EABL stops daily brewing as growth hits a four-year low

East African Breweries Limited (EABL) has stopped daily operations at its Nairobi plant after the brewer posted the slowest first-half sales growth in four years.

The brewer says its Ruaraka plant is now running for five days a week —Monday through to Friday— as opposed to a seven-day operation because of the downturn in one of its top-selling products, the low-end Senator Keg beer.

The 30 per cent cut on operation days is aimed at cutting costs such as staff overtime pay, raw material orders and plant running expenses like electricity bills.

EABL said duty imposed on Senator Keg had slashed sales volumes on the brand, warning that slump would help curb profit growth this year as it mulls the viability of the low-end beer.

The new tax imposed on Senator Keg, previously exempt from excise duties, hiked its price 67 per cent to Sh45 and cut sales 85 per cent in the six months through December, leading to a 3.98 per growth in sales to Sh31.8 billion.

READ: EABL doubles keg beer prices as tax comes into effect

This is the second time in the past eight years that EABL has posted single-digit growth in sales after posting a three per cent rise in 2010.

“The reduction in the number of working days is one of the measures to ensure we do not expend more money than we need in our operations,” Group finance director Tracey Barnes said Friday after EABL reported a five per cent increase in first-half profit to Sh3.9 billion.

“We intend to synchronise our production volumes with the forecasts of what is needed in the market. Several hundred employees will be affected to the extent that they will no longer have to work overtime during weekends.”

She added that the regional brewer will make further cost savings by reducing wastage in the brewing process, packaging and logistics, adding that EABL cannot afford to “stand still” in the second half of the year.

The brewer’s administrative expenses jumped 26.5 per cent to Sh4.5 billion, mainly due to one-off restructuring costs.

READ: EABL net profit rises to Sh3.95 billion

It plans to pay an unchanged interim dividend of Sh1.50 per share. But its share price at the Nairobi bourse has remained subdued since Diageo, which owns 50.08 per cent of EABL, gave a sneak preview to its half-year report on January 30.

Its share dropped to Sh256 on January 31 from Sh276 a day earlier and stood at Sh243 on Friday compared to Sh249 on Thursday.

“We maintain our Sell recommendation primarily based on price, with a fair value of Sh197.8,” said Standard Investment Bank in an investors note after the results.

EABL is forecasting single-digit revenue and profit growth in its current financial ending June, curbed by sluggish Tanzania market as well as the new taxes in its home market.

EABL does not say how much of its profits come from specific brands, but Senator Keg, launched in 2004 and sold in glass cups as opposed to expensive bottles, in 2008 overtook the brewer’s jewel Tusker lager on the volumes front.

It helped the brewer to capture consumers in the low-end market, who are price sensitive and have little disposable income to spend on alcoholic beverages, especially bottled beer.

Sales of premium products, which range from Tusker and Guinness beer to Johnny Walker whisky posted double-digit growth. Uganda, which suffered from sluggish sales in previous years, rebounded during the period, posted a 17 cent rise in sales.

In Tanzania, sales dropped by 11 percent, mainly due to the firm shifting to a new, dedicated distribution network, to cut reliance on independent wholesalers.

SABMiller’s Tanzania Breweries controls 70 per cent of Tanzania’s market. EABL hopes its new distributor network will help eat into its rival’s stake.