Brewer spent Sh1.2bn laying off staff, may stop making Senator

Beer maker, East Africa Breweries spent over Sh1.2 billion to lay off workers in the last financial year.

The firm is also considering stopping production of Senator keg, Group managing director Charles Ireland said Friday.

The company announced a net profit of Sh6.5 billion for the year through June, but said it could take the hard decision on Senator keg beer if the government does not reconsider the excise duty on the low-priced alcohol.

Mr Ireland said poor performance of Senator ate into the company’s profits and the board is considering stopping its production.

“We have cut its retail prices twice since the government introduced the tax but this has not helped. We are not even covering our costs. The business cannot sustain it,” Mr Ireland said.

Senator keg sales for the year dipped 75 per cent eroding the group’s revenues which grew by a marginal four per cent to Sh61.2 billion. Excluding keg, Mr Ireland said, the group would have reported a 16 per cent growth in revenue.

SENT HOME
The staff reorganisation saw the company cut its workforce to 38 from about 140. Some employees were sent home while others were deployed to its Kenya, Uganda and Tanzania subsidiaries in what the management said would remove red tape in decision making.

In March, there were 100 layoffs at firm’s main subsidiary.

Mr Ireland said the reorganisation, though costly, was starting to yield results. For instance, it helped Uganda’s improved performance which reported a 13 per cent upswing in sales, he said.

BIGGEST MARKET

Kenya remained the brewer’s biggest market contributing 64 per cent of total sales. Uganda and Tanzania came second and third at 18 per cent and 11 per cent. Other markets in the region contributed seven per cent.

“Overall, the performance was in line with our expectations except for the one-off cost and finance costs. We were particularly encouraged by the strength of the core Kenya unit, and the turnaround of Uganda and Tanzania subsidiaries,” Standard Investment Bank analysts noted in their review.

Tusker remained the company’s leading brand growing 17 per cent in the year, followed by Diageo’s flagship brand Guinness. Revenue from Guinness grew by 20 per cent which management attributed to a price increase and strong marketing.

The group’s overall growth was also hurt by political instability in South Sudan where the company opened a depot earlier in the year.

Analysts said they expect the Ugandan business to grow strongly following the launch of reserve spirits and the ‘Route to Consumer Project’ which seeks to improve supply.

FINAL DIVIDEND
“In Tanzania, EABL launched the Serengeti Premium which improved performance in the fourth quarter. We expect this to strengthen in the following year.

With the launch of the Kenyan warehouse, we anticipate cost savings. We expect finance costs to depress bottom line in the foreseeable future,” analysts at Sterling Capital noted.

The directors have proposed a final dividend of Sh4, bringing the total pay out to Sh5.50 a share. An interim dividend of Sh1.50 a share was paid mid-year.