BUSINESS
Cut-throat competition, high taxes now take toll on Bralirwa's profits

Workers load Bralirwa's products into a truck at Kafoca depot in
Nyamirambo. Photo/Cyril Ndegeya
By Berna Namata The EastAfrican
Posted Saturday, May 3 2014 at 14:38
IN SUMMARY
Industry analysts say growing competition in the sector has started
eating into the company's profits.
Profits were also affected by low sales volumes, limited prices
increases and increased costs of imported raw materials, coupled with
depreciation of the Rwandan franc.
Bralirwa offers investors bonus shares, dividend
Investors in Bralirwa, Rwanda's biggest soft drinks and beer maker,
will earn lower dividends after profits fell 14 per cent last year on
the back of higher taxes in the Democratic Republic of Congo, a key
export market.
The brewery will cut its dividend payout for the full year by 25 per
cent to Rwf15 ($0.02) from Rwf20 ($0.032) in 2012.
Bralirwa Ltd, which is 25 per cent owned by independent investors on
the Rwanda Stock Exchange (RSE), announced this week that its pretax
profit fell 14.2 per cent last year to Rwf21.3 billion ($31.2
million), from Rwf24.8 billion ($36.97 million) recorded in 2012, a
signal the firm is beginning to feel the pinch of growing competition
in the sector as new entrants join the market.
The brewer's share price fell to an average of Rwf861 ($1.26) this
week from the previous week's Rwf867 ($1.27) — a 0.7 per cent drop.
Bralirwa was the first local company to list on the Rwandan bourse
after it offered a quarter of the firm's shares to the public through
a regional initial public offering priced at Rwf136 ($0.22) a share.
The firm is considering issuing bonus shares — one new share for every
one share held as at May 23, 2014.
Industry analysts say growing competition in the sector has started
eating into the company's profits.
Bralirwa's management says its performance last year was affected by
the slowdown of the Rwandan economy following donor aid suspension in
2012.
Rwanda's growth rate fell to 4.6 per cent in 2013, the lowest recorded
in recent times, after sustaining an 8 per cent growth on average over
the past decade.
"GDP is a measure that the government and companies watch very
carefully to gauge the health of the economy. It's also a measure for
us of disposable cash in people's pockets," said Jonathan Hall,
Bralirwa Ltd managing director, pointing out that this weakened demand
for the company's products.
Profits were also affected by low sales volumes, limited prices
increases and increased costs of imported raw materials, coupled with
depreciation of the Rwandan franc.
This is in addition to a recent decision by the government of the
Democratic Republic of Congo, its main export market, to increase
taxes on imported beer.
As a result, its export volumes declined by 29 per cent.
READ: Congo slaps tax on Rwandan beer
"Exports to DRC will continue to face challenges due to duties charged
at the border. New exports markets in EAC will be explored," Mr Hall
said.
Apart from DRC, the company exports its beer to Burundi and Uganda
though the volumes are still low.
Bralirwa's management maintains that despite increasing competition,
the company's recent capital investment supported by a rebound in the
economy will allow it to maintain its market lead.
"The first quarter of the year has seen an encouraging start. The
slowdown seems to have stopped and there seems to be more activity in
the economy," Mr Hall said.
Players in the brewery sector have embarked on aggressive expansion
plans in a bid to increase their market share.
Bralirwa Ltd, a subsidiary of a Dutch brewing conglomerate — Heineken
Group, which owns a 75 per cent stake in the brewer — now faces
cut-throat competition from Unibra, a Belgium-based brewery, which
recently took over full ownership of Brassieres des Mille Collines,
the manufacturer of Skol beer.
This is in addition to the recent decision by the giant East African
Breweries Ltd not to renew Bralirwa's contract to produce and
distribute the Guinness beer brand. The three companies are now
battling to control Rwanda's beer market, where demand is estimated at
1.2 million hectolitres.
Unibra has pledged to invest over $15 million (Rwf10.3 billion) in the
brewery, including acquiring equipment and packaging for capacity
expansion. This could see the brewer grow its output in the coming
years from its current capacity of 100,000 hectolitres per year.
"They have to admit that competition is reducing their profit margins.
They will still make profit but not as much as when they were a
monopoly," said an analyst who requested not to be named.
"They have to invest more money if they are to survive competition,"
he added, pointing out that the company's recent $41 million
additional investment to upgrade and expand capacity was insufficient
in the face of growing competition.
http://www.google.ca/gwt/x?gl=CA&hl=en-CA&u=http://www.theeastafrican.co.ke/business/competition--high-taxes-now-take-toll-on-Bralirwa-s-profits--/-/2560/2302376/-/ts2165/-/index.html&source=s&q=Cut-throat+competition,+high+taxes+now+take+toll+on+Bralirwa+profits&sa=X&ei=ETplU8ydN4uZyAT72IG4AQ&ved=0CBkQFjAA
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