East African Breweries Limited (EABL.tz) 2019 Annual Report

We have extracted a Chairman’s Statement from the 2019 annual report for East African Breweries Limited (EABL.tz), listed on the Dar es Salaam Stock Exchange:

Overview

It gives me great pride to report on a year of strong performance for East African Breweries Ltd (EABL). The year saw the business achieve growth across all areas of performance and all geographies, confirming that the focus we have placed behind our strategic pillars is working and delivering results. The reported growth in volumes, net sales value, profit after tax as well as the improvements in cash generation from the business have translated into improved shareholder’s return. As a result, the Board has recommended a final dividend of Kshs 6 per share, bringing the total dividend for the year to Kshs 8.50 per share, a 13% increase compared to Kshs 7.50 per share paid out the year before. Outside financial performance, the business also continued to excel in a wide range of areas, receiving recognition across the industry and beyond. Our Kenya subsidiary, Kenya Breweries Limited (KBL) won Brewery of the Year award within Diageo for the third year running as well as the Diageo Africa President’s Award through UDV (Kenya) Limited for achieving the highest growth in Spirits in Africa. Our plant in Nairobi also won the Overall Energy Management Award for being the Most Energy Efficient site in 2019. In Tanzania, Serengeti Breweries Limited won the Employer of the Year award by the Association of Tanzania HR professionals, for investing in technology. These outcomes create a strong foundation for the new financial year and generate momentum as we approach our centenary mark.

Business Environment

Unlike the preceding  financial year when we saw depressed economic activity in Kenya during the election period, this financial year was characterised by political and social- economic stability across East Africa, which was a source of great impetus for our business.

The three key economies in the region recorded steady growth, inflation remained broadly within target and the key currencies held their own against major international currencies. This, together with a stable tax and regulatory regime provided an enabling business environment in the year. Looking ahead, while the business continues to leverage on the strength of our brands and our wide portfolio to deliver sustainable shareholder return, we remain cautiously optimistic given the macro-economic headwinds  affecting some of our key markets. The recent Finance Bill presented by the Treasury Cabinet Secretary in Kenya proposed significant excise increase in both beer and spirits (5.2% in beer and 15% in spirits). This will be the first time that government is increasing excise duty in Kenya for two years in a row. While we acknowledge the need for government to grow its revenue, we are sensitive that this will impact consumers’ ability to afford our products, thus potentially drawing more of them to consumption of illicit alcohol. As a responsible corporate citizen, we continue to engage with relevant stakeholders in pursuit of our aspirations of a truly integrated East African Community, with free movement of goods and people across borders in order to catalyse sustainable economic growth in the region.

Business Development

Our flagship capital project during the year was the construction of the new, Kshs 14 billion, state-of-the-art brewery in Kisumu that will deepen our reach in the western part of Kenya and add over 100,000 people to our value chain. I am delighted to report that the construction work, which started in the preceding financial year, was completed in the course of the year and all the necessary pre-production tests had been carried out successfully by the financial year-end. Going forward, our key commercial priorities aimed at growing the business across the region will be:

  • Growing Senator as we seek to commercialise the new brewery and begin to draw returns.
  • Investing in the existing brands to further embed their strength in the market place and to grow our share.
  • Defending our position as industry leaders through our cutting-edge innovations that shape the future of the industry.
  • Continuing to make capital investments with a view to increasing production capacity, enhancing efficiency in our production processes and reducing our environmental footprint.

Sustainability

EABL has a rich heritage spanning nearly a century now. Ours is a legacy built through strong partnerships with communities and stakeholders in the markets we operate in. We take pride in the positive contribution we make in our society and will continue with this agenda along the three core areas we have identified or sustainability and responsibility. These are:

  • creating a positive role for alcohol in society;
  • building thriving communities;and
  • reducing our environmental impact

EABL has made significant steps in fostering the positive role of alcohol in society, promoting moderation through our established responsible drinking programmes such as UtaDo in Kenya, the Red campaign in Uganda and in-bar advocacy and education in Tanzania, educating communities on dangers of drunk driving. These go a long way in reinforcing our commitment to helping communities celebrate life in a responsible and sustainable manner.

We also work with communities to ensure that we are building sustainable practices and livelihoods. From our leadership, employees, farmers, distributors, suppliers right through to consumers, we have made great strides in aligning our business operations with the expectations and aspirations of the communities in the areas we operate in. Our emphasis on building sustainable supply chains through our local sourcing programs such as Mtama ni Mali in

Kenya, Cassava sourcing in Uganda and sourcing of barley and sorghum in Tanzania guarantee livelihoods for our communities. Further, through programs such as Heshima that help impart skills and training, water provision in schools and tree planting, we play our part in helping our communities gravitate towards the achievement of SDGs.

In a pioneering move, EABL introduced an upgraded family leave policy which will see our female employees benefit from an extended maternity leave of six months while paternity leave for male employees has been extended to one month.

This is in line with our broad-based diversity programs aimed at providing an opportunity for balanced work life and in particular being deliberate at encouraging female employees to give their contribution at work while raising families. On reducing environmental impact of our operations, we are committed to promoting sustainable practices that reduce harm on the environment. In this regard, the business has undertaken an ambitious investment programme that will promote eco-friendly practices in the way we operate. In this regard, we recently commissioned broad based investment programs in Biomass and Solar power generation to reduce our carbon footprint in the environment. Additionally, the launch of certified water recovery processes will ensure reduced water usage for every hectoliter of alcohol we produce.

Corporate Governance

Doing the right thing underpins our ambition to deliver firstclass performance and build our reputation as a company that is trusted and respected by our stakeholders. EABL is committed to the highest standards of corporate governance and ethics. In order to ensure adherence to good governance and best practice, the company has embedded internal policy and guidelines to guide activities involving our employees, customers, suppliers, competitors, government and the community at large.

During the year, the business introduced the refreshed code of conduct training dubbed “Pathway of Pride”. This program brought experiential learning across the organization, aimed at renewing the individual and collective business commitment to conducting business in accordance with all relevant laws regulations and industry standards.

Board Changes

Since the last Annual General Meeting, Dr. Paul Gallagher resigned from the Board effective 31st March 2019 after he left Diageo to pursue other interests. On behalf of the Board I take this opportunity to thank him for his invaluable contribution to the company’s success during his tenure and wish him all the best in the future. We also welcomed Mr. John Ulanga to the Board following his appointment effective 1 June 2019 and look forward to his contribution in the months and years to come.

Appreciation

A strong, all-round performance such as the one we achieved in the financial year just gone by would not have been possible without the unrelenting support of all the stakeholders in our business ecosystem. To our customers, consumers, business partners and government, I am proud of the trusting relationships we have developed over the years and on behalf of the Board, I thank you for your continuing support and partnership.

To management and staff, it is your unwavering commitment to delivering the business strategy that enabled the company to record these outstanding results in the year. We celebrate you and look forward to continued successful execution of our strategy in the years to come.

The Board of Directors ensures the long-term and sustainable prosperity of the business by collectively directing and supervising the company’s affairs while balancing the interest of stakeholders. I have the privilege of leading a team of men and women who bring their diverse skills, relevant experience and passion for success to bear on the decisions of the Board. I take this opportunity to sincerely thank my fellow Board members for their contribution and look forward to their continued engagement in shaping the future success of the business.

Charles Muchene
Group Chairman