Diageo’s Kenyan Unit Posts 38% Drop in Full-Year Profit on Costs

Diageo Plc (DGE)’s Kenyan unit, East African Breweries Ltd., posted a 38 percent drop in full-year profit that was worse than analysts expected as costs increased and after a one-time gain last year wasn’t repeated.

Net income fell to 6.94 billion shillings ($79 million) in the 12 months through June from 11.2 billion shillings a year earlier, the company said in a statement e-mailed by the Nairobi Securities Exchange today. That missed the 8.19 billion shilling median forecast of four analysts surveyed by Bloomberg. Cost of sales grew 10 percent to 31.6 billion shillings, exceeding a 6.5 percent rise in revenue to 59.1 billion shillings, it said.

The higher cost of sales was a result of higher energy prices, increased warehousing and distribution expenses and a “significant increase in import charges going into Tanzania,” Finance Director Tracey Barnes told reporters today in Nairobi.

EABL, Kenya’s second-biggest company by market value, warned last month that profit would drop because of higher financing charges. The brewer took a loan in November 2011 to buy a 20 percent stake in Kenya Breweries Ltd. from SABMiller Plc (SAB) and sold a similar shareholding it held in Tanzania Breweries Ltd. to SABMiller. Interest on the loan covered a full year of trading, compared with seven months in the prior fiscal year, it said.

EABL was rated lighten, the equivalent to sell, in coverage initiated by Old Mutual Securities Ltd. (OML) last month. The company’s shares have advanced 15 percent this year, under-performing the FTSE-NSE 25 Share Index, which has gained 29 percent in the same period.

East African Breweries controls 95 percent of Kenya’s beer industry. The company has operations in neighboring Uganda and Tanzania, where it owns 51 percent of Serengeti Breweries Ltd., that country’s second-largest beer maker. EABL exports its products to South Sudan and has registered a unit there while it decides whether to enter a joint venture or operate on its own in the world’s newest country.

Diageo, the world’s biggest liquor maker, owns 50 percent of EABL.

To contact the reporter on this story: Eric Ombok in Nairobi at eombok@bloomberg.net

To contact the editor responsible for this story: Shaji Mathew at shajimathew@bloomberg.net

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