have a negative impact on tourism as the price of beer and stout is one important factor that tourists consider in choosing a holiday destination. Some countries in Asia have actually decreased their taxes in the belief it would create a more tourist-friendly environment.

In some ways, a more challenging market would be advantageous to GAB. We have been growing volume, market share and profits in the last seven consecutive years. We have increased our market share from 45% to 56%.

The beer and stout industry is one that is built on relationships. Some retailers make decisions based on these relationships and in some instances, these decisions may not necessarily be the best for the business. A more challenging market would mean more retailers would have to make tougher choices to benefit their business. As a result, we believe that there would be an increase in our market share as retailers would have to sharpen their business model to go for the best selling product range. GAB has the best product range.

Plans to increase exports to offset a possible decline in domestic consumption?

We do not expect domestic consumption to decline. The vast majority of our production is for the domestic market. However, we do export to a few countries in this region. The products that GAB produces are of high demand in Asia as we are recognised within our global network of breweries as one of the best.

Other products which GAB can look at to sustain revenue and profits?

GAB is essentially a beer and stout company and 95% of our business is made up of very successful alcoholic beverage brands. We do not expect a significant shift in our business model.

We are constantly exploring options for new innovations in our portfolio but we want to make sure that every product we launch is a winner for our company and business partners.

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