Home Business EABL forecasts Sh14bn hit in alcohol packaging rules

EABL forecasts Sh14bn hit in alcohol packaging rules


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EABL forecasts Sh14bn hit in alcohol packaging rules


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EABL plant in Ruaraka, Nairobi. FILE PHOTO | NMG

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Summary

  • The brewer says the loss will derive from write offs in existing machinery and purchase of new ones, changes in packaging setup to fit the new packaging volumes.
  • The Alcoholic Drinks & Control (Amendment) Bill, 2020 fronted by Wundanyi MP Danson Mwakuwona seeks to amend the 2010 law by limiting the packaging of alcoholic products in containers of a minimum of 750 millilitres.

The East African Breweries Limited #ticker:EABL (EABL) estimates it will take a Sh14 billion hit should the proposed change to raise the minimum volume of alcohol in a bottle to 750 millilitres be adopted.

The brewer says the loss will derive from write offs in existing machinery and purchase of new ones, changes in packaging setup to fit the new packaging volumes, glass waste and lost business opportunities as a result of being outcompeted in other East African markets.

The Alcoholic Drinks & Control (Amendment) Bill, 2020 fronted by Wundanyi MP Danson Mwakuwona seeks to amend the 2010 law by limiting the packaging of alcoholic products in containers of a minimum of 750 milliliters, a move that has drawn mixed reactions from stakeholders.

“The passing of section 2 of the Bill would lead to a massive write-off cost of over Sh3.4billion. All existing beer bottles, cans, crates, plant and machinery spare parts would need to be written off at the current book value,” EABL Group corporate relations director Eric Kiniti wrote in submissions to the National Assembly Departmental Committee on Administration and National Security.

“In addition, KBL would need to replace the beer glass packaging, cans, crates and install new machinery to package beer at 750ml, an investment that would cost over Sh7 billion.”

The brewer, whose half year net earnings to December dropped by 47 percent to Sh3.7 billion on the back of reduced sales and a higher tax provision, says the change in minimum packaging volume will cut bottled beer volume sales by 30 percent and reduce sale in spirits by 40 percent.

It attributes this estimate to concerns that consumers would switch to illicit brews and cheaper contraband alcohol from Tanzania, Uganda and Ethiopia where alcohol is cheaper than in Kenya.



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