East African Breweries Limited (EABL) has cut its staff costs for the fiscal year to June 2014 by nearly Sh1 billion, in a period when it laid off over 100 employees.
The retrenchments saw its staff costs fall by Sh841 million to Sh4.7 billion in the period, representing a 15 per cent drop from Sh5.59 billion the year before.
Lower payroll costs are expected to help boost the firm’s margins that have been affected by rising debts.
Chief executive Charles Ireland said about 100 employees who were working at Kenya Breweries Limited (KBL), a subsidiary of the regional brewer were sent home.
“We made some changes in the layers of the company and the management reporting structure, which saw us simplify and eliminate some roles,” Mr Ireland told the Business Daily.
“The changes in the business environment also saw us let go of some people working at the brewery. These two factors contributed to the reduction in our cost base.”
The restructuring process cost the company Sh1.18 billion. Analysts at Standard Investment Bank (SIB) said the retrenchment largely affected workers who were engaged in the Senator Keg division which has been hit hard by higher taxes.
The government in October last year cut excise tax remission on the beer brand to 50 per cent from the previous 100 per cent, raising its retail prices by more than half.
This saw Senator sales drop 75 per cent in the year ended June as the beer brand lost appeal among its target low-income consumers.
EABL has since closed about 4,000 Senator outlets across the country after the beer’s retail prices surged by more than 50 per cent, making it unaffordable to its target consumers.
The firm responded to lower Senator sales by brewing five days a week, down from seven days in an effort to cut on plant running expenses including overtime pay, raw material orders and electricity bills.
EABL also unveiled a leaner management structure, expanding the retrenchment exercise beyond those who were employed in the Senator division.
The firm reduced the number of reporting layers where each manager has a maximum of five people answering to him or her.
The brewer cited the weaker performance of Senator as part of the reasons why its net profit rose by just five per cent to Sh6.8 billion in the year ended June.
The company’s move to scale down its Senator business –which it says is now unprofitable— is however expected to ease pressure on its margins in the current financial year.
Its net margins remained flat at 11 per cent in the year ended June despite sales rising 3.7 per cent to Sh61.2 billion. SIB forecasts the net margin to rise to 13.2 per cent in the current financial year, driven by an expected 5.3 per cent growth in sales.
The investment bank however expressed concerns over the brewer’s rising debt that has seen it pay billions of shillings in finance costs.
EABL’s total debt rose 25.5 per cent to Sh34.8 billion in the year ended June, raising its finance costs seven per cent to Sh4.3 billion.