East African Breweries targets costs, earnings jump

NAIROBI (Reuters) - East African Breweries Ltd (EABL) will focus on cutting costs this year by growing raw materials locally and moving production of some brands to the markets where they are sold, its chief executive said on Friday.

Soaring costs of sales are spoiling the party for the Diageo-controlled brewer, which has a commanding lead in one of the world's fastest growing alcohol markets, out-selling rivals in both beer and spirits.

EABL, which makes Tusker beer and sells Johnnie Walker whisky, said costs rose 26 percent during its full year ended June, outpacing a 24 percent jump in revenue to 55.5 billion shillings.

Chief Executive Devlin Hainsworth said the company was already growing sorghum in Tanzania to cut raw material costs, adding that the programme will be rolled out further, along with decentralisation of brewing from Kenya.

"We need to be crystal clear what we are making where and therefore, what opportunities are there to be able to save some of the transportation costs so it (cost-cutting) is very much in focus," Hainsworth told reporters.

The company has already started manufacturing brands like Tusker in Tanzania, which was previously served by its brewery in Nairobi. EABL sells its products in Uganda, Rwanda, Burundi, South Sudan and eastern Democratic Republic of Congo.

The markets were buoyant with Uganda and Tanzania recording growth of 38 percent and 76 percent, respectively, while the Great Lakes markets of Rwanda, Burundi and eastern Congo grew by 30 percent.

Pretax profit rose 24 percent to 15.25 billion shillings and the company maintained its dividend for the year at 8.75 shillings per share, meaning a dividend yield of 4 percent against a market average of 5-7 percent.

TAKING ON ILLICIT AND HOME BREWS

Analysts said the dividend payout by EABL was still acceptable, citing increased leveraging by the company and the jump in cost of sales. Its finance costs more than doubled to 4.56 billion shillings.

"It will take a bit of time to really get that item (costs) under control," said Eric Musau, an analyst at Standard Investment Bank.

Shares of EABL edged down by just less than 1 percent to 228 shillings each after the results were issued.

Hainsworth said he expected earnings to grow further as the company targets customers who currently buy alcohol from the illicit and home brews market, which is estimated to be the same size as the established beer market.

Global brewers like Heineken and SABMiller have been paying closer attention to Africa, where booming economies are spawning new consumers, to shore up flagging sales in economically troubled markets like Europe.

"One of the biggest things we are seeing across the region is 'premiumisation'. People coming from illicit brews into brands like Senator Keg," Hainsworth said, referring to EABL's low-end brand, which is dispensed from kegs in bars.

EABL posted a 21 percent growth in beer sales and a 47 percent growth in sales of spirits during the year under review.

"I do see the continued growth rates of spirits ahead of the growth rates of beer, which will of course give spirits a bigger share of our overall business," Hainsworth said.

Source: http://news.yahoo.com/east-african-breweries-posts-24-pct-jump-fy-054908345--sector.html

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