EABL shuts down South Sudan depot after currency losses

Beer maker East African Breweries (EABL) has closed its South Sudan depot after the business posted huge currency losses resulting from a devaluation and sustained political instability in the country.

The regional brewer late last year shut its facility in Juba, opting to supply the market through distributors and sales teams from Nairobi.

EABL says the free-fall of the South Sudan pound has in the six months to December cost it Sh908 million in currency losses, aggravating low sales attributed to political instability.

Businesses in South Sudan have been hit hard by inaccessibility of US dollars, the predominant trading currency in the country.

The dollar shortage and ongoing civil war in the country caused net sales to dip 74 per cent.

EABL’s multinational competitor, SABMiller, is preparing to shut down its brewery next month.

“We have closed that depot as a result of safety concerns and to ensure that our cost base is managed,” said EABL’s chief executive officer Charles Ireland in a Friday interview.

“We will be operating through our sales force in South Sudan and distributors who are getting stock from Nairobi.” The brewer opened its Juba depot, with a holding capacity of 100,000 cases, in September 2013.

It also bought a piece of land adjacent to the Nile River for expansion.

Years of civil war between political factions has resulted in a near economic collapse in the landlocked country, a crisis that is reflected by fuel shortages and a dearth of foreign currency.

Shortage of US dollars in the country early last year saw EABL reveal that it was operating at two-thirds below capacity.

South Sudan, which gained independence from Sudan in 2011 only to fall into civil war two years later, has seen its currency steadily weakening on the unofficial market.

READ: EABL posts 67pc growth in after tax profit to Sh7.7 bn

The currency depreciated 85 per cent in just two days after its government stopped fixing its exchange rate last year, leaving cash holders and bank depositors with drastically slashed wealth.

“From our successful operations in the last couple of years, we accumulated a cash exposure which was significantly impacted by the devaluation in December,” said EABL’s group finance director Gyorgy Geiszl, on Friday.

In the last financial year, the unit contributed Sh2.8 billion to the brewer’s full-year revenues out of a Sh64.42 billion total, which was a 47.3 per cent increase from the previous year’s Sh1.9 billion.

The South Sudan business contributed approximately one per cent of EABL’s net sales or Sh375 million in the half-year to December 2015, highlighting the sharp dip in fortunes.

The sale of land and a glass bottle manufacturing subsidiary boosted the brewer’s net profit in the period by over two-thirds to Sh7.7 billion.

“Volumes in South Sudan, which were largely Tusker, have collapsed as a result of the economic crisis,” said Mr Ireland, adding that it was one of the reasons that net sales of mainstream beers dipped 10 per cent in the period.

SABMiller, which opened the nation’s first brewery in 2009, is preparing to shut down its facility mid-February following the economic and political crisis preferring instead to export products into the country from Uganda.

Bloomberg news agency recently reported that the multinational brewer, which has not returned a profit since launch in the war-torn country, incurred tens of millions of dollars in losses following the devaluation.

“In 2016, earnings conversion at the weakened rate will erode earnings contribution from South Sudan,” said Standard Investment Bank in a note to investors in reference to Kenyan firm’s operations in the country.