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Kenya: EABL Ends Year With Liquor Stock Worth Sh11 Billion as Profits Dive
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Trucks are still at its Nairobi plant. Crates piling up at its storage yards as expired liquor from the field is ferried back to its depots.
In Kisumu, its Sh14 billion plant remains silent as its customers remain out of reach due to limited drinking hours and cash strains.
This state of affairs has seen beer maker East African Breweries Limited (EABL) end its financial year with liquor stocks worth Sh10.9 billion plunging its net profits by 39 percent to Sh7.6 billion, a six-year low.
This provides a financial peek into just how the Covid-19 pandemic is hurting the beer industry, and wiping away billions of shillings in profits.
The brewer valued its inventory at Sh10.9 billion as at June 30, 2020. This reflects a Sh3.6 billion growth compared to a similar period last year or a near 50 per cent rise compared to the Sh7.3 billion in a similar period in 2019.
DETERIORATING CASH
However, it is its deteriorating cash position that paints the picture of how the containment measures are causing the sector sleepless nights.
The brewer’s cash flow statement shows a halving of money generated from its operations from Sh28.4 billion to Sh13.6 billion, which means that its cash engine is operating at half its capacity compared to its previous period.
Cash is one of the most important measures of the performance of any company and when it stops flowing, it forces companies into drastic cost-cutting measures to stay afloat.
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The financial statements show that the brewer’s cash position shrunk seven times from Sh12.4 billion in 2019 to Sh1.7 billion at the end of its current financial year. This resulted in a net decrease of cash and cash equivalents of Sh10.3billion in the period.
The brewer said the Covid-19 pandemic was the main reason behind the 39 percent dip in net profits from Sh12.1 billion last year to Sh7.6 billion this year.
PANDEMIC
Its sales revenue took a nine per cent hit, declining from Sh82.5 billion to Sh74.9 billion.
EABL explained that it had a stable first half of the year, which resulted in a volume growth of five percent and sales growth of 10 percent. Its operating profit up nine percent compared to the previous period.
Then in March, Covid-19 pandemic struck and as the first cases were being reported in East Africa, the regional governments put in place containment measures to stop the spread of the virus.
“As a result, there was a significant decline in sales following the closures of outlets and restrictions on movement primarily in Kenya and Uganda,” EABL told investors in its update sent to the Nairobi Securities Exchange (NSE) on Wednesday.
“We responded by remodeling our business to provide our consumers with a variety of options including convenience stores, supermarkets and home deliveries,” it said, adding that this commercial effort could, however, not make up for lost sales since the largest share comes from the traditional retail outlets, which are bars and restaurants.
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