East African Breweries Limited (EABL) is set to cut shareholders a total interim dividend cheque of Sh1.5 billion despite reporting a 27.7 per cent drop in net profit for the half year ended December.
The Sh2 per share payout, same as last year, will be made on or about April 21.
The beer maker’s net profit stood at Sh5.5 billion in the review period compared to Sh7.7 billion the year before when earnings from normal operations were boosted by a Sh2.2 billion gain from sale of Central Glass Industries.
Besides the absence of the one-off gain, its profit in the review period was also weighed down by a 6.2 per cent drop in sales to Sh35.1 billion.
The EABL said increased taxation of its products including beer has dampened demand through successive price increments.
“There has been four major excise duty increases affecting bottled beer volumes in the last five years, with the most aggressive one taking effect in December 2015 — a 43 per cent rise in duty,” EABL chief executive Andrew Cowan said in a statement.
Excise tax on beer, for instance, increased to Sh100 per litre in December 2015 from the previous Sh70 per litre. Mr Cowan said this was the highest excise duty increase in Africa.
The EABL says its sales in Kenya — which account for 74 per cent of total turnover — were flat in the review period as a consequence of the higher taxes. The company’s key brands in Kenya are Tusker, Guinness and Senator.
Higher taxes raised additional revenue for the government but the brewer says the taxman would have collected more if beer prices were affordable.
Total indirect taxes rose 10 per cent in the review period to Sh28.8 billion.
“Growth in government revenue (were) behind expectations due to affordability issues,” EABL said in a statement.
Mr Cowan said liquor manufacturers would lobby the government to devise a predictable tax environment that would help drive future investment in the sector.
“Because Kenya contributes over 70 per cent of EABL’s profits, the prevailing tax regime in the region’s biggest economy has significantly affected the group’s earnings,” he said.
The company invested Sh1.8 billion in the review period to improve factory efficiencies, introduce new products such as Tusker Cider and launch new packaging features to fend off counterfeits.
Mr Cowan said EABL would spend another Sh3.2 billion in this half to increase production of its brands, including Senator which is popular with low-income earners.
Flat sales in Kenya combined with significant declines in Tanzania and South Sudan to weighed down the overall turnover, wiping out a seven per cent growth in Uganda.
Turnover in Tanzania and South Sudan, declined seven and 97 per cent respectively largely due to depreciation of the currencies in those markets.
“On a like-for-like basis net sales were flat but adverse foreign exchange movements and impact of excise tax increase resulted in a six per cent decline in reported sales,” EABL said in a statement.
The company’s share price has dropped 17 per cent since the start of the year to trade at Sh220.