Diageo’s Kenyan Unit Profit Drops 18% on High Finance Costs

Diageo Plc’s Kenyan unit, East Africa’s biggest brewer, said first-half profit dropped 18 percent as financing costs more than tripled.

Net income fell to 3.76 billion shillings ($43 million) in the six months through December from 4.88 billion shillings a year earlier, East African Breweries Ltd. Group Finance Director Tracey Barnes told reporters today in the capital, Nairobi. Financing costs jumped to 2.06 billion shillings from 642 million shillings, she said.

“I was expecting the fall in profit because we were concerned by the level of finance costs,” Eric Musau, a research analyst at Nairobi-based Standard Investment Bank Ltd., said in an interview. The brokerage has a sell recommendation on the stock, he said.

The company, Kenya’s biggest by market value, took a loan last year to buy a 20 percent stake in Kenya Breweries Ltd. from SABMiller Plc. EABL, as the company is known, now controls 100 percent of its Kenyan unit.

Interest rates in Kenya, East Africa’s biggest economy, surged to a record in 2011 as the central bank sought to bolster a collapsing currency and curb price pressures after the worst drought in decades. The Monetary Policy Committee cut the benchmark rate three times to 11 percent during the second half of the year.

EABL shares have risen 13 percent this year, compared with a 14 percent jump in the Nairobi Securities Exchange All-Share Index. The company proposed paying an interim dividend of 1.50 shillings per share.

Diageo, the world’s largest distiller, owns 42.8 percent of East African Breweries.

(Updates with loan details starting in fourth paragraph.)
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