Eabl losing money on empty bottles and bad credit
Regional brewer East African Breweries Limited (EABL) lost billions of shillings from bottles that were not returned to the company and writing off bad debt, an analyst at Callstreet says.
Mr George Bodo, said the East African brewer wrote off Kes2 billion as impairment of trade and other receivables during the fiscal year.
The analysts said the impairments may be related to Uganda when the company went on a spree to buy market share from its rivals by relaxing its credit conditions to distributors. Some of the distributors, in turn, took advantage and just never paid back.
He said the company also wrote off Kes1.2 billion worth of returnable packaging during the year.
“Returnable packaging is predominantly the glass bottles. Over the past five years, EABL has written off returnable packaging worth Kes8 billion,” Mr Bodo said.
“That’s quite a lot of packaging to write off and probably speaks to the level of controls over returnables. A possible explanation could be that the market failed to return the packaging back to the company and consequently had to be written off. But that would be ludicrous,” he said.
Mr Bodo also noted that EABL had bought off minority shareholders in Tanzania which may not have been the best move in the midst of the pandemic.
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The total purchase consideration was Kes8.3 billion out of which Kes6.27 billion was paid in cash and the additional Kes2.0 billion was utilised to repay the outstanding loan receivables from the non-controlling interest arising from the capital restructuring in 2018.
He said in a year when the Covid-19 pandemic reared an ugly head on economic activities across its markets, he struggles to see the wisdom in spending Kes8.3 billion towards buying out minority shareholders in a subsidiary.
“Especially now that the company has had to borrow Kes11 billion from the market at 12.25 per cent for the next five years. My expectation is that cash conservation would have been a key priority for management,” he said.
According to Mr Bodo, EABL has had to deal with some hostile co-shareholders in Tanzania; but whatever the case, the transaction could have been frozen temporarily. Or better still, it could have been executed on a non-cash basis.
