EABL mulls over ditching pocket friendly Senator Keg as tax hits profit

KENYA – East African Breweries might stop producing Senator Keg if the Government does not withdraw excise tax on the low-cost drink.

The giant beer and spirits maker has reported nearly flat growth in sales due to a drastic fall in consumption of Senator Keg, following imposition of excise tax last year.

EABL said net sales only grew 4 per cent to reach Sh61.3 billion in the full year up to June 30, 2014, up from Sh59 billion the previous year. At the same time, Senator Keg sales dropped by 75 per cent.

As a result, the brewer reported a modest 5 per cent growth in profit after tax which stood at Sh6.8 billion, up from Sh6.5 billion in 2013.

Profit before tax however dipped 6 per cent to Sh10.4 billion, down from Sh11.1 billion the previous year. “At the current level, Senator is not sustainable,” said Group Managing Director Charles Ireland.

Main market

“It could be we have to take hard decisions on Senator,” he added. Mr Ireland explained that the company is not recovering its costs of producing the cheap drink while regretting that the Government had failed to achieve the targeted tax collection from Senator Keg.

“It has not worked for them (Government), it has not worked for EABL, it has not worked for EABL shareholders and has not worked for Kenyans,” he added.

The board, he clarified, has not considered this issue at the moment.

The management further blamed the slow growth in performance to a one-off Sh1.2 billion reorganisation cost that saw some employees and managers leave the company. The political crisis in South Sudan late last year also impacted on the results.

EABL, which operates in Kenya, Uganda, Tanzania, South Sudan, Rwanda and DRC Congo said it is accelerating its innovation programme in the coming year with new products expected to be introduced to drive growth.

EABL manufactures popular drinks such as Guinness, Tusker, Smirnoff Ice, John Walker, Baileys and Kenya Cane.

“Under the circumstances, these are strong sets of numbers,” said Tracey Barnes, the group finance director at a media briefing Thursday evening.

For the year, Kenya, EABL’s main market, delivered flat performance in net sales value as a result of the dip in Senator Keg.

Excluding this impact, Kenyan sales would have grown by 18.2 per cent driven by a strong spirits performance. Ugandan sales grew by 18 per cent largely supported by Uganda Waragi and Bell Lager.

In Tanzania, performance was affected by short-term effect of the company’s route to consumer changes. EABL said despite destabilisation occasioned by the crisis in South Sudan, it managed to grow sales in the South Sudan, Rwanda and DRC market by 50 per cent.

Ireland said going forward, the brewer will focus on containing costs of production to maximize profitability. The company will also continue to invest in its brands to drive sales.

“We are confident in the long-term outlook for East Africa’s consumer economies, and EABL’s ability to win market share,” he said.

The company announced that its Sh4 billion commercial paper programme had been oversubscribed by 20 per cent.

August 9, 2014; http://www.standardmedia.co.ke/business/article/2000130973/eabl-mulls-over-ditching-pocket-friendly-senator-keg-as-tax-hits-profit

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