East Africa Breweries posts 22% drop in net profits

East Africa Breweries Limited has announced a 22 per cent drop in net profitability, reporting 6.8 billion shillings in net profits in the brewer’s latest half-year earnings for 2024. The decline in profits was primarily attributed to rising inflation and an increase in finance costs. Despite these challenges, net sales increased to reach 66.5 billion shillings, with the regional subsidiaries performing well despite forex volatility. Risper Genga Ohaga, the Group CFO of EABL, highlighted the company's growth in sales and containment of administrative expenses below the inflation rate at 6%. Operating profit before foreign exchange (FX) and finance costs grew by 6% to 16.4%, compared to 16.5 billion in the previous period. However, foreign exchange losses and finance costs increased significantly to a total of 6.3 billion, up from 2.6 billion in the previous period, due to the depreciation of the Kenyan shilling against the dollar and the pound. This depreciation was exacerbated by the higher level of imported inputs due to shortages in the local market. Net finance costs were impacted by the local 182-day Treasury bill rising by 600 basis points compared to the same period last year. The government's change in policy to require advance payments in excise on a daily basis also contributed to increased finance costs, creating a strain on working capital and funding. As a result, profit before tax decreased by 21% and profit after tax by 22%, with equity holders experiencing a 20% decline. Despite these challenges, East Africa Breweries maintained a strong balance sheet, with significant cash generation and a cash balance 6 billion shillings higher than the previous year. The company generated 19.4 billion from its operations, showcasing resilience amidst the macroeconomic headwinds. Ohaga expressed confidence in the region and markets, stating that while the business faces pressures and cycles, these challenges are expected to subside as macroeconomic factors are addressed. She emphasized the company's focus on reaching consumer preferences, innovating rapidly, growing volumes, and managing costs effectively to drive strong results. Subsidiaries in Kenya, Uganda, and Tanzania have shown robust growth, with Kenya growing by 10%, Uganda by 31%, and Tanzania by 9% in headline revenue. However, adjusting for currency depreciation reveals organic growth rates of 6% in Uganda and a 5% decline in Tanzania. The company has seen success in various product categories, including vibrant beer, mainstream spirits, premium offerings, and new frontiers, with innovations like the new microbrewery supporting product development and consumer engagement. Looking ahead, East Africa Breweries remains optimistic about the second half of the year, despite ongoing challenges with FX and finance costs. The company is focused on mitigating these obstacles and staying aligned with its strategic objectives to drive continued growth and performance. Ohaga addressed the geopolitical landscape, highlighting the impact of global conflicts on supply chains and the company's efforts to diversify sourcing and adapt to evolving challenges. In conclusion, East Africa Breweries is poised to navigate the complexities of the current economic environment, maintaining a resilient business model and strategic focus on innovation and consumer engagement.