New EABL chief executive will find a full in-tray on his first day

Devlin Hainsworth, the newly appointed chief executive of beer maker EABL, will find his in-tray full when he takes office beginning July 1.

Mr Hainsworth will, from the onset, be confronted by the cost cutting, regional expansion legacy of outgoing CEO, Seni Adetu, who moves to Guiness Nigeria Plc in the same capacity.

(Read: Adetu exits as EABL changes top officials in growth plan)
Mr Adetu will be remembered for his cost management strategies, the re-organisation of the supply model for the company’s products, and the acquisition of Tanzania’s Serengeti Breweries in the first half of last year.

Already, the strategies were starting to yield results, going by the company’s half year results. East African Breweries (EABL) net earnings for the first half for period ended December 31 grew 17.46 per cent to Sh6.17 per share, up from Sh5.25 in the comparable half of 2010/11.

If the momentum is sustained, then investors will have little to worry about the company’s long-term micro-fundamentals.

Topping Mr Hainsworth’s strategy basket will be the deepening of the company’s cost management strategy, as a future value driver for what is arguably a mature business.

Optimisation of the supply chain will, necessarily, take a central focus. Mr Adetu’s expenditure containment strategies over the past two years have seen growth in the cost of sales nearly match increase in net sales. Direct costs grew 9.14 per cent in cumulative terms between 2009 and 2011 compared to a cumulative 9.30 per cent growth in net sales over the same period. This is in stark contrast to pre-Adetu years.

Between 2006 and 2008, the increase in cost of sales outperformed net sales, after returning a 24.16 per cent growth in compounded terms compared to 15.83 per cent compounded growth in net sales. A key project in the cost cutting strategy is the use of alternative starch to barley, to reduce raw material costs. It is estimated that the use of sorghum and cassava could potentially return a long-term target of 10 to 20 per cent savings on direct material costs.

Secondly, Mr Hainsworth will also have to further scale up the re-organisation of EABL’s supply chain, specifically in relation to Serengeti Breweries. Already, under his predecessor, the company tweaked its route-to-market (RTM) model that saw DHL assume distribution of key stock keeping units (SKUs).

Investors will be keen to see the success rates of replicating the same model in its Tanzanian business. Thirdly, he will have to formulate a robust strategy on how to fend off competition in its key markets.

The acquisition of Serengeti puts it in direct competition with South Africa’s brewing giant SABMiller, which owns a majority stake in Tanzania Breweries Ltd. Key to fending off competition will be the brewer’s cash position.

EABL saw considerable cash outflows last year after the acquisition of Serengeti Breweries and the successful completion of a 20 per cent share buy-back stake held by its rival, SABMiller, in Kenya Breweries Ltd. Most importantly, Mr Hainsworth will still have to keep developing new markets for EABL products.