Kenya now earns Sh70 from every beer sold

Kenya Breweries Ltd Managing Direcor Jane Karuku chats with EABL Group MD Charles Ireland when the firm released its half year results. [PHOTO: WILBERFORCE OKWIRI/STANDARD]

The recent hike in taxes has seen government take nearly half the prices of beer leaving manufacturers in a tight spot.

East African Breweries Limited, which Thursday announced a 67 per cent jump in half-year profits after tax to Sh7.7 billion, said the government is taking about Sh70 in taxes from a 500ml bottle selling at a recommended retail price of Sh150. The new taxes are expected to hit the company in the second half of the year as retailers pass on the costs to consumers.

“We have experienced some softening of volumes for mainstream beer following the increase in taxes in December than what it was before, but we are working on a strategy to mitigate the impact of the rise on consumers,” aid EABL Group Managing Director, Charles Ireland in an interview yesterday.

“The excise tax now takes about Sh50 and the 16 per cent VAT (value added tax) takes another Sh20 or so. This means total taxes for a beer is now at Sh70,” he said.

The Sh7.7 billion profit after tax is inclusive of the Sh2.2 billion gain from the disposal of Central Glass Industries Limited (CGI), the glass making subsidiary and netting off nearly Sh1 billion of negative impact from South Sudanese pound currency devaluation. The regional brewer also made a further Sh707 million from sale of land next to its headquarters as it moved to dispose off non-core assets in an effort to boost its cash flows.

This saw the company end the first half in a strong cash position in the first half of the year. Cash flow from operating activities increased by 51 per cent to Sh11.4 billion in what the firm attributed to efficient management of working capital. Kenya continues to account for the lion’s share of its business after it delivered 22 per cent net sales growth.

Net sales in Uganda and Tanzania remained flat in local currency terms. The firm also experienced a decline in the export markets mainly due to the volatile environment in South Sudan.

But the company says it will not pull out of South Sudan despite the difficult operating environment. Its main competitor SABMiller recently pulled out of South Sudan after the political environment became intolerable that has caused serious foreign currency crisis in the nation. But EABL, says unlike its competitor which had a plant, it only has a depot in the country.

The brewer’s selling, distribution and administrative expenses increased by 10 per cent when compared to the same period last year. “Total net borrowings decreased by Sh8.5 billion as a result of strong operating cash flow and the sale of CGI, contributing to a 38 per cent decrease in net finance costs in the period,” the firm said.

Keg beer

The firm is however compensating the drop in the mainstream beer with the low cost Senator Keg that benefited from reduction in taxes. Keg, whose volumes more than doubled following lowering of excise tax mid-last year, helped push up its net sales for the six months to December grew eight per cent to Sh37.5 billion. A mug of keg beer is now retailing at Sh25, down from the Sh30 that it was retailing at before the tax was reduced.

“We are dealing with a price sensitive market and the reduction by Sh5 on every mug made all the difference,” Mr Ireland added. A mug of Keg is about 300ml. A litre of Keg is now attracting an excise tax of Sh7 and VAT of Sh3. This means that the government is now earning about Sh10 a litre from the popular drink targeting the lower market segment.