EABL Posts 9 Percent Pre-Tax Profit Increase Despite Challenges in Sin Tax
Despite the over 21 percent excise duty imposed on the cigarette and beer industries by the National Treasury passed last September, due to the adverse effect that it would have on their consumers, the East African Breweries Limited (EABL) has announced a pre-tax profit of Kshs 10.6 billion during the half-year ending 31 December 2019.
This represents a 9 percent increase compared to the same period in 2018.
Speaking during the announcement of EABL’s half year 2019 results at their offices located at Garden City Business Park on January 31st, 2018, the Group Managing Director, Mr Andrew Cowan said that the tax had much more of a negative effect on bottled beer, with saw a decline of -1 percent, successful brand campaigns such as “Tusker Na Nyama” and “Guinness Football” notwithstanding.
“ Although excise duty escalation on alcoholic beverages in Kenya’s last budget impacted bottled beer, a more stable operating environment provided an opportunity to continue our growth momentum during the period,” he said.
EABL, which is the region’s largest manufacturing company, has leveraged increased investment and operational efficiencies across markets and segments to expand, despite increases in alcoholic beverage taxes.
Mr Cowan says that the brewer, which contributes one percent to Kenya’s GDP, remains cautiously optimistic about its second half of the year due to unpredicted tax and regulatory changes and challenges in its operating environment.
Profit after tax also grew at the same rate, reaching Kshs 7.2 billion during the period under review.
Net sales were up 10 percent to Kshs 45.9 billion, driven by higher volumes, up 5 percent across the Group and categories, and better price mix across all brands.
Net sales in EABL’s largest market, Kenya, grew by 8 percent, with beer and spirits growing by 6 percent and 11 percent, respectively. EABL leveraged several innovation initiatives during the half year, with new brands contributing 28 percent of the net sales.
Recently launched brands include Hop House 13 Lager, Guinness Smooth, Sikera Cider, Black and White whisky and Triple Ace vodka which have added to EABL’s growth.
Growth in performance is from Senator Keg, a low-priced beer growing by a fifth, with the new Kisumu brewery driving growth, in which EABL’s largest shareholder has invested 120 million pounds.
Mainstream spirits and Scotch whisky sales increased by 17 percent and 23 percent respectively, driven by performance from Black and White.
Across the EAC region, Uganda Breweries’ premiumisation agenda delivered better mix and margins, helping lift net sales by 10 percent.
This has been driven by a 15 percent growth in beer and one percent in spirits, the latter was also impacted by the ban of the sachet format.
Marketing campaigns such as Bell All-Star Tour and Tusker Lite Neon Experience helped drive bottled beer growth by 15 percent.
Launch of Black and White whisky helped lift Uganda’s Scotch performance, with net sales rising by 84 percent while the ready-to-drink category grew by 18 percent.
Serengeti Breweries in Tanzania, the Group’s fastest growing business, expanded by 19 percent, lifted largely by a consistent performance in local executions to drive the Serengeti trademark.
Mr Cowan adds that: “We will continue to focus on the execution of our strategy across our businesses. We are confident there is ongoing potential for growth across our geographies and categories. At the premium end, people are trading up while at the price-sensitive end, we believe we can recruit more illicit alcohol consumption by offering safe, quality options.”
Illicit alcohol has been a problem in Kenya. According to a 2018 report by the International Alliance for Responsible Drinking, 60 percent of the alcohol that Kenyans consume is illicit and detrimental to their health.
EABL will invest further during the financial year, to consolidate gains so far made in its production, commercial and sustainability capacities across the region.
Having made a total investment of Kshs 14 billion in the Kisumu brewery in the previous years, the Group has invested a further Kshs 4.4 billion in production capacity improvements for existing and new brands.
The investment by EABL on a Kshs 22 billion sustainability programme to be spent across East Africa, the regional brewer has embarked on projects across East Africa to leverage renewable energy in biomass and solar as well as water recovery and treatment.
These sustainability plans are geared towards reducing carbon emissions by 42,000 tonnes, save over a billion cubic litres of water annually and produce up to 10% EABL breweries’ power needs.
The Board of Directors has recommended an interim dividend of Kshs 3 per share for the half-year period. This represents a 20 percent increase, from Kshs 2.50, compared to the same period last year.
During the results, there were also staff announcements , such as the departure of the Group Finance and Strategy Director, Mr Gyorgy Geiszl, who is moving to the Diageo offices in London to work in a similar capacity of Finance.