East African Breweries is expected to post impressive profits for the year ending June 30, even as the regional brewer braces for key management changes next week.

Chief executive Seni Adetu, who has been at the helm of the group for three years, is expected to vacate office on July 1, ushering in Devlin Hainsworth as the new managing director.

Two senior executives Baker Magunda, EABL Kenya managing director for demand and James Karegi the group supply director, are also on their way out of the brewer. Mr Karegi is expected to retire in September while Mr Magunda is taking up a new role as the MD Guinness Cameroon.
With the brewer expected to post impressive full year results, investors, mostly foreign, have taken note: The share price touched a record high, trading at Ksh235 ($2.80) at the Nairobi Securities Exchange last week.  

But incoming chief executive Mr Hainsworth, will have to deal with the hangover of the three years in which EABL has borrowed from its parent company, acquired, hired and fired key management personnel in order to defend its market share.

Dyer and Blair and Standard Investment Bank forecast sales will grow by 22 per cent and 28 per cent respectively to Ksh54.7 billion ($643.5 million) and Ksh57.8 billion ($680 million) up, from Ksh44.9 billion ($528 million) in the year ended June 2012.

Rising competition

As Mr Hainsworth takes over, he will have to deal with rising competition plus the thorny internal issue of the growing number of expatriates at EABL, in which his successor sees nothing sinister of.

“I think we have to be very careful. When we mention that we brought in expatriates, people tend to cherry pick on what they want to see and what they want to talk about,” said Mr Adetu. “But the reality is, the number of Kenyans working outside the country is at the highest level ever. Also, several East Africans have taken senior positions across EABL”

By most measures, EABL is in its best shapes in recent years, with the expected rise in earnings, a competitive run that despite big-monied rivals entering into its key markets and the beer business looking up.

In an interview last week, Mr Adetu said he sees a positive outlook for the firm, while hinting at a tough job for his successor in managing costs and growing markets.

Mr Adetu will now head Guinness Nigeria, Diageo’s biggest brewer on the continent.  He says Serengeti, the Tanzanian brewer EABL acquired a 51 per cent stake in three years ago will be the main driver in sales.

There is also the cash expected from EABL’s disposal of a 20 per cent stake it held in Tanzania Breweries Ltd through an initial public offering as it ended its relationship with SABMiller. This should help the brewer grow its profits in 2012.

But in the full year ending June 2013, both Standard Investment bank and Dyer and Blair hold the same opinion, that profits will drop. First, it is because there will be no one-off gain by EABL. Second because EABL is likely to be weighed down by higher costs of raw materials.

Mr Adetu has overseen one of EABL’s largest expansion phases in recent history as the firm parted ways with its partner in the Tanzanian market SAB Miller, installed a new canning line in Kenya and added capacity in Uganda. EABL sold the 20 per cent stake it held in SAB Miller’s TBL. In turn SABMiller sold the 20 per cent it held in EABL’s Kenya Breweries Ltd.

Share rise

In July 2009, EABL’s share traded at Ksh149 ($1.77) on the NSE. It is now trading at Ksh223 ($2.61), up 49 per cent. The stock market measured by the NSE 20 Share Index is only up by 12 per cent over the same period. 

The regional brewer was second to Safaricom, the mobile phone services provider, in terms of market capitalisation at $1.53 billion three years ago.  It has now risen to Ksh 177 billion ($2.1 billion), making it the largest company in the region by market capitalisation.

The foundations of this expansions have been built through the growth in sales of main brands Tusker in Kenya, Bell in Uganda and Serengeti Premium Lager in Tanzania. 

However, analysts at Standard Investment Bank have placed a sell recommendation on EABL’s stock in a research report released last month. The investment bank thinks the shares should be valued at Ksh174.44 ($2.07).

Part of their reason to dispose the shares is that increased competition will eat into EABL’s market share.

There is a battle among brewers for a piece of the business in the region. SABMiller has regrouped and re-entered the Kenyan market.

Moreover, contrary to the consolidations and mergers happening in most of the developed world, brewers in East Africa feel they are better off on their own.

Just last week, South African wine producer and distributor, Distell terminated a 14-year partnership with Kenya Wine Agency Ltd and announced plans to directly manage its products in the region.

This is similar to what happened in Tanzania when EABL ended its marriage of convenience with SABMiller.