Companies

Eveready sinks into loss after factory closure

JACK

Eveready East Africa managing director Jackson Mutua when the firm unveiled its new business model in Nairobi last September. PHOTO | SALATON NJAU

Summary

  • Managing director Jackson Mutua said the one-off expense to lay off 99 employees, the impairment costs, insecurity and re-organisation of its Tanzania business contributed to the performance dip.

Eveready East Africa spent Sh110 million to pay off nearly 100 employees that were laid off following the closure of its Nakuru plant, contributing to a Sh177.5 million loss the battery maker made in the financial year ending September.

The battery maker on Friday reported that it also incurred Sh136 million on writing off manufacturing assets, pushing it into losses compared to the previous year’s net profit of Sh45 million.

The Nakuru-based firm in October announced that low sales due to illegal imports of cheap batteries had forced it to shut its production factory in favour of importing batteries from the Energizer Egypt plant.

Managing director Jackson Mutua said the one-off expense to lay off 99 employees, the impairment costs, insecurity and re-organisation of its Tanzania business contributed to the performance dip.

“The machines we have impaired were carrying a lot of value and the accounting entry we made saw our earnings fall significantly,” Mr Mutua told the Business Daily in an interview, revealing that the staff redundancy cost Sh110 million.

Eveready shareholders will during the annual general meeting later this year decide on what to do with the impaired equipment.

READ: Eveready opts for Egypt imports as high costs bite

The battery maker also partly blamed insecurity at the Coast, Nairobi, and northern Kenya for the drop in its domestic revenue.

Eveready’s revenue for the full-year to September dropped 17.4 per cent to Sh1.21 billion from Sh1.42 billion it posted in 2013.

The dip in revenues was deepened by a drop in business in Tanzania after the battery maker revised prices of its D-size batteries upwards by up to 30 per cent.

“We used to sell D-size batteries in Tanzania at a discount of between 20 and 30 per cent to counter cheap brands from China and support the Kenya factory,” said Mr Mutua.

“This would cost us at least Sh150 million annually. We have now corrected the pricing margins and although it has seen us lose some sales, it is a more sustainable model.”

Eveready’s annual production by the time the factory shut down was between 40 and 50 million batteries, down from the 180 million batteries it used to manufacture 10 years ago.

Its management has repeatedly attributed this sharp drop to cheap and inferior products being imported from Asian countries.

Eveready bounced back to profitability in 2013 from a loss of Sh123.9 million in 2011, boosted by exchange rate gains and lower production costs.

Its annual revenue has dropped from Sh2.3 billion in 2005 to Sh1.21 billion in the year to September 2014. The firm has not paid a dividend since it was listed on the Nairobi Securities Exchange in 2006.

The company now says it is focusing on diversification to return to profitability, a strategy that has so far seen it venture into production of car batteries, incandescent and energy-saving bulbs.

Over the next two years Mr Mutua says Eveready plans to introduce five new energy, household and personal care products.

“The business diversification and other initiatives being pursued by the company through the 2013-2017 strategic plan will provide the impetus necessary for sustainability and growth,” the company said in a statement on Friday.

Eveready’s idle factory sits on 18.5 acres of land while it owns another two acres in Milimani (also in Nakuru), land on which it plans to develop real estate.