Eveready upswing prospects dim with loss of Energizer contract

Eveready Nakuru plant is expected to yield about Sh1.3 billion in revenue for the troubled firm. Eveready Batteries has “temporarily” lost a distributorship contract with its biggest supplier - American associate giant Energizer. (PHOTO: COURTESY)

Eveready Batteries has “temporarily” lost a distributorship contract with its biggest supplier - American associate giant Energizer.

Negotiations are underway to restore the agreement that expired at the end of September, the Nairobi Securities Exchange-listed company said in a cautionary statement to investors.

There is however no guarantee that the contract would be restored, forming the basis of the advisory, which comes just days after the battery maker sold its most important Nakuru property, which houses its manufacturing plant.

“Eveready and Energizer commenced discussions to the heads of the agreement with a view to concluding a definitive agreement soon based on mutually agreeable terms,” the firm said in a cautionary statement filed at the NSE.

The two-year distribution agreement expired on the first day of October, nearly three weeks ago today – threatening its main business line involving distribution of products manufactured by third parties.

“The agreement which expired by effluxion (time lapse) on September 30, 2016 sets out the terms and conditions of supply and distribution of various imported products in the flagship and portable power category by Eveready to include Eveready and Energizer branded products,” the statement read in part.

Managers said they had put in place stop-gap measures to ensure supplies are available to its customers, who would include retail outlets.

Energizer owns a 10.5 per cent stake in Eveready, a shareholding that is currently valued at just Sh54 million following a sustained loss of business to new technologies, including rechargeable batteries and gadgets, and enhanced electricity penetration.

The distribution agreement was disrupted following the restructuring of Energizer business after it was spun off from the parent company mid last year.

Corporate split

Despite this optimism, the supply of energizer batteries to the Kenyan market has largely been affected following the corporate split of Energizer Holdings. Edgewell Personal Care was formed by the renaming of Energizer Holdings. The Energizers’ battery business was then spun-off as Energizer Household Products and then renamed Energizer Holdings.

This restructuring was completed in July 1, 2015. Eveready managers told Nairobi-based research analysts that the establishment of Energizer Holdings as an independent firm saw its focus narrowed to the bigger markets in developed economies, while African markets fell behind.

Closure of the Eveready plant and subsequent disposal left thousands of people without jobs, from the company’s heyday where dry cells were the most widely used source of energy for home entertainment and lighting.

Total sales had dipped to Sh1.1 billion in the last financial year ended September, 2015, from Sh1.2 billion in the previous period. The results point to an increasingly difficult operating environment for the manufacturer.

Previously, the firm has heaped blame on cheaper and often sub-standard imports that were eating in to its market share and eroding profit margins that forced the firm to change its business model.

Managing Director Jackson Mutua told The Standard a week ago that shareholders had approved the disposal of the prime property in Nakuru, which is expected to yield about Sh1.3 billion.