Eveready to sell Nakuru land as it shelves real estate plan

Portable power solutions provider Eveready East Africa has changed tack on its real estate plans, choosing to sell off a prime plot in Nakuru that was earmarked for development.

The loss-making company, which also issued a profit warning yesterday, is seeking shareholders’ approval to put up for sale the 18.5 acre piece of land on which Eveready’s redundant factory sits in Nakuru town.

Jackson Mutua, managing director of Eveready, said a feasibility study conducted on the factory property failed to endorse the viability of developing a shopping mall and apartments, hence the decision to sell off the land.

Eveready had wanted to build a shopping mall on the factory land but now says it has shelved this plan in favour of disposing of the land to retire expensive debt, reduce interest burden, and generate free cash flow.

“The overriding rationale for the disposal is cash-flow based, the board being of the opinion that the sale of this property will result in the company eradicating its cost of finance and unlocking funds for investment in more productive areas of the company,” Eveready said in a regulatory filing.

Eveready’s plan to venture into real estate has been fraught with uncertainty. In 2014, the firm set up Flamingo Properties Ltd as the investment vehicle to venture into the lucrative real estate sector to shore up earnings from the struggling battery business.

In May, the company put out a notice offering 7.5 acres of the factory land, identified as LR 7/554, for sale.
The sale was being done through law firm Ogola Mujera Advocates, but Mr Mutua disowned the deal in a response to Business Daily queries.

Eveready owns another 0.7511 hectare piece of land in Milimani, Nakuru, identified as Block 11/46. But it has also emerged that the factory land has a Sh190 million charge as security to a bank which gave Eveready a long-term loan. The Milimani land is also charged as security for a Sh45 million loan.

High cost of borrowing

“We want to rid the company of the high cost of borrowing,” said Mr Mutua in an interview. The troubled firm’s finance costs nearly doubled to Sh104.1 million in the period to September 30, 2015 compared to Sh56.5 million a year earlier.

Eveready’s total land holdings are valued at Sh691 million, according to a November 2014 revaluation carried out by Regent Valuers, a firm owned by ex-President Moi’s aide Joshua Kulei.

READ: Eveready in partnership bid with Orbit Chemicals

“The basis of valuation was based on special value assuming successful change of use from existing industrial to mixed use (commercial and residential) and extension of the remaining lease term of 52 years to 99 years,” says Eveready in its latest annual report.

Eveready had even gone ahead to solicit bids and had received offers from three institutional investors to fund the real estate project through either equity, debt or a mix of both.

The firm in October 2014 announced that low sales due to illegal imports of cheap batteries and high energy costs would see it shut down its production factory in favour of importing batteries from the Energizer Egypt plant.

Its earnings for the period ending September 30, 2016 are projected to nosedive due to a significant drop in sales caused by a prolonged stock out during the year.

Eveready’s sales dipped to Sh1.4 billion last year from Sh2.02 billion in 2006 when it listed at the NSE. Its net profit has plunged to Sh45.4 million from Sh165.5 million during the period.

The distressed firm reported a Sh77.7 million net loss in the year ended September 2015 -meaning the battery firm will at best record Sh97 million loss in the current period.

Its shares yesterday closed at Sh2.05 apiece, indicating a 78.4 per cent capital losses for investors who bought the stock during the August 2006 initial public offering priced at Sh9.50 per unit..