East African Breweries to restructure its staffing
By FTA Correspondent
The region’s leading maker, the East African Breweries Limited is looking at cutting costs and intensifying its activities outside the Kenyan market in a bid to reverse the drop in its half-year profits and liquidity. The brewer is facing threats on its sales in the Kenyan market as the market settles to the new alcohol law that reduces the number of hours bars can operate, estate business and legalising traditional, often cheap, liquors. Though EABL say it’s still assessing the impact of the laws, which became operational in mid November, its main beer distributors say sales have fallen by nearly 20 per cent in December and January. But this did not show in the brewer’s sales for the six months to December because the laws affected a month’s sales and the half also saw EABL benefit fully from the beer price increments of between Sh5 to Sh10 per bottle it made in October 2009 and another after June Budget to cover for tax increments. The firm saw the half year net profits drop to Sh4.1 billion from Sh4.2 billion as rising administrative expenses ate deep into sales—which grew 10 per cent to Sh20.4 billion over the period. Now, the firm is looking at trimming its administrative and distribution expenses and getting a larger share of the Ugandan, Tanzanian and Great Lakes markets in an effort to reduce its over-reliance on the Kenyan market. Its administrative and distribution costs rose 28 per cent and 10 per cent respectively in the six months. “We have not been big in Uganda and we are now stepping up our game there,” said Seni Adetu, the brewer’s CEO, adding that the brewer will be “more aggressive” in Tanzanian after it closed the purchase of a 51 per cent stake in Serengeti Breweries Limited (SBL) for $60.4 million (Sh4.9 billion) in October. Kenyan market generated 83 per cent of the company’s profits in the year ended June 2010. It has boosted its capacity and is invest in a new packaging line at Sh4 billion in Uganda as it prepares to defend and grab market share from its top rival Nile Breweries, which is owned 60 per cent by SABMiller. In Tanzania, EABL has in the past eight years been selling its brands through Tanzanian Breweries Ltd (TBL) in agreement two firms manufacture and distribute each other’s flagship brands, but the Kenyan firm broke the pact on the strength that TBL was not pushing its brands in the market harder. This saw it acquire TBL’s rival from where it will get a share of SBL’s brands and market its flagship products like Tusker, Guinness and Pilsner in the Tanzanian market aggressively. Increased purchasing power in Tanzania has seen beer consumption grow at annual rate about 11 per cent – hence offering EABL a platform to cushion its earnings from flat volumes in Kenya, its home market. The financing of Tanzanian buyout and dividend payments, which each took Sh4.9 billion, in the half coupled with a 24 per cent drop in cash generated from operations reduced the brewers cash to Sh2.6 billion in December from Sh7.9 billion in July and Sh8.2 billion in December 2009. Last year, the firm said it was planning to establish a brewery in Southern Sudan. EABL said it planned to build a 700,000 hectolitre (hl) plant in Juba, Southern Sudan, which can be expanded to 1 million hl. It followed a recent announcement by SABMiller subsidiary company, Southern Sudan Beverages Ltd (SSBL), that it was doubling the size of its existing brewery operations in Juba and has introduced a soft drinks range and bottled water product into the country. According to Mr Adetu, the new plan is in line with the company’s strategy of reducing the challenges the brewer has been facing in the Great Lakes region. “Specifically in Southern Sudan, the government introduced a higher excise duty for imported alcoholic beverages at 35% as opposed to locally produced beverages which attract a duty of 25%,” said Adetu. EABL’s products are therefore priced unnecessarily higher than the locally produced drinks, he said. The first cross border listing in the East African market occurred with the listing of East African Breweries Ltd (EABL) on the USE on 27th March 2001. EABL is a public limited liability company incorporated under the laws of the Republic of Kenya.