ETHIOPIA – Raya Brewery has reported total losses of close to 104 million Birr during the last fiscal year, although experts in the brewery industry say such a loss is not unique for a new entrant into the brewery industry.

The report was released at a shareholders’ meeting held at Hilton Addis Hotel, on Saturday, December 10, 2016. The meeting endorsed the nomination of the board of directors chaired by Gebretsadkan Gebretensae(Lt. Gen), a former chief of the Ethiopian Army.

“We lost almost 30pc of our capital,” said Berhanu Getaneh, former president of United Bank and a shareholder of Raya.

“I don’t expect to get a dividend next year. But I believe in the company and I think we have a hope.”

It is a second year in row that the company has incurred such losses since it began operations in 2015. Last year, it reported a loss of 71.9 million Birr before deferred tax.

This accounting year, the figure is 64.8 million Birr. The major reasons behind the increase in loss are the expenses in selling and distributions as well as financing costs, according to Abdulmenan Hamza, a financial analyst.

Such massive losses over the past two years consumed 31pc of the company’s paid up capital and premium. Latest reports show the company’s paid up capital stands at 629.9 million Birr.

“If you look into the giant brewery companies owned by multinationals, you can see the same trend,” said Alazar Ahmed, who manages a marketing agency and consults in the brewery industry.

“The difference is, multinationals get funds from their parent company.” It would not be possible to report a profit at this point in the company’s story, Alazar said.

However, the Company improved its gross sales by more than three-fold, reaching almost half a billion Birr in the last fiscal year.

Such improvement came at the cost of a 200pc increase in cost of sales to 293 million Birr. An expansion in selling and distribution costs accounted 24pc of the gross sales.

The Company’s general and administration expenses declined by 17pc to 37 million Birr.

However Raya did improve its gross margins, which is the sales revenues less sales expenses.

“This may have been due to the fixed nature of some production costs, which have spread over larger sales numbers,” according to Abdulemenan. Further improvement in gross margin is likely as Raya increases its sales.

Further looking into its income statements, figures are showing that Raya is burdened with an increasing financing cost of 90 million Birr; last year it was around 21 million Birr.

Raya has to double its sales in order to break even, said the accountant. Otherwise, Raya will sink into further losses, which will have debilitating impact.

The total long-term bank loans increased by 15pc to 815.14 million Birr. The company expanded its total assets by five percent to 1.607 billion Birr. From this, 1.295 billion Birr was invested in property, equipment and leasehold land.

Raya financed 51pc of its total assets though long term bank loans, 27pc by equities and the rest by current liabilities.

It had operating cash flow of 75.46 million Birr, mainly due to losses, increased inventory and payment of creditors. It had further outflows of 98.19 million Birr for fixed assets acquisition. Raya funded these huge outflows through net bank loans of 175 million Birr.

The total debt to equity ratio of Raya increased to 2.68 from 1.83 and long-term loan to equity ratio has increased to 1.87 from 1.31.

This might have been due to massive losses, as well as an expansion in bank loans and current liabilities. It is a highly leveraged company; its healthy leverage ratio is one.

“Raya should seriously consider beefing up its equity and reducing its dependency on bank loan,” commented Abdulemenan. “This will help Raya reduce its financing cost and improve its leverage.”

Liquidity ratio reveals that its current ratio (current assets to current liabilities) has slightly improved to 1 from 0.95.

Still there is a way for the company to grow, said Alazar. But they need diversify their brands or the scenario become difficult.

In his report to board of directors, Gebretsadkan stated that over the final few months of the preceding Ethiopian fiscal year, the company is getting positive results.

Its actual production capacity reached 85pc, whereas it managed to dominate markets in Meqelle, Shire and Mayichew.

Over the past four months, the company had sales of 339 million Birr.

Responding to why Raya’s market visibility in Addis was low, the company said that the issue related to current limited production capacity.

Raya, established by 58 founding shareholders, has a production capacity of half a million-hector liter. Its factory is located in the historic town of Mayichew, 662Km north of Addis Abeba.

December 13, 2016;