Kenya’s EABL to convert Tanzania unit loan into equity

NAIROBI (Capital Markets in Africa) – Kenya’s East African Breweries said it would convert a loan to its Tanzanian business into equity, after reaching a settlement with the competition authority that had been investigating the transaction. Tanzania’s Fair Competition Commission (FCC) threatened to revoke EABL’s 51 percent stake in Serengeti Breweries in 2015, accusing the Kenyan firm of not meeting several conditions. It did not make those conditions public. “In early June, we managed to close and settle that matter,” Gyorgy Geiszl, EABL’s finance director, told a news conference, without giving a value for the loan.

EABL, a unit of Britain’s Diageo, made a provision in its financial year ending June 2016 to settle the issue so its figures for the year to June 2017 would not be hit, he said. Geiszl said the settlement would allow EABL to “complete this capital restructuring, convert our loan to the company into equity, restore its equity position and profitability.” He did not say what impact converting the loan would have on the size of EABL’s equity stake in Serengeti.

Serengeti, which contributed 9 percent to EABL’s group sales of 70.25 billion shillings ($676.46 million) in the year to June 2017, had a 28 percent share of the market, according to 2015 figures. Its sales dropped 13 percent in its latest financial year.

EABL said it saw opportunities in the market in the medium term, while the settlement and capital restructuring would help the firm focus on boosting sales. The Company said net profit for the year through June rose 6 percent to 8.5 billion Kenyan shillings ($81.89 million), helped by reduced operating costs and a slight rise in sales. The brewer, controlled by Britain’s Diageo, said in a statement on Thursday that net sales rose 2 percent, while it saved 2.3 billion shillings in operating costs in the period. It said net sales in Kenya – which makes up about 70 percent of its profits – were up 4 percent despite higher excise duty and drought-induced inflation. Sales in Uganda rose 7 percent and shrunk 12 percent in Tanzania.

“We demonstrated resilience delivering this solid set of financial results despite challenging times, mainly characterised by inflationary pressures and regulatory volatility,” Andrew Cowan, its managing director, said. It said sales of new beer and spirit brands contributed an additional 19 billion shillings in total revenue across its East African markets, a 15 percent rise. It recommended a final dividend of 5.50 shillings per share, unchanged from 2016.

The company said it had reached a settlement with Tanzania’s Fair Competition Commission on the status of its acquisition of a controlling stake in Serengeti Breweries, Tanzania’s second biggest brewer, but it previously had not revealed what the settlement consisted of. In 2015, the commission began a process to cancel approval for East African Breweries’ $60 million purchase of a 51 percent stake in Serengeti, saying EABL had not met some pledges made when it won permission for the deal in 2010.

Earlier this month, the brewer started construction of a 15 billion shilling plant in the western Kenya city of Kisumu, which is expected to be finished in the next two years.

Source: Reuter Africa News