East African Breweries Limited (EABL) has reported a 15 per cent drop in net profits for the year ended June 2018 as it struggles to grow its bottom line without selling assets.
The brewer said its profits after tax shrunk from the Sh8.5 billion it earned in 2017 to Sh7.2 billion in the year ended June 30 as a result of a “one-off tax provision”.
Its revenue grew by five per cent to hit Sh73.4 billion but the costs raced ahead of the income and impacted on the bottom line. Costs grew by Sh2.8 billion to hit Sh20 billion, eating away the growth in revenue.
“Profit after tax declined by 15 per cent as a result of the one-off tax provision but strong underlying performance with robust cash flow delivery secured the necessary funding for higher investment in the period,” the firm said in a statement.
But it did not provide details on what exactly the tax provision was about.
The firm’s board has recommended a final dividend of Sh5.50 per share to keep the total dividend of the year at Sh7.50 per share, same as what it paid last year.
EABL has been struggling to sell its mainstream beers in a market now flooded by cheaper imports. Changing tastes and consumption habits that have seen the appetite for premium alcohol grow are also chipping away the brewer’s market share.
In the last five years, the company’s earnings have been boosted by sale of its assets, mainly land and buildings, which helped pad its earnings.
For instance, in the first half of the year, the firm made a Sh700 million gain on the sale of a disused piece of land in Mombasa, cushioning its earnings in the period.
Other assets the firm has sold include its Ruaraka headquarters, a distribution warehouse, the former Castle Breweries plant and a glass-making subsidiary, Central Glass Industries.
Free up cash
EABL has indicated that it is not done with selling its non-core assets to free up cash and invest in its core business.
The growing direct importation of some of the key brands manufactured by its parent company Diageo, such as the popular Johnnie Walker, has also taken away revenues it would earn on distribution.
To cushion its flagship brand, Tusker, from the changing market, the firm is pumping billions of shillings into its innovation centre to come up with variants of the beer to keep it on the shelves.
It has also introduced at least five new brands among them the Hop House 13 beer, the Zinga Beer, Black & White whiskey and Triple Ace vodka to attract new drinkers.
EABL said its spirits business grew by eight per cent, driven by a strong performance of the mainstream spirits portfolio which was up 23 per cent while beer increased four per cent.