East African Breweries – Analysis of It’s Business & Financial Performance

Brief familiarity overview Established in 1922 and with its headquarters in Nairobi- Kenya, East African Breweries Ltd. (EABL) is aleading branded alcohol manufacturing company in the East African region engaged in the marketing,brewing and selling of alcoholic and non- alcoholic drinks as well as the manufacturing of glass containers. Majority owned by Diageo, it consists of a number of subsidiaries. 1 1. 2. Research rationale.Compared to their counterparts in the developed world, little research has been carried out on organizationsthat operate in African countries as these are seen as lacking the management capacity or financial resourceseither to compete with larger organizations in the developed world or to interest external investors. However the events of the last two years, which have seen investors lose millions of dollars in theirinvestments due to the collapse of the international financial markets, have increased the need forinternational investors to diversify their po rtfolios into regions up to now considered unimportant.By carryingout a critical credit line and financial evaluation of the performance of a typical large African organization, thisreport attempts to highlight the missed opportunities that may remain untapped in emerging markets. With annual revenues of KES 21 billion (US$ 285 million), KES 26 billion (US$ 367 million) and KES 32 1The subsidiaries include Kenya Breweries Ltd. , Uganda Breweries Ltd. , Kenya Maltings, UDV Kenya and CentralGlass Industries. The company also holds a 20% stake in Tanzania Breweries Ltd. (EABL, 2008a p. 5) 2 2009 PK Mwangi Global Consultingbillion (US$ 479 million)2in FY06, FY07 and FY08 respectively and an adherence to internationalaccounting and audit standards i. e. IFRSs and ISAs respectively, thiscompany3may represent a well managed company with growing profitability and investment potential. Thisreport attempts to establish this by analyzing its business and financial performance over a three year period. To assist in the analysis of EABLs performance the average exchange rate everyday in the three years understudy are as follows Table 1 Foreign exchange rates.Average annual exchange rate Calendar YearUS Dollars (USD) Kenya Shillings (KES)2006 1 73. 738702007 1 70. 8073320081 66. 83044 Source Oanda (2009) 1. 3. Research objective and question. This research delves into both the business and financial performance of EABL with an aim to identify themajor business elements that are key to its performance. It goes however to look at how these business factorshave impacted on the financial performance of the company. It is difficult to separate the financial performance of a company from its wider business purlieu andhence the business and financial performance of a company are closely interlinked.Decisions made at thecorporate and/ or business level impact directly on companys financial performance. Where corporatestrategy aims to grow the company through acquisition of competitor firms, this will have a direct impact onprofitability and profitability indicators. change magnitude sales in new markets will lead to bigger profits andmargins where costs are well managed. 1. 4. Research approach. Drawing primarily on second-string sources of information (accounting books, annual reports, academicjournals, newspaper articles, etc) this research sought to analyze both quantitative data and qualitative