East African Breweries Plc (EABL) spent Sh11 billion in repaying debts in the year ended June 2024, as part of cost management measures in an environment of rising interest rates.
The firm’s financial statements for the review period shows total debt stock contracted to Sh49.67 billion from Sh60.67 billion in June 2024.
EABL management says the 18.14 percent cut in debts will cushion it against the effect of elevated interest rates.
“As we manage that (rising cost of finance), we know the increase in the yield curve and, therefore, we are trying to manage our cost quite low and also taking down some of our debt,” said Risper Ohaga, EABL’s Group Chief Financial Officer.
“As we mentioned before, our advance payments on excise duty, means that you are constantly drawing down on your short-term facilities which also puts strain on funding costs and we see that coming through.”
The giant brewer, whose shares are publicly traded on the Nairobi bourse, has been battling steadily rising interest costs on its debt in recent years in line with general rise in borrowing costs in the economy to manage inflation expectations.
The average interest rate on EABL’s loans stood at 15.1 percent in the year ended June from 12.5 percent the year before and 10 percent in 2022. The brewer’s net finance costs still rose by Sh2.6 billion to Sh8.1 billion despite the substantial loan repayment, underlining the impact of the rise in interest rates.
The company’s breakdown of debt movement shows that its stock of outstanding long-term debt fell Sh7.73 billion, or 15.15 percent, during the year to Sh43.29 billion from Sh51.02 billion a year earlier.
EABL has in recent years been contracting long-term debt, including Sh11 billion medium term note maturing in October 2026, for investment in long-term projects such as expanding brewery capacity in Moshi, Tanzania and in Uganda.
The heavy capital expenditure also went into returnables, which include glass bottles and keg barrels, and Environmental, social and governance (ESG) programmes.
The firm, controlled by Diageo Plc of the UK, cut capital expenditure in the review year 43.41 percent to Sh7.3 billion from Sh12.9 billion in the prior year, freeing up some cash.
Short-term debt, or current liabilities, fell by Sh3.28 billion (33.97 percent), to close the year at Sh6.38 billion.
Amendments in the Finance Act 2023 had compelled EABL, along other alcohol manufacturers, to remit excise duty to the Kenya Revenue Authority (KRA) within a day after moving goods from stockroom.
That was a shift from the previous policy where the manufacturers of alcohol paid duty of the previous month on the 20th day of the following month, meaning the taxes were remitted monthly.
That prompted EABL to increasingly seek short-term loans to comply with the KRA taxation rules.
The now dropped Finance Bill 2024, had sought to extend the period within which alcohol makers will remit taxes to five days from the time goods leave stores to distributors.
Ms Ohaga, however, said the now dropped change in advance tax payment regime would not have offered any significant relief to the firm.
“It was not nearly good enough because what it meant was you benefit from day one to five, and then after that it was to be every day. It was not going to change the situation materially because you are not matching your collections and payment and the interest rates are up,” she said.
“We did a comparative assessment in other markets in Africa, and most of them give you 21 days and the worst 15 days.”
