East African Breweries Ltd (EABL) suffered a Sh2.1 billion hit on account of the depreciating shilling, contributing to its net income dropping 21 percent to Sh12.3 billion in the year ended June.
According to data from the Central Bank of Kenya (CBK), the shilling fell by 20.8 percent in the period between July 1, 2022, and June 30, 2023, translating into escalated import costs for manufacturers such as EABL.
The brewer’s cost of goods sold increased by 10.1 percent in the period under review to Sh62.2 billion, gobbling up 56 percent of its net sales up from 51.0 percent a year earlier.
“We have seen very rapid depreciation of the shilling given that we started off at about 117 to the US dollar and closed at about 142 with most of the depreciation happening in the second half of the accounting period,” EABL chief financial officer and head of strategy, Risper Ohaga, told the Business Daily.
“With scarcity of raw materials, we ended up importing more and that translated into bigger foreign exchange hits so we do have about a Sh2.1 billion hit on foreign exchange.”
EABL says whereas access to the US dollar to service its import bill improved in the period between January and June 2023 relative to the period July to December 2022, the shortage of raw materials locally translated into a higher need for imports, which amplified the manufacturer’s exposure to foreign exchange see-saws.
Accessibility of the US dollar improved in the second half of EABL’s reporting period following the government-to-government petroleum product importation deal with the Gulf nations which has improved dollar liquidity due to deferred payments by oil marketing companies which are estimated at $500 million monthly.
“Fortunately, we were able to access foreign currency within the second half but then with the scarcity of raw material, you end up importing more. Whenever we import, we have to access foreign exchange and with continued exposure, we will remain exposed,” Ms Ohaga said.
“Ethanol was scarce throughout the entire second half with the shortage having started towards the end of the first half and we are now having to source ethanol at 60 percent above what it was before.”
EABL’s board has proposed to slash by half the firm’s full-year dividend to Sh5.5 per share for the period ended June 2023 signalling aggressive capital preservation amidst rising headwinds in the operating environment.
