Over the past two years, East African Breweries Ltd has had to deal with increased competition and rising costs that have eaten into its revenue, leading to layoffs.

The firm’s CEO Charles Ireland spoke with Steve Mbogo on his strategy to get the beer maker back on track.

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EABL’s profits dropped 38 per cent to — Ksh6.9 billion ($79.31 million) in the past financial year, prompting a restructuring plan. How many employees were laid off and how do you hope to gain from the project?

Unfortunately, we shall have to retrench about 20 employees including some in senior positions.

The change is necessary in order to keep the organisation competitive. We reviewed the company’s operations over many months — even before I arrived — so we could set it up for success.

READ: Sobering dip in profits for giant brewer EABL

What other measures are you putting in place as part of the restructuring plan?

We thought the best way of restructuring the business is to have resources deployed at the market level rather than at the group level. We believe by having resources closer to our consumers, we shall be faster in our decision- making process as well as the rate at which we drive our business.

We have moved more than a dozen roles from EABL Group marketing functions to the Kenya marketing functions. We have also created new roles in Uganda, Tanzania, Rwanda, Kenya and South Sudan, and eliminated others.

The total number of roles in the Group should drop from 140 to 40. But we are creating more roles in each of the markets. This is not a cost-saving exercise but a performance- enhancing one.

You were recently quoted as saying the company is looking at renegotiating its $230 million loan terms with Diageo. What is the focus area?

As you are aware, we used the loan to buy back Tanzania Breweries’ 20 per cent stake in Kenya Breweries in 2011.

We were not able to get that money from the external market so we turned to Diaego. For tax reasons, Diaego needed to offer that loan at commercial rates. Our conversation with Diaego is centred on ensuring the rate is appropriate because they cannot be seen to be loaning a related party either favourably or unfairly.

Interest on the loan from Diageo is set at 1.5 per cent above the 364-day Treasury bill rate, and was partly to blame for the dip in profits this year. What other refinancing options is EABL considering?

We have the same range of financing options as any other public company of our size. The reason we turned to Diaego was because there were no viable external options available to us at the time.

The market in Nairobi has developed since we made that transaction, and that creates more external options. I have seen a lot of activity at the capital markets in recent months, and big businesses like ours have gone out in search of financing options.

These options are available to us as well.

The operating environment has been affected by tax hikes. The National Treasury this year reduced remission of tax to 50 per cent from 100 per cent on Senator Keg. What effect will this have on sales to lower end drinkers?

We anticipate a significant rise in the retail price. Consumers of Senator are quite sensitive to price so we expect a major impact on volumes.

However, we are taking action to mitigate the effects of volume fluctuations on our business. We believe the steps we are taking should mitigate the effects of a rise in excise tax across our sales. I will be studying the impact on Senator very closely because it has been a successful product.

What steps will you take to mitigate the expected drop in the sales of Senator?

We have lined up a number of innovations including new brands of beer targeted at the lower end of the market. Some of these products will be launched in the next few weeks. There are also other things we can do in terms of our cost structure and pricing to mitigate this.

Kenya has implemented a new VAT law that is expected to cut general consumption since consumers will be forced to spend more on essentials. How do you see this affecting your sales?

As a significant consumer goods company in Kenya, we are concerned about any action taken by the government that impacts on the economy.

In the short term, the move on VAT will cause consumers to tighten their purse strings. From that perspective, we see slower growth in the alcoholic beverages sector than what we have experienced in the past.

How would you describe the changing spending patterns in the EAC consumer market, and how is this shaping your strategic decisions and product positioning?

Robust economic growth is producing middle class consumers in most of the EAC. This is creating a lot of vibrancy in consumer goods. Prospects for continued economic growth are positive for the region.

On average, the EAC has a relatively young population, with about two million people becoming adults every year.

In Kenya alone, 43 per cent of the population is under 15. Having a relatively young population is good for business as young people tend to spend more, and go out more compared with the older ones. So the demographic trends are good for our business.

Urbanisation is rising in the region, and this is also good for business. Urban dwellers spend more on consumer goods compared with those from rural settings. There is also formalisation of the economy, edging out informal businesses, a trend that increases consumption of branded goods.

ALSO READ: EABL to launch new beers for low-end market to fight off rivals

EABL recently opened a depot in South Sudan. Do you plan to open a production plant in that country?

It’s a possibility. South Sudan is quite a volatile market. We do not see it as a market where we would want to invest lots of money as of now. But our brands have got good positioning there.

Opening the depot is a bit of a dip of our toes in the water, and we shall take stock of the market in six months to a year before making any further investments.

In the long term, I can see us building a plant there but there is likely to be no decision taken in the next three years. So we are probably five to 10 years from having a production facility there.

Analysts have suggested that you are likely to convert your Thika plant to specifically produce Alvaro and Malta Guinness?

We have no plans of starting production anywhere in Kenya outside the Tusker manufacturing plant. Our plans centre on optimising the use of this facility.

However, we are aware that there will come a time when we shall outgrow this site, and there are people working on the medium and long term plans to prepare for that transition. There are currently no specific details on what will be done with the Thika plant or other plants in East Africa.

But we are keenly guarding our assets in order to realise appropriate value for our shareholders.

How would you rate the market in eastern DRC and what plans do you have for it?

Eastern DRC presents us with an opportunity to upscale our regional market. But there are issues we have to be cautious about our investment decisions.

For example, like South Sudan, eastern DRC is a volatile market. Also, there are currency risks in both markets — in terms of volatility and scarcity. These are markets where rules can change on a day to day basis. But all in all, eastern DRC appears to have long-term potential.

What affected your market in Uganda, where sales remained static in the past one year?

Uganda last year had a tough time economically following a decision by donors to withdraw budgetary funding. The government had challenges in paying some of its workers, and consumer confidence dipped.

A combination of these factors affected our business. Towards the end of last year, we installed new machinery that disrupted supply in some markets including Uganda.

Any mergers and acquisitions in your regional expansion strategy?

We are on the lookout for value- creating mergers and acquisitions. But we do not expect any significant acquisitions in the next six months to one year.

How is the partnership with farmers supplying sorghum for Senator brand shaping up?

We have 26,000 farmers. Four years ago, we bought 4,000 tonnes of sorghum. Last year, we bought 10,000 tonnes. Our plan is to buy more sorghum. It helps us avoid transport costs linked to sourcing from say Europe, and helps us to keep money in the region to stimulate regional economies.

We are shifting as much as possible to local sourcing of raw materials. We are open to increasing the number of brands using sorghum, but it is up to consumer preferences.