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Eveready closes Uganda warehouse, losses hit Sh206m

Eveready East Africa has closed its Ugandan warehouse and opted to supply the market through a distributor — even as the firm announced that its net loss for the year to September has increased 2.5 per cent to Sh206.5 million.

The troubled battery firm saw its revenues halve to Sh553.3 million in what is attributed to stock outs following the termination of a long-term distribution agreement with US-based Energizer Holdings.

READ: Eveready terminates Energizer products distribution contract

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Eveready managing director Jackson Mutua said the company will now supply the Ugandan market through a local distributor after “cultural and structural hardships” impeded its operations in the neighbouring country.

The NSE-listed firm, which is still 10.5 per cent owned by Energizer, took a Sh34.7 million hit from closing this regional business.

“Sometime in early 2012, the company made a decision to supply Uganda through Kenya or direct shipments for efficiency purposes,” Mr Mutua said in an interview.

“However, it has not been easy trading in Uganda. For instance, some retailers lack identity cards posing a significant challenge when trying to manage them. It is for such reasons that the board decided to close the warehouse.”

Eveready is now looking for a Uganda-based distributor, whom Mr Mutua says will be better placed to anticipate and handle the dynamics of the market.

The battery firm in December announced that it had terminated its near half-century distribution agreement with Energizer, arguing that the contract was tilted in favour of the American multinational.

Restricted pricing

Eveready said the pact with Energizer restricted it from pricing products, picking those that best fit the Kenyan market or even from independently diversifying its portfolio.

It also accused its shareholder and partner of, without notice, changing the company’s purchase terms last year from an open to a cash-based account— affecting its ability to supply the local and export market.

“The drop in our revenues was mainly due to a challenging stock out situation we experienced due to lack of supplies from our global battery supplier at the time,” said Mr Mutua.

READ: Cheap imports, high costs: Why many businesses are closing shop

“This lack of inventory meant that fixed costs such as employee salaries and other expenses had an adverse effect on the company’s full-year profitability.”

This stock out saw some variable expenses — such as vehicle running costs and sales incentives — decrease significantly, leading to a 26.7 per cent drop in overhead expenses to Sh296.8 million.

The unexpected change in procurement terms to a cash-based account forced the battery firm to take up more debt, increasing its finance costs by Sh22.1 million to Sh72.4 million.

In the financial year to September 2015, Eveready booked Sh75.9 million as “other income” from the sale of an unoccupied maisonette in Milimani estate, Nakuru.

READ: Eveready gets nod to sell off Nakuru land

Dividend drought

The absence of such a significant one-off revenue in the year under review worsened the company’s bottom-line position.

Eveready’s board of directors did not recommend a dividend payout to shareholders, extending a drought that started in the financial year to September 2008.

The firm has signed partnership deals with global manufactures working out of Asia to produce its own products, including batteries and flashlights, retailing under the brand name Turbo.

The loss-making company is also distributing other products like Clorox bleach and recently launched a detergent, Everclean, with plans to expand this brand to include dishwashing and soap.

pmutegi@ke.nationmedia.com

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