Diageo’s Kenya Unit Posts 38% Drop in Annual Profit on CostsEric Ombok
Diageo Plc’s Kenyan unit, East African Breweries Ltd., posted a 38 percent drop in full-year profit that missed estimates 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 11.19 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 31.56 billion shillings, exceeding a 6.4 percent rise in revenue to 59.06 billion shillings, it said.
“Profit came lower than estimates because the cost of sales was much higher and the one-off gain of 3.6 billion shillings realized in 2012,” Eric Musau, an analyst at Nairobi-based Standard Investment Ltd., said in an interview.
The higher cost of sales was a result of rising 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 the capital, 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 of 19.5 billion shillings in November 2011 to buy a 20 percent stake in Kenya Breweries Ltd. from SABMiller Plc and sold a similar shareholding it held in Tanzania Breweries Ltd. to the same company. 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. last month. The company’s shares advanced 1 percent to 308 shillings in Nairobi, increasing the year’s gains to 16 percent, 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, which generates 67 percent of its sales. 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 the Democratic Republic of Congo and 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.
Sales in export markets grew 20 percent. Kenya and Tanzania each recorded a 10 percent increase while in Uganda it was little changed, Chief Executive Officer Charles Ireland told reporters in Nairobi today.
The company’s capital expenditure amounted to 6 billion shillings in the 12 months through June and that level will be retained for the next two financial years, Ireland said.
The company declared a dividend of 5.50 shillings, compared with 8.75 shillings a year earlier, he said. In coming years EABL will have a dividend policy of paying 60 percent to 70 percent of its profit after tax, Ireland said.
Diageo, the world’s biggest distiller, owns 50 percent of EABL.