EABL raises beer prices for second time in 4 months
EABL-Kenya managing director Joe Muganda. Photo/FILE
What you need to know:
A crate of Tusker is now selling at Sh2,714 up from Sh2,523, which translates to a Sh8 increase per bottle at the wholesale level and sources at the brewer reckon that other products will rise by more than Sh10.
The price review will affect all its 23 beer brands including White Cap, Guinness and its newest product Balozi and non-alcoholic beverages like Malta and Alvaro.
Analysts estimate that the price increment could add more than a billion shillings to the brewer’s top line at current consumption levels, but warned of a bumpy ride to the realisation of double-digit profit growth that shareholders have become familiar with in the recent past.
East Africa Breweries Limited (EABL) has increased beer prices for the second time in four months to cover rising raw material costs and grow sales to reverse the drop in half-year profit.
A crate of Tusker is now selling at Sh2,714 up from Sh2,523, which translates to a Sh8 increase per bottle at the wholesale level and sources at the brewer reckon that other products will rise by more than Sh10.
The price increase comes at a time when EABL is racing to reverse the 14 per cent drop in profit for the six months to December on account of high finance costs, but the brewer maintained that sales across the region were still rising, helped by new product launches and growing demand.
“Due to various economic factors that have impacted our cost of inputs, we have increased our beer prices,” said a July 5 notice to distributors signed by EABL-Kenya managing director Joe Muganda.
“The new prices take effect from Saturday July 6. Spirit prices remain unchanged,” he added in price review that will affect all its 23 beer brands including White Cap, Guinness and its newest product Balozi and non-alcoholic beverages like Malta and Alvaro.
EABL refused to comment on what impact the wholesale prices would have on retail prices given that historically it has been publishing in the dailies any price changes.
“Please note that we are in a closed period that restricts us from commenting on any business related issues,” said EABL in a statement Tuesday.
This will be the second price increment this year after the brewer in March increased prices by Sh10 a bottle citing costs.
The Pubs Entertainment and Restaurant Associations of Kenya said that it would pass the price increment to consumers.
“It is unfortunate that this burden will be passed on to consumers. Already, some have increased their prices,” said bar owner’s association’s vice chairperson Alice Opee. “Our members who were restocking supplies were informed of the price changes on Saturday.”
Analysts estimate that the price increment could add more than a billion shillings to the brewer’s top line at current consumption levels, but warned of a bumpy ride to the realisation of double-digit profit growth that shareholders have become familiar with in the recent past.
It declared an interim dividend of Sh1.50 per share, down from Sh2.50 a year ago and it remains to be seen whether it will maintain the Sh8.75 full year payout it has made to shareholders over the past three years.
The analysts see the latest price adjustments as an admission by EABL that price and not volumes will be the key driver of growth this year, arguing that the firm has historically resisted attempts to increase product prices from an operations standpoint, but only on tax increments.
The Treasury in the June budget statement did to issue new tax notices on beer save for the Senator Keg.
“I guess it could mainly be because they are struggling with volumes so pricing becomes the other main tool to raise profitability,” said Eric Musau, analyst at the Standard Investment Bank.
The company, controlled by Britain’s Diageo Plc, borrowed Sh19 billion ($218 million) from its parent to buy the 20 per cent of its subsidiary Kenya Breweries which was owned by SABMiller’s Tanzania Breweries.
The interest on the loan, which is set at the Kenyan Treasury bill interest rate plus 1.5 percentage points, together with a sharp rise in Kenyan interest rates from a year ago caused finance costs in the first half to jump 221 per cent to 2.1 billion shillings, resulting in the 14 per cent fall in profit to Sh3.75 billion.
Beer sales grew 11 per cent in the half, racing ahead of spirits which increased by nine per cent, a pointer on why the later prices were untouched.
Cost of sales rose by 13 per cent to Sh16.2 billion, outpacing the growth in revenue mainly due to investments in EABL’s distribution network and higher input costs. The firm introduced new brands like Jebel spirit and Balozi beer in Kenya last year and revived the Kibo beer brand in Tanzania.
EABL share price on Tuesday stood at Sh327 at the Nairobi Securities Exchange and has gained 37.9 per cent over the past year on the back of strong foreign investor demand.
