EABL records slower growth in key brands

East African Breweries Limited’s (EABL) key brands have recorded slower growth in the half to December in disclosures made on Thursday by its parent company Diageo.

Diageo, which owns 50.03 per cent of EABL, Thursday announced results for the six months to December showing that net sales from beer grew 11 per cent while premium spirits like Johnnie Walker and Smirnoff grew 38 per cent and 24 per cent respectively.

But the growth in the products is slower than what the brewer recorded in a similar period the previous year when Johnnie Walker, Smirnoff and Tusker recorded net sales growth of 51 per cent, 57 per cent and 21 per cent.

Tusker’s net sales in the half to December grew by nine per cent.

The double-digit growth in net sales look set to lift the earnings of EABL, which will announce it first half results this month, but it remains to be seen whether it would replicate last year’s performance when it recorded a 38 per cent profit rise to Sh4.3 billion.

The brewer’s lead local spirit christened Kenya Cane has been hit by competition, according to Diageo and its volumes dropped 30 per cent.

“The strong performance in beer offset a decline in local spirits to deliver double-digit net sales growth in East Africa,” said Nick Blazquez, President, Diageo Africa, while announcing the firm’s results to December 2012.

“Net sales of ready-to-drink increased over 50 per cent with excellent growth of Smirnoff Ice, augmented by Snapp, following its launch last year.”

For the financial year 2012, EABL sales stood at Sh55.5 billion, a 24 per cent increase from Sh44.89 billion recorded a year earlier. Net profit increased to Sh10.64 billion from Sh7.63 billion or 45 per cent.

Profitability was, however, boosted by the one-off sale of Tanzania Breweries Limited, but local analysts expect the regional brewer to return double-digit profit growth.

This would be a boon to the brewers’ shareholders who have seen their stocks gain 80 per cent over the past year at the Nairobi Securities Exchange to the current price of Sh301.

(Read: Speculation over results lifts EABL to most traded stock)

Beer accounts for about 80 per cent of EABL sales while spirits take 15 per cent. Mr Blazquez now says that local brands like Safari Cane and Kenya King from London Distillers Kenya and Crescent brand of drinks by Keroche Breweries are among those emerging as a threat to their revenues from this segment.

The international beer maker said that these firms seem to have absorbed the effects of the Alcoholic Drinks Control Act 2010 (popularly known as Mututho law) that outlawed the sale of sprits in sachets or plastic bottles and are now eating into its spirits market which also includes Kane Extra.

This law forced some distillers to invest millions of shillings in new packaging lines in a rush to comply and this benefited EABL since it enjoyed the logistics advantage of its subsidiary, Central Glass Industries.

“Last year Kenya Cane in glass bottles gained significant share when plastic bottles were banned in Kenya, however Diageo now faces more competition from other local spirits in glass bottles and the volume declined over 30 per cent,” added Mr Blazquez.