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EABL reports Sh4.3b profit despite harsh economy/MIKE KARIUKI

Kenya

EABL pops Sh4.3b profit despite harsh economy

EABL reports Sh4.3b profit despite harsh economy/MUTHONI NJUKI

NAIROBI, Kenya, Feb 17- East African Breweries Limited (EABL) weathered the turbulent macro-economic conditions last year to post a 37.6 percent growth in net profit for the first six months ended December 31, 2011.

The profit attributable to shareholders rose to Sh4.38 billion from the Sh3.18 billion registered in the corresponding period in 2010, which Group Managing Director Seni Adetu admitted exceeded their expectations.

The performance, he said, was underpinned by their growth strategy which provided a sound base for continued investments and innovations.

“The (figures can be attributed to our) continued focus on our growth strategy which is anchored on investments behind our brands, innovations which saw us put Tusker Lite and Pilsner Ice into the market and the (strong performance) in spirits,” he pointed out.

Revenues jumped by 35.7 percent to Sh27.7 billion with the sales of their premium spirits contributing 15 percent to the top-line growth.

There has been a drive to increase the consumption of spirits particularly in Kenya as the company moves to capitalise on the tax relief in this class of alcoholic drinks and these efforts seemed to have paid off. In another two to three years, the group hopes that this category’s contribution will double, with Adetu stressing that they have barely scratched the surface.

“Our focus is to ensure that we expand the footprint by growing our distribution, get outlet activation going well and see how that translates into in terms of spirits contribution,” Adetu said of one of their new drivers in coming years.

On the beer front, EABL was still posting positive volumes and while Kenya continues to contribute the lion’s share of the Net Sales Value (NSV), other markets in the Great Lakes Region that includes Uganda, Rwanda, Burundi and South Sudan are coming up strong.

This is despite the threat posed by the taxation regime particularly the excise tax which in Kenya accounts for Sh35 in the cost of one beer. The margins were also impacted by the volatility in Kenya’s exchange rate which led to an additional Sh400 million in the brewer’s input cost during the period under review.

“The inconsistent application of new regulations continues to provide challenging conditions for our industry,” he emphasised referring to the Alcoholic Drinks Control Act.

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Notwithstanding all these, the board recommended the payment of an interim dividend of Sh2.50 per share to shareholders who can expect an even higher payout in the second half.

This assurance stems from the cautious positive outlook that EABL has about the future which Adetu said is hinged on their continued investments in capacity upgrade and the growth projections in East Africa’s economies.

Approximately Sh4 billion will be injected in the second half of the year with the investment going into the setting up of half a million hectolitre capacity canning line in Nairobi in the next six months, which will serve the whole East African market and a Sh1.95 billion mash filter plant in Uganda.

In addition, the firm has commissioned the Moshi Brewery following the full integration of Serengeti Breweries into the business and there’s optimism that the new plant is well poised to operate optimally in the coming months and contribute positively to the bottom line.

Once this is achieved, EABL can expect to solidify its business in Tanzania, which is still a strategic market despite the fact that performance has not picked up yet.

The beer manufacturer concluded the sale of its 20 percent stake in Tanzania Breweries Limited and the acquisition of a similar share in Kenya Breweries Limited in January 2012 effectively ending a tumultuous relationship with South African Breweries Miller (SAB Miller).

The unwinding of this relationship now gives EABL a free hand to undertake decisions that it deems effective in driving its operations further.

“We now have better commercial freedom. Where we could not launch brands that are similar to theirs we now have the freedom to innovate and renovate as we wish to do,” he stated.

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In the same market, the company is currently running trials on the viability of sorghum production on some 38,000 acre piece of land belonging to its largest shareholder Diageo with results expected in the next three months.

During the meeting, the new EABL chairman Charles Muchene was introduced and pledged to continue working with all stakeholders to drive the brewer to greater heights.

Contrary to speculation that Jeremiah Kiereini who has been at the helm of the board for 24 years was replaced due to the ongoing tussle at auto dealer CMC Holdings over secret offshore accounts, EABL maintained that the selection of Muchene was all part of their succession plans.

Muchene has been one of the directors of the board for the last one year.

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