EABL half-year profit hits Sh7.7bn on land, bottle plant sale

The sale of land and a glass bottle manufacturing subsidiary has boosted East African Breweries Limited’s half-year net profit by over two-thirds to Sh7.7 billion, making up for currency losses at its South Sudan business.

EABL’s net sales for the six months to December grew eight per cent to Sh37.5 billion, buoyed by low-cost beer Senator Keg whose volumes more than doubled following a lowering of excise tax mid-last year.

The regional brewer booked a Sh2.2 billion profit from the sale of Central Glass Industries (CGI) to a South African glass-making firm and a further Sh707 million from sale of land at an undisclosed location.

Its profit-after-tax from continuing operations, absent the income from the asset disposal, increased 16 per to Sh5.5 billion, prompting the increase of its interim dividend by 50 cents to Sh2.

“The total profit for the half grew by 67 per cent…inclusive of the contribution from the disposal of CGI, the glass making subsidiary and netting off nearly Sh1 billion negative impact from South Sudanese pound currency devaluation,” the brewer said in a statement.

EABL, which is 50.02 per cent owned by multinational brewer Diageo, saw its net sales from the South Sudan business decrease 74 per cent, the Kenyan business grew 22 per cent while Uganda and Tanzania registered seven and 12 per cent drop in net sales respectively.

READ: EABL exits glass bottles business, eyes billions from subsidiary sale

Sales of mainstream beers, including Tusker, dropped by 10 per cent while premium beers such as Tusker Malt and Guinness grew by a similar margin.

The brewer recently launched a 300ml Tusker bottle targeting lower-income consumers seeking to increase sales of its flagship beer.

Its spirits brands like Kenya Cane, Uganda’s Waragi and Kane Extra reported net sales growth of 14 per cent while high-end brands like Ciroc and Singleton recorded strong growth of 45 per cent.

A key highlight of the brewer’s results is that its Senator Keg business seems to be rebounding, as the brew led other mainstream beer products to post a 106 per cent growth in sales.

“In East Africa, there was strong growth of Senator Keg, which more than doubled volume following the duty remission early in the fiscal year,” its London parent company Diageo noted in a statement.

Sales of Senator Keg — a low-cost beer manufactured using sorghum — dipped sharply after the introduction of a 50 per cent excise tax in October 2013, forcing EABL to close down thousands of retail outlets and fail to renew farmers’ contracts.

President Uhuru Kenyatta in May amended the law, setting the excise tax cut at 90 per cent for beers manufactured using at least 75 per cent locally-sourced sorghum, millet or cassava-- handing farmers and EABL a much-needed lifeline.

Senator Keg was the largest contributor to EABL’s overall growth.

The brewer’s operating expenses increased 10 per cent to Sh8.3 billion due to higher volumes, inflation and foreign exchange losses, with the last item including Sh908 million from devaluation of the South Sudanese pound.

Cash flow from operating activities increased 51 per cent to Sh11.4 billion while capex spend for the six months was Sh1.5 billion that went into “covering investment in plant and machinery and returnables to meet the increased demand.”

The sale of CGI to South Africa’s Consol Glass, a transaction which was concluded on September 30, as well as earnings from the land sale have helped EABL reduce its debt burden.

The brewer’s total net borrowings now stand at Sh22.5 billion (having dropped by Sh8.5 billion) while net finance costs went down 38 per cent to Sh1.4 billion despite a high interest regime.

In the full-year to June, EABL booked a gain of Sh1.8 billion from the sale of 15 acres of land (out of 60 acres of idle land it owns at its Ruaraka headquarters) to an undisclosed party, lifting its profit 40 per cent to Sh9.6 billion.