Malaysia: Guinness Anchor Bhd becomes Heineken Malaysia Bhd and is expected to raise prices after June

Guinness Anchor Bhd (GAB), which received shareholders’ approval to change its name to Heineken Malaysia Bhd on April 20, is expected to raise prices after June, as the brewery could not mitigate all the increase in its operating costs after the implementation of the goods and services tax (GST), The Edge reported on April 21.

“We are looking at ways to possibly increase our price after end of June. But we will keep it as limited as possible,” GAB managing director Hans Essaadi told The Edge Financial Daily after the company’s extraordinary general meeting on April 20.

Over the past 18 months, after the GST kicked in, he said inflation, as measured by the consumer price index, and the company’s operating costs have increased.

“We are looking at ways of mitigating [the increase in costs], so the procurement [of raw materials] with Heineken is a way to look at it. But we cannot mitigate all of it,” he explained.

The company chose the period after June because the Price Control and Anti-Profiteering Act 2011, via the Price Control and Anti-Profiteering Regulations 2014, forbids any net profit margin rise for 18 months, starting from Jan 2 last year, to prevent profiteering post-GST. The freeze in price rise will end on June 30 this year.

Meanwhile, GAB expects to enjoy cost savings from being part of Heineken’s global supply chain in six to 12 months for the procurement of raw materials such as malted barley, glass and aluminium, after it clears off existing contracts for its raw materials.

“If we can tap into the global procurement contracts that Heineken has, it will be much more efficient in terms of purchasing, than GAB was able to do as a stand-alone brewer,” Essaadi said.

He added that these cost savings would allow the company to be more efficient and more profitable, but declined to elaborate on the quantum of savings the company is expecting.

As to whether he expects the government to further increase the excise tax for beer, he said the government may do so over time, but not anytime soon, as the breweries need to first digest the new tax regime that was introduced last month, which saw the excise duty on beer made from malt changed from RM7.40 per litre and 15% ad valorem tax to RM175 per 100% volume per litre.

The shift to an alcohol volume-based tax means that the duty on beer, which has an average alcohol content of 5%, will be RM8.75. According to news reports, the exact quantum of the increase in excise duty on beer and stout is at least 10%.

“You cannot keep raising excise tax and expect to get more income out of it. You need to find a normalised system. If Customs is looking at additional income, they need to look at enforcement of contraband,” he said.

Dutch-based Heineken NV, the second-largest brewer in the world by revenue — according to its website — now controls GAB, after it acquired GAPL Pte Ltd last October from Diageo plc. GAPL holds a 51% interest in GAB.

21 April, 2016