THE COMPANY: Guinness Ghana Breweries (GGBL) was formed through a merger between Guinness Ghana and Ghana Breweries (formerly a subsidiary of Heineken Ghanaian Holdings) in 2004. It is Ghana’s largest brewer, with a market share in excess of 60%. The company is ultimately controlled by Diageo, with a 52% stake, in collaboration with Heineken International, which owns 20% of the issued shares. GGBL manufactures and distributes both alcoholic and non-alcoholic beverages. GGBL targets the midto high-end of the market, with its product portfolio ranging from spirits, stouts, lagers and non-alcoholic malt beverages. Some of the company’s most recognised brands include Star, Gulder, Guinness, Malta Guinness, Smirnoff, Johnnie Walker and Baileys. Despite aggressive competition from other players in the spirits, beer and non-alcoholic malt segments, GGBL has continued to maintain its market leadership in the industry. GGBL operates through a network of 58 key distributors that distribute GGBL products to approximately 7000 retail on-trade outlets. The company currently operates three breweries: Kaasi and Ahensan in Kumasi and the Achimota brewery in Accra. The Kaasi brewery is GGBL’s primary plant, contributing to approximately 50% of the company’s annual production. Over the years, GGBL has invested heavily in capacity expansion and infrastructure improvement in its brewery plants to tackle its demand-supply gap. In the first half of 2013, GGBL commenced its plan to expand the production lines at its Kaasi brewery. The project has an estimated cost of GHS80m (41.1m) and is intended to increase production and efficiency to meet consumer demands. Continuous infrastructure upgrades and expansion, coupled with its strong brand presence, resulted in an 18% year-on-year growth in gross sales to GHS448m ($230m) in 2012. The company’s operating expense ratio significantly declined from 73% in 2011 to 59% in 2012 on the back of efficient usage of water and electricity, a result of the new pasteuriser installed at its Kaasi brewery. Interest expense also declined in 2012, as a result of the substantial reduction in its debt financed by GGBL’s GHS70m ($36m) rights issue in 2011. GGBL’s net profit margin improved from less than 1% in 2011 to 9% in 2012 supported by a 47-times increase in net profit to GHS25m ($12.9m) versus GHS500,000 ($257,050) in 2011. As of March 2013, GGBL had achieved an impressive nine-month net profit of GHS28m ($14.4m), outperforming its annual net profit in 2012 by 12%. This run spurred a 91% LTM appreciation in the company’s share price as of July 2013.
DEVELOPMENT STRATEGY: GGBL’s strategy is to capitalise on its strong brand equity and diversified product portfolio to drive growth. The company’s branding strategy involves huge investment in promotional initiatives and campaigns such as the “Star Blitz” campaign, the ongoing “Guinness Football Challenge” and “Malta Guinness Street Dance Competition”. GGBL’s product approach focuses on strengthening its position in the non-alcoholic and alcoholic segments.
Continuous product development and innovation is expected to capture a new market and spur growth. Since 2012, GGBL has introduced two new products to its mid-end market: Armstrong and Ruut Extra Premium Beer. The Ruut Extra Premium Beer is Ghana’s first beer made from locally sourced cassava. Beer made from cassava syrup has received positive responses from other markets like Nigeria and Mozambique, and IC Securities foresees strong performance of GGBL’s cassava beer offering supported by huge brand investments and first-mover advantage.
Ongoing capacity expansion of Kaasi brewery is expected to stabilise supply and further boost production. The company is seeking to leverage its increased plant capacity in order to support the expansion of its product portfolio, meeting the growing and diversified demands of its core consumers. Ongoing investment in production and distribution infrastructure to improve operational efficiency will also ensure continued and sustained healthy profit margins for the company. GGBL price & index relative performance GGBL market ratios