[2008-06-03]  Eveready upbeat as State acts on cheap imports
Battery maker Eveready East Africa’s share appeared on a free fall two weeks ago to trade at KSh4, way below the December 2006 listing price of KSh9.

Fortunes, however, turned swiftly last week with the share gaining a shilling, pushing it to the top of the gainers table with a 25 percent improvement.

It is now emerging that a year of muted discussions between the battery maker and the Government on cheap imports of dry cells that have flooded the market have resulted in a breakthrough.

The Government has agreed to several measures to level the playing ground of dry cells manufacturing and trading, starting with restrictions on substandard products entering the market.

For a start, the Kenya Revenue Authority (KRA) on Thursday last week revoked a ruling it made last year allowing zero-duty entry of China made raw cells into the country.

The dry cells will now attract a duty of 35 percent, eroding any price advantage they previously enjoyed over Eveready.

Eveready managing director, Mr. Steve Smith, blames the zero-duty access and continued dumping of transit batteries into the local market for the drop in Eveready’s market share to below 50 percent.

Some brands of zero-duty imports of size ‘D’ batteries sell for between KSh10 and KSh12 per battery, which is below Eveready’s manufacturing cost.

Mr. Smith said even with the tax, the imports may still cost less than the Eveready brand but welcomed the action as creating a level playing field.

Eveready said allowing duty-free imports was one of the reasons it was forced to lay off 40 workers at a cost of KSh50 million in May and to shut three out of its four manufacturing lines.

The company subsequently issued a profit warning for the year ending September 30, 2008.

The government has also agreed to introduce a cash bond for EPZ companies which import battery making components. The bond will be paid to the KRA upon the importation of such components and then refunded once the taxman certifies they have been re-exported.

The concept of the minimum product value to ensure duty levied on a product is based on the minimum acceptable value of the product in the country of origin will also be applied.

That is expected to hit imports from China hard where it is said the products did not go through the prescribed manufacturing and quality control standards, ending up costing less in Kenya than in China.

“We are not looking for favours but equal treatment. We want incentives that are offered to EPZ and other investors also to be accorded to us because we are a local company,” said Mr. Smith. Mr. Smith said he expected the latest action by the authorities will yield better sales for Eveready and help it rejuvenate its cash flow.

Eric Kimanthi, a research analyst at Kestrel Capital East Africa, said cash flow problems would have forced the company to shift from manufacturing to trading in imported products.

“It’s early days yet because the challenge of cutting down the cost of production still exists. It is a burden to the consumer,” said Mr. Kimanthi.
He said the government action seems to be within normal practices though concern remains on the additional costs EPZ companies will bear in executing the cash bond.

“The ideal way would be to get a bank guarantee. But will they pass the creditworthiness test? The real cost will be the time it takes to get the bond,” he said.

Nonetheless, analysts are asking Eveready to up the scales by improving on its manufacturing efficiency and expanding product offering to face emerging competition from imports and alternative sources of powering gadgets locally.

More companies are now importing rechargeable torches and rechargeable batteries that are proving popular with consumers who are doing everything possible to cut costs and live within means.

Mr. Smith said the company has stepped up its product diversification strategy by introducing a wider range of portable power and lighting products.

“This strategy along with growing the export market is meant to shift Eveready’s reliance on its flagship product, the D size battery,” he said.

Financial results of the first six months ending March 31, 2008 show that Eveready revenues declined by 18 percent. Profit before tax was also down by 91 percent compared to the same period last year.

Eveready was incorporated in Kenya in 1967 and was listed on the NSE in 2006 with 210 million shares.

For 2007, the company reported a profit before tax of KSh179 million, compared to KSh234 million in 2006.

There have been concerns that the country could be losing billions of shillings to cheap imports and sub-standard goods annually, dealing a fatal blow to local manufacturers.


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