Bralirwa Limited (Rwanda) – HY2022 conference call transcript

By Published On: November 14th, 2022Categories: Corporate announcement, Transcripts

Greetings, ladies, and gentlemen. Welcome to the first half of 2022 Bralirwa Investor conference call, hosted by African Alliance Rwanda and the Bralirwa management. We are happy to have you here.

With another great performance yet again, we are joined by the Bralirwa management, who will take us through a presentation, and at the end of it, every participant will have an opportunity to ask questions.

And without any delay, let’s get to hear from them and enjoy this call, this presentation. Thank you.

Bralirwa management over to you.

Etienne Saada
Thank you very much, Jessica.

Good afternoon. Or, good evening, good morning wherever you are. Ladies and gentlemen, welcome to Bralirwa PLC’s 1st half 2022 Investor Conference call. I am Etienne Saada, MD, and your usual host and together with Mustapha Gammar, who is our Finance Director.

So, let’s start. So, this is the disclaimer? If there is, I don’t think there is any comment on it.

So here I would like just to start by giving you an update on Rwanda’s economic recovery, so Rwanda economy continues after the period affected by COVID-19 pandemic.

We see a real GDP growth standing at 7.9%. In the first quarter of 2022. It’s mainly due to the strong performance in the industry and the service sector.

Let’s mention that the bar channel opened at the beginning of the year, 100% of the bars opened and they started to lift the restriction. So now according to the press release by the National Bank of Rwanda issued on August 26th, the resumed activity impacted the economy with GDP increasing by 10.9% in 2021 but compared to low bases in 2020. However, we had a growth of 7.9% in the first quarter of 2022.

Also, to mention that the political environment started to improve, especially in Uganda, but also between Rwanda and Uganda, but also now, Rwanda and Burundi are trying to renew their relationship.

On Forex side, the Rwandan Franc appreciated by 10.4% versus euro but depreciated by 3.9% against the US dollar.

According to the June 22 publication by the National Institute of Statistics of Rwanda, consumer price index increased by 16.1 on an annual basis and with a compared increase per month on 1.2% basis.

And lastly, on trade balance, we can see that domestic export value increased by 73.4% and the total imports increased by 38.9% compared to the same period last year.

The results to an increase of trade deficit, this is the result it results in an increase of trade deficit of 27.6% on the deficit compared to June 2021.

Again, this information is according to the National Institute of Statistics of Rwanda as well, which is our source.

Now moving to the next slide, let’s provide you with a bit of colour of the Rwandan beer market first and soft drinks. So overall we remain let’s say competitive. Yeah, we can mention that the soft drinks competition increased a little bit. It’s mainly due to the reopening of the borders and we see some importations coming in on the market globally, beverage market in Rwanda continue to grow, due of course to the removal of COVID pandemic restriction measures.

However, further on the presentation high inflation and input costs continued to impact the business.
Moving now to the next slide, some developments on our brands during the first half.

As I already said during our last update and also in the previous slide and why we were focused on our route to consumer to ensure the availability of our project in off-trade channels and while also staying focused on cost management our brands stayed relatively active, not to say very active, and we were able to grow brand power for very, very resonating campaigns.

For example, in more concretely on premium first with Heineken brand and we ran a through the line campaign called Cheers to passion and cheers to all fans around the Champions League.
As on premium, always on premium but with Amstel now we refreshed with a new visual to really create differentiation between Heineken and Amstel to have a clear distinction and the sponsor of Tour du Rwanda via Amstel brought really, great activation platform to this number one volume driver in premium. That was for Heineken and Amstel.

Now with Mutzig, we have more regional campaign, we run a regional campaign called Never Stop Starting. It was a very bold proposition, demand a lot of attention and action. In fact, it takes bravery and boldness to go out on your own. It was the motto, and we want to reward the individuals that are bold enough to start something that is life changing. So, at the end of this campaign, we launched a DJ activation competition looking for those who never stop starting.

Now locally with Primus, we insisted, and we drove local pride while growing the margin of the brand full price increase. The target was to drive local pride and for that, we partnered with the National Football League here in Rwanda.

And last but not least, soft drinks. On soft drinks, of course we kept our focus on Coca Cola with our Coke with Meals combo promotion in some restaurants, selected ones and also in E-commerce because E-commerce now is really, really getting more and more important.

And we continue to relaunch after COVID our energy drink Cheetah, with a new awareness campaign and some sampling activities all over the country. As a result of this campaign, we really were successful, and we improved the brand mix and we also successfully accelerated our revenue growth. That was for brand.

And with that, I will hand over to Mustapha to take us more concretely through the 2022 half-year financials. Thank you.

Mustapha Gammar
Thank you Etienne.

So moving on to six, we have some of the key performance highlights from the 2022 half year. Overall, volume grew by 17.5% versus 2021 driven by the continued growth of beer and soft drinks. Both beer and soft drinks grew by 9.7% and 46.1% respectively, versus last year, the result of the reopening of business and revamped route to consumer strategy.

Revenue of 72.9 billion Rwandan francs was plus 28.2% versus last year, mainly driven by total volume growth with price increase on bid to mitigate rising input costs.

We registered a strong operating profit result of 58.7% growth in delivering 20 billion Rwf compared to 12.6 billion Rwf in 2021 same period, mainly driven by top-line growth and strict cost management. Net finance costs decreased by 9.1% to 2.6 billion Rwf mainly from reduction of debit interest of IFC loan long term loan fully repaid. Profit and total comprehensive income increased by 93% to 12.5 billion Rwandan francs coming from 6.5 billion in 2021.This resulted in better earnings per share of 12.12 Rwf compared to 6.28 in 2021.

Turning to slide 7. So there is some more details on the financial result of half year 2022, just two comments to add here. So selling and distribution expenses increased by 50.7% versus 2021 due to the increase of logistic cost and high marketing investment to support our brand as the result of the reopening of the business. Second comment around administrative expenses that grew by 22.5% versus last year, mainly driven by IT charges, travel expenses, depreciation, and amortization.

With that, I would like to hand the call back to Etienne to take us through Community support initiatives and the outlook of the rest of 2022.

Etienne Saada
Yes. Thank you very much, Mustapha.

Now for our sustainability and responsibility agenda. As you already know, we chose to focus on the three main pillars, which are environmental, social and responsible.

For the environmental pillar, our ambition is to have net zero emission by 2030. To achieve this target, we have embarked on a renewable energy project and also efficiency on electricity and thermal energy usage. Very important, circularity, 97% of the brewery waste is now landfill-free. Our aim, of course, is to close the gap and to have zero waste to landfill. It is important to mention that every year we plant 20,000 trees to create a water balance effect, and this is of course in complete alignment with the local authorities.

Under the social sustainability agenda, we have increased the number of women in our senior management by 33% and we shall continue to do so at different levels within the company.
Together with the support of The Coca-Cola Foundation, we also supported the community through the local Red Cross by providing Euros 140,000 to the Ministry of Health to facilitate the vaccination logistics. Also we directly supported with $50,000 a project called IRCAD and they plan to create and they started already let’s say a training center for surgeons in Africa. Only three centers like that exist worldwide and for Africa, it will be in Rwanda.

And, this September we plan to support our barley project, local barley of course and we start to train some farmers for the new crops in this country. But also, since we are a responsible company, what does it mean concretely when we say we promote drinking in moderation?

In fact, in order to give a choice to our consumer, and this is now an information, we are going to introduce Heineken 0.0 in the next quarter one time, let’s say we don’t have the Precise time here, but it will be done this year.

And also we join the Rwanda National Police on the road safety campaign to sensitize People on drink and drive based on our motto when you drink, never drive.

Finally, and it is our last line, let’s have an outlook on the full year 2022 that globally we expect a good top-line growth versus last year due to the resumed business compared to Covid period, of course, a continuous improvement on our route to consumer and we will insist and develop our digital journey because it will be a, it will continue to be the backbone of our operation and we go forward while wisely and efficiently use our commercial power to build on our brands we will continue.

This said, however, we expect the market to continue to be competitive and we remain very conscious of our current constant capacity to meet the growing demand, and as we saw inflation now is skyrocketing, so it could be a risk.

That’s it for me, thank you very much for your attention. I think now we are ready for questions.

Thank you, gentlemen.

I’d like to remind all participants that you can ask questions through our chat box, or you can raise your hand to be permitted to speak. We welcome your questions.

We have the first question from Tim, please go ahead.

Tim Staermose
Uh, yes.

Thanks for the opportunity to hear management and answer, sorry, ask some questions. I have a few questions

The first one being that it’s quite noticeable that although you enjoyed very strong volume and revenue growth costs rose even more quickly. So, I just wonder whether that trend is likely to continue in the second half and whether there are any initiatives to do something about the ballooning costs. That would be #1.

The second one relates to the dimension of capacity constraints. At the end is, is the company considering any additional capital expenditure to address that?

And then the final one was regarding the initiative for locally grown barley. I don’t know whether you’re at liberty to disclose, you know what percentage you do source locally at present, if any, and what percentage is imported, just to get an idea of the breakdown between the two and the potential cost savings when you source locally rather than import barley or malted barley as the case may be.

Thank you very much.

Etienne Saada
Yeah. Thank you, Tim.

So let’s start with #1, which by the way will be linked also with #3 and we will see how. So on cost you perfectly right unfortunately and that’s why we are very proud of this result because we all know it was unexpected when the crisis broke in Europe and as you know, Rwanda being a landlocked country the cost of our good sales really, really exploded sometimes and we couldn’t do anything, but it’s true everywhere. And by the way, Rwanda and Bralirwa we resist quite well, but we couldn’t avoid, for example, a price increase on transportation, blockage of containers and that kind of cost.
So you mentioned, Uh, do we have action to mitigate? So, and that’s why I say it’s linked to Q3 and you are perfectly right.

One of the immediate solutions is to accelerate our program on local sourcing that’s why I jump to #3. I won’t forget #2, of course.

And Barley, now it’s new, but we already started and it’s part of mitigation Uh, with local maize. OK.

Unfortunately, recently we had the information that they don’t have sufficiently maize, but at least we start to produce with local maize. It’s done in one of our brands now, Uh, we started to include 70% of maize in this brand. OK, so local sourcing is one, of course, one possibility to mitigate costs.

Also what we can do and what we did is to have a program, we already started during COVID-19 by the way, before my arrival to develop the cost avoidance culture in our people. So now it started once again in transportation to rationalize transport between our people and that kind of measure.

However, it remains quite complicated to forecast what will be the next step with Europe I received this morning an information stating that transport costs start to decrease in sub-countries. So we will see more precisely what happens.

On capacity constraints, I can confirm clearly what I mentioned during our General Assembly, we invested $27 million in Gisenyi, the place where we brew in our brewery OK to extend our capacity to about 200,000 hl/year more. The concrete effect of this extension will be Q3 end of Q3 beginning of Q4 next year.

Hope it’s clear?

Tim Staermose
Yes, that’s clear. Thank you very much. Right. I’ll let others ask their questions.

Bernard Griesel
Thank you.

Thank you so much and congratulations on some solid results, very good results. I wanted to ask about exports. I mean, I know that obviously capacity is constrained even for local demand which still remains strong. But thinking down the line, I know that when the Heineken local production facility was set up the plan was exports and I know exports was difficult for time because of because of border, border issues and COVID.

I’m just wanting to understand, in the future, do we see Bralirwa as only a local manufacturer of beer in Rwanda or is the plan to become more regional export hub towards other countries as capacity, I mean as you build up more capacity?

And then secondly to that, I mean, obviously there’s been a lot of demand locally. Is that a fact of only because of the COVID restrictions, I mean on the bars? And is it such a rolling away? Or total, I mean beer demand in Rwanda growing quite a lot. I mean how much is Demand versus 2019 overall beer demand potential in Rwanda? And is it just reverting that or are you also otherwise taking some share? I mean, I’m just surprised that the volume growth has been so strong and expected to continue to be so strong. Hope those two questions are clear.

Etienne Saada
Yeah, quite too complex sometime, but clear by now. Thank you, and very interesting. First of all, on export, you mentioned clearly 2 main hardships to overcome its capacity and problems with the borders, let’s say with the neighboring countries. So of course, on the short term and it’s also linked to the second part of your remark, there’s no debate, no capacity for the internal market, for the domestic market, So we can’t export and of course for any reason keep in mind that sometimes acceptance of products coming from one country to another in Africa is not so easy for a historical reason and we can all understand.

However, when you write the link to our extension extending capacity. We will decide, uh, if we continue to invest and to be honest, that’s what we will propose to our company. We do believe, because of the stability of the country, that we could extend further our capacity and start to export or at least to export international brands with less debates on it, local brands more complicated, but brand like Heineken, yes, it could be clearly an opportunity.

Also because, uh, Heineken is not brewed in every country in Africa, OK, because to have the license for Heineken Due to very strict condition it’s not always the case and in many countries around us they don’t produce Heineken. So there is an opportunity there.

Now you mentioned the market and the demand, yes, immediately it’s due to the end of COVID, but you’re right. It’s surprising we can say that the market globally despite or if we isolate the last crisis, of course due to the war. Otherwise we can expect roughly an 8% increase on the market, the demand, why? Because of the middle class and of the increase of the country, when you see what happens globally in Rwanda, all the meetings, all the events they organize, and it’s true, for example, for the counts, the labor life is the purchasing power. Nobody is increasing except this current payer. Once again, so due to this middle class and the change, you see an increase of demand.

And I will conclude by saying that to illustrate here the clear thing and a clear fact is a premium because there is a market increase on the market demand but also the premiumization, and this is clearly because the country is developing.

Hope I am clear Bernard?

Bernard Griesel
That’s very clear. Thank you. Perfect.

Thank you so much. Maybe one quick follow up this is just on that local demand of maize; you say there’s one brand that you use for that? Can you just maybe just tell us which brand that Is that you use the local maize for?

Etienne Saada
Yes, potentially I can because I know it’s not possible why, I explain it to you.

Because we are trying to extend it to other brands, so it has an impact in our market. So even in our own company, people don’t have access to this information because of course it has an impact versus competition. That’s why Bernard I can’t give it to you.


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