East African Breweries posts Kshs 8.5 billion in profit-after-tax

East African Breweries Limited (EABL)  reported Ksh 8.5 billion in profit after tax  for the period ended June 2017  representing 6 percent growth compared to last year helped by reduced operating costs and a slight rise in sales.

This was a 9.2 percent  y/y growth in sales to Ksh 70.2Bn.

Net earnings rose 6.1 percent y/y (EPS of KES 10.75, 17.4 percent mostly due to cost of sales (Ksh 39.1Bn) which rose faster than our estimate (KES 34.8Bn). Gross and operating margins took a hit (44.3 percent and 25.4 percent respectively, vs FY16 50.1 percent and 28.9 percent) mainly factored by the higher cost of revenue.

Net margins were however stable at 12. percent.

Despite the combined effects of excise-tax incidence and drought-related inflation – which respectively made EABL products less affordable and impacted on consumers’ disposable incomes – net sales in Kenya, EABL’s largest market, were up 4 percent.

In Uganda net sales grew by 7 percent while Tanzania’s declined by 12 percent.

EABL’s spirits business grew by 14 percent during the year, driven by Kenya Cane and Johnnie Walker, which grew at 46 percent and 17 percent respectively. Uganda Waragi also grew by 23 percent.  

Across East Africa, the Group’s beer business saw mainstream and premium segments shrinking by 6 percent and 8 percent respectively. This was, however, mitigated by a better performance in the value beer, growing by 7 percent, driven by Senator and Balozi.

The contribution from innovations rose 15 percent compared to last year, adding Kshs 19 billion to the total revenue across East Africa. Key innovations introduced during the period included Tusker Cider, Pilsner 7, and Smirnoff Electric Ginseng. Other innovations included Jebel gin variants in Kenya, Ngule in Uganda and Serengeti Lite in Tanzania.

Growth in profits from continued operations was achieved through better efficiencies across the Group. Savings of Kshs 2.3 billion were delivered in the supply chain in the areas of sourcing, logistics and through operational efficiencies, automation and standardisation in manufacturing. Net finance costs also reduced by 3 percent driven by lower borrowings due to improved liquidity.

EABL Group Managing Director Andrew Cowan said, “I’m pleased with these results, coming on the back of a fairly difficult trading environment for our business. We demonstrated resilience delivering this solid set of financial results despite challenging times, mainly characterised by inflationary pressures and regulatory volatility.

We have a clear strategy anchored on incremental investments to unlock growth in areas such as spirits and value beer as well as extending our cost management agenda.”

Company now on a growth trajectory

EABL’s recent and planned investments have set the stage for improved performance in future. The company announced a Kshs 15 billion investment in Kisumu brewery last month, aimed at increasing production capacity for Senator in the next 2 years.

The Kisumu brewery is expected to bring significant multiplier effect, potentially creating 110,000 jobs across the value chain – including sorghum farmers, as well as Senator distributors and retailers.

In Tanzania, the company made a settlement with The Fair Competition Commission after several years on uncertainty and the business is back in growth in the fourth quarter.

The brewer maintained previous year final dividend of Ksh 5.50 per share (total DPS, KES 7.50).