EABL’s Profits Drop 10.3% On Account Of Slow Sales In Kenya

EABL announced FY23 earnings, posting a 16.9%y/y drop in EPS to KES 12.47. The dull performance is attributable to a 4% y/y slowdown in Kenya sales.

However, Uganda’s growth was robust, growing by 17% while Tanzania edged up 1% higher respectively. Net revenue rose slightly by a marginal 0.2%y/y to KES 109.6 billion (USD 771.1 million).

The brewer also noted that the double whammy of higher taxes and subsequent price increases have led to lower volumes as some customers shift to illicit brew given the lower disposable incomes due to the rising inflation.

In 2022, the excise tax on beer was increased by 10% while it was 20% for spirits – this was further compounded by a 6.3% inflation adjustment on the applicable excise rates.

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As a result, gross profit was down 10.3%y/y to KES 47.4 billion (USD 333.3 million) on a 10.1%y/y rise in the cost of sales, almost in line with inflation. Subsequently, the Gross profit margin dropped 500bps to 43.2%. Input inflation breakdown (grains: +37%, transport: +14%, electricity: +40%, neutral spirits: +61%).

Positively, operating expenses (OPEX) were down 5.7%y/y to KES 23.2bn (USD 163.2 million). Finance costs weighed the bottom line, rising 29.5%y/y due to higher interest rates.

Profit before tax declined 22.1%y/y while effective tax came down 290bps to 34.1%. Cash from operations dropped 26.0%y/y to KES 26.1 billion (USD 183.9 million).

The Board announced a final dividend of KES 1.75, which together with the interim dividend of KES 3.75, totals to KES 5.50 vs KES 11.00 in FY22 (-50.0%y/y, 44.1% payout, 3.3% div yield) with book closure slated for Friday, 15th September 2023. The performance is disappointing after what we initially saw as a strong recovery of the business in the prior year – the tough market seems to have accelerated in the second half of the year.

At the same time, Centum announced its FY23 results, posting a climb in comprehensive loss to KES 4.9Bn (vs 247m loss).

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The deterioration in comprehensive income relates to the impairment on assets from Two Rivers Development, amounting to KES 3.9 billion (USD 27.3 million). Centum has acquired all the undeveloped land from Two Rivers Development Limited (64 acres) and created a new vehicle Two Rivers International Finance & Innovation Centre (TRIFIC) which has obtained licenses to develop an SEZ in the area. FY23 attributable loss after tax doubled to KES 60.8 million (USD 427.8K).

Centum restated the prior year’s numbers downwards due to a tax impact by its real estate subsidiary, Centum Re, whose tax credit expired and had not been provided in the prior year.

The Board has announced a dividend of KES 0.60 vs KES 0.59 in FY22 (div yield of 6.7%). The company has a dividend policy to pay out 30% of investment income earned, which meant the company could still pay a dividend. Impairments are unrelated to the cash flow of the business.

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Cash from operations rose 116%y/y to KES 2.4 billion. The improvement is largely attributable to higher income from its marketable securities portfolio (dividend and income) as well as repayment of shareholders’ loans by subsidiary companies.

Minority shareholders in Sidian Bank are in the process of selling their stake to a new shareholder (s) and Centum used the valuation offered to the minority shareholders for valuing its value in the business. Centum Real Estate business is accelerating the sale of development rights for repayment of loans to Centum PLC.

We still like the company despite the results (our focus is especially on the cashflows rather than the profitability reported). The strategy to fully retire debt in the business is likely to lead to an enhanced dividend and/or investment.

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Data from the Standard Investment Bank