Bralirwa Limited (Rwanda) – FY2022 conference call transcript

By Published On: May 22nd, 2023Categories: Transcripts

Bralirwa Plc FY2022 – 20 April 2023

Speakers:

  • Etienne Saada – Managing Director
  • Mustapha Gammar – Finance Director
  • Floriette Mugisha – Host, African Alliance Rwanda

Host

Ladies and gentlemen, welcome to BRALIRWA Full year 2022 results Conference call, hosted by African Alliance Rwanda on what reflect significant positive performance of BRALIRWA PLC.

From Bralirwa, we are joined by the Managing Director and the Finance director who will take us through a presentation of the financial results of the company for the period ended in December 2022. We will also get to hear of the outlook for the year 2023. At the end of the presentation, participants can always ask questions through the chat box, which I encourage you to do by typing your questions. And you will also be given a chance to speak and ask your questions. Welcome again. I’m going to hand it over to the Managing director of Bralirwa, Mr. Etienne Saada. Please, you are welcome.

Etienne Saada

Yes, thank you very much. So good afternoon, everyone, and thank you again for joining us today for our full results 2022 during this conference call. By now, I can assume that you all know me no need to reintroduce myself. As mentioned previously, Mustapha Gammar our Finance director, will join me to comment before we leave the call to take your question to the end. As mentioned, I would like to take you through a few opening remarks on Bralirwa full year results of course. Results we released a few weeks ago, and some slides accompany this call which you should be able to access normally on our company website. I hope you can see it on your screen, and with that I would like to get started immediately on our disclaimer as usual. Normally everybody will know it, but let’s wait. This is a traditional one.

Turning to the first slide, I will start by providing some context on the macroeconomic condition in Rwanda. Even if I guess you are already aware, but just as a reminder: in 2022 Rwanda’s economy grew by 8.2% in 2022 following a double-digit growth in 2021 of 10.9%. In 2022 we have been helped by the removal of COVID-19 restriction. And, also thanks to an effective vaccination campaign, and normally it led to return to normal of business and social activities in the country. Important to mention that average inflation in 2022 was 13.9%. Especially impacted in Q4 2022. The high inflationary trend was mainly driven by high inflation in food and nonalcoholic beverages mainly and coupled of course with energy inflation. The trade deficit, as you know, deteriorated by 19.1%. And, also important to note that Rwandan franc depreciated by 6% versus USD and marginally appreciated versus Euro 0.04%. This is a result of course of the global growth of the USD, but also in Europe the challenge faced by European economy and the war in Ukraine, mainly.

Another view on Rwandan beer market, what happens? So globally all the businesses were fully open at 100% compared to 2021, the borders reopened which is a good thing. However, especially from Uganda and Burundi but, it also allowed inflow of some import product in 2022 overrise, and by the way, we will see it, but this status remained the same at the beginning of this year in Q1. It is quite a heavy trend. As was the case in the prior year, the beer market remained very competitive here with of course the consumer spending power still a constraint. It is important to step in a little bit by brand because you know, it really is what differentiates us from competitors in the market.

Let’s mention that with Mützig we continued what we presented last year with the Live Bold-Never Stop Starting campaign, of course nationwide. This campaign is mainly centered around music. We use music and we want with this platform to show that this is for the bold ones, for the shapers and people who will become the game changers. And of course, those innovative people, we want them to start things and let’s say that when you start then you never stop. In Q3 2022, the live bold campaign was brought to live with a DJ activation, Mützig DJ Amabeats, using the music platform to drive emotional connection with our consumers.

Primus of course in 2022, was the year to keep building a strong brand to mitigate the price increase. And again, positioning Primus as brand worth paying more to rebuild around primus activities like leveraging the National Football League. We have an ambassador Bruce Melody for those who know that very famous singer but, aiming to attract young adults and to rejuvenate the brand Primus a little bit. We want Primus to remain number one in Rwanda being typically the beer of the Rwandan heritage, remaining relevant through all the generations.

Important for Heineken® to specify what was our strategy because, if you remember, we were very ambitious. We really overperformed with a 133% growth. In line with our strategy on premiumization I remember it was one of our priorities and we did it. Why, the how we did it? Because we launched key activities like of course; Heineken new pre-Champions league, a lot of activation, memorable experience for consumers everywhere in our outlets activations. We have the premium final event with a lot of people, and we were also able to send some consumer, and costumers to the Trophy Tour experience in Nigeria. We also partnered with one advanced DJ in Rwanda, DJ Marnaud to touch the Gen Z. This generation is important also for Heineken. We also worked with a very renowned DJ from South Africa, Amapiano, very famous and we created a lifetime rooftop experience for consumers and influencers. It is important to work with social media, especially with Heineken.

We also developed a campaign around Heineken after work to drive consideration and position Heineken as the ideal beer to celebrate at the end of the working day. Heineken® continued to advocate responsible alcohol consumption through its ‘Enjoy Heineken Responsibly’ communication and tap into 0.0 category with the Launch of Heineken 0.0 end of 2022.

Last, but not least, Amstel. One of our challenges was really to differentiate premium Heineken and Amstel. We grew by 60% on Amstel versus 2021, so very good success. We implemented the new brand identity of Amstel, with new colors Red, Gold and White to really keep this differentiation with Heineken very clear. We have also rolled out a very attractive campaign via platform called Friends of Amstel with a series of concerts with regional, and international artists in Rwanda like Timaya and Adeluke Gold from Nigeria and Shai from Guadalupe. Also, and maybe the most important, Amstel remains the official sponsor of Tour du Rwanda. Once again, we connected around the country with thousands of cycling and Amstel lovers. Of course, with cycling as a sport, we have captured the hearts and the minds of Rwandese and now Tour du Rwanda has really become a very recognized competition worldwide with people coming from many countries to participate. Cycling as a sport links quite well to the brand heritage, as Amstel is a brand born in Amsterdam the city of bikes. With that precision on the ground, I would like to hand it over to you, Mustapha, to give us some financial input for 2022.

Mustapha Gammar

Thank you, Etienne. Moving on to slide six, we have some of the key performance highlights from the full year’s results. Our overall volume grew by 11.7% versus 2021 mainly due to the full reopening of the market in September 2021 from strict COVID-19 measures. This growth was driven by both beers plus 5.1% and soft drink plus 31.6% because of the focus we put on both off-trade and on-trade charts. Revenue of 157.7 billion Rwandan francs was higher than last year, mainly driven by volume growth. Positive mix and responsible pricing offsetting the increase in the input cost. We registered a strong operating profit result at 35.1% growth, delivering 42.1 billion Rwandan francs compared to 31.2 billion in 2021. Mainly driven by top line performers and partially offset by the sales and distribution cost increase, mainly, marketing cost due to the investment made after the full business reopening to support our brands. Net finance cost increased by 14.2% to 6.4 billion Rwandan Francs, while profit and total comprehensive income increased by 28.7% to 22.5 billion Rwandan francs coming from 17.5 billion in 2021. This resulted in a better earning per share of 21.91 Rwandan franc compared to 17.03 Rwandan francs in 2021. Turning to slide seven, so there are some more details on our financial results for the year for the full year 2022. As I presented the key driver of the improved operating result already, I will not spend a long time on this slide. I would like now to hand back the call to Etienne to take us through the Community support initiative and the outlook for 2023.

Etienne Saada

Thank you, Mustapha. As you know well, for Heineken sustainability and responsibility are really at the heart of our business and as we explained over the last year, we want to be concrete when we say that. What does it mean? It is in our top five priorities locally. And to give you a concrete figure, we invested around 850,000 million Rwandese francs, for this cause. It means that in 2022 being an accountable organization, we were dedicated to leading really the debate on responsible consumption.

We are also taking action to decrease harmful consumption in collaboration with relevant stakeholders. We participated in a campaign with the Rwandan National Police on “Don’t drink and drive”. We also completely collaborated with WaterAid and the Ministry of Health to assist the government in the construction of water, sanitation and hygiene facilities in various districts across the country.Why? We wanted to contribute to the implementation of government-led behavior change campaigns. This was worth FRW 225 million. Through our Coca-Cola Foundation, we donated 141 million again to the Rwanda Red Cross and the Ministry of Health to assist the government in meeting the national target of 70% fully vaccinated people. If we remember at the beginning of 2022 COVID-19 was still very present. This project was deployed in 10 districts.

Last year we also planted 20,000 fruit and agroforestry trees in Rubavu District,Kimironko, Nduba, and Bumbogo Sectors. As well we also planted bamboo trees along Rugunga canal to help replenish the water we use and save the environment and improve the nutritional status of residents in all the surrounding area. Lastly, we supported 1,000 residents of Nyamyumba Sector, Rubavu District with medical insurance annually worth 3,000,000 Rwandan Francs.

I don’t mention all the actions we have, what we must do as a responsible company, but we participate in many sponsorships and operation to support government initiatives. That is what we did.

Now with just a quick overlook or what we can say in 2023. It will be our last slide before giving you the floor for questions.

Rwanda’s economic growth is expected to continue in 2023 supported by ongoing government programs such as the Manufacture and Build to recover, which we knew this year. The market environment in Rwanda is expected to remain competitive, and, also constrained because of high inflation trend even when we notice a very slight decrease. So far inflation is still there. Overall, the beverage market is expected to be broadly positive, and BRALIRWA will continue to invest in its brand, and we maintain the strategy in route to market and people to drive superior performance. We keep the same strategy. Uncertain taxing environment will likely continue to be challenging, but we focus on cost management and responsible pricing strategy which should enable further growth in 2023. That is what we can say. With that we would like to hand back to you Floriette for any question.

Host

Thank you, Sir. Thank you to the management of Bralirwa. I would like to remind participants that you can ask your questions through texting in the chat box in front of your screens and raising your hands to be given an opportunity to speak. We currently have one question in the chat box from Nick. And the question is: “Why was the tax rate for 2022, 37% as compared to 30 typically? What is the tax rate outlook for 2023?”. I would like to hand it back to you Bralirwa team to reply to the question. Thank you.

Etienne Saada

OK, I think this one Mustapha, maybe you can reply.

Mustapha Gammar

Thanks, Nick, for a good question. We just explained that. From what we have, last year 2022 we were able to close a bad debt tax audit with Tax authority in Rwanda for the years 2014, 2016, and we were able to close the audit and to pay additional tax and this as the main impact of the increase of the tax rate from 30 to 37%. Also, part of the agreement with the tax authority we have voluntary disclosure for 2017 and 2018 and 2019. We have already done that, and as an impact on the tax in2022. For the outlook for 2023, there is not any open tax audit. This would come back to the normal rate of 28 to 30%. Thank you.

Etienne Saada

Thanks Mustapha, we hope it’s clear.

Etienne Saada

Let’s jump to the second question.

Etienne Saada

Do we have another question?

Host

We have another person who has a question.

Etienne Saada

What is the question?

Host

Please Tim, you may go ahead.

Etienne Saada

Ok, what is your question?

Tim Raschuk

Hi, thanks so much for making the call. My question is on the capacity expansion ongoing. Could you just give us an update on where current capacity is versus current production, and then what the timeline is for the capacity expansion to come online? And maybe what magnitude that capacity expansion will be?

Etienne Saada

Yes, that is an important point. Thank you for this question. We mentioned last year that we plan to invest in extending our capacity in the brewery. We did it and we expect concretely an increased capacity starting this year normally end of Q3, beginning of Q4, we should have the extension of the capacity. As we mentioned last year, this capacity should be present around the 200,000 hectoliters more on proportion this year. Normally we expect to have 1/3 of this of course, because we will have only one quarter. I hope it’s clear.

Tim Raschuk

That’s clear, and I presume this is all beer. What about on the soft drinks side? Do you need to invest in any additional capacity there?

Etienne Saada

You are right. This was only on beer. So, yes, I forgot our beer size. In our books, on soft drink we have capacity. We have capacity on soft drink enough to provide to supply the demand, no problem.

Tim Raschuk

Great. One more question for me on the pricing strategy of the company. We’ve been following Bralirwa for many years and we have been shareholders for a number of those years, and it seems like before COVID, the company had a lot of difficulty raising pricing. But since COVID you have been able to push through a couple of price increases which have offset some of your costs and translated into higher revenue. My question is what has changed and maybe what do you expect to do with pricing going forward? Obviously, I understand that the inflation backdrop is also different than what it was prior, but just any color and guidance you could give on pricing going forward. Thank you.

Etienne Saada

Yes. The main difference is we could not offset completely the cost because we all know the costs were huge. However, the difference is, because you’re right, and the previous past before until 2021 during the COVID period, I was not there, but I fully understand it was quite challenging to increase and to explain why. However, with the COVID crisis, people understood that we were not the only one to undergo this price increase. Everything increased in inflation, and our prices were much below. For example, when we have roughly 16% average increase in the year 2016, you could have 46 in some goods. People who were used to that could understand the explanation because they saw it was a reality. That is why we were able to pass the prices. As for the second part of your question, the main concern now, and you can understand, is about elasticity. We need to compensate because we still have an increase in concern about the cost of production of Cokes, and about sales. However, with them we don’t know so far. We have already started with every management to monitor very closely the elasticity. However, if we are obliged, we will increase. But so far, we remain with the same strategy, clarity in communication and reality. If we must increase, we will, but still now elasticity is even more important than it was. Is it clear for you?

Tim Raschuk

That’s clear. Thanks so much again for taking the time.

Host

Thank you, Tim. There is another question in the chat box from Fidel. He’s asking:” How is the share capital current status?”

Mustapha Gammar

Thanks, Fidel, for the question. The share capital status now is at 185 billion Rwandan francs. If you look at the share price since 2021, now the share price is going up. For 2021, the price was 121 Rwandan franc and now it’s at 181 per share.

Etienne Saada

Thanks Mustapha.

Host

Thank you. Bernard has another question; you may go ahead.

Bernard Grieser

Thank you. Yeah, congratulations on solid results. I wanted to ask you about the competition of course. You always mentioned that competition is very stiff, and it has been, but over the recent past it seems like you’ve had a, given your volume growth and yes, you’ve had a handle on competition. I have seen recently that your main competitor refreshed their brands. I was wondering if that might have intensified the competitive environment. I also noticed that their prices seem to have suggested that they were underpricing you. But I wasn’t sure. So, I wanted your opinion on that.

Etienne Saada

Well, thank you! These are very precise questions on the market and useful information. First, you are right. We can have, and you can have the perception that they rejuvenate their brand. But in fact, we understood. It took time for me to understand that they change every four months their campaign. In fact, it’s another strategy, and we must respect it. They don’t have, let’s say like we do, a strategy on the brand and following it. They change the image. Let’s say for example on one brand X they had a gorilla for four months, and now they have another on every stage. So, they change. That’s why we have the feeling that they are rejuvenating. That is their strategy. We do believe that they are doing well because of what we see on the market, and it’s linked to also the second part of your comment or question. On price they used to be clearly slightly below. It’s not the case today. They say the gap is reducin