EABL profit flat at Sh8.7bn as costs riseThursday January 26 2023
East African Breweries Plc (EABL) reported flat growth in net income in the half year ended December as higher costs and increased taxation offset sales growth.
The company posted a net profit of Sh8.7 billion in the review period, a marginal decline from Sh8.73 billion the year before.
The company kept its interim dividend unchanged, declaring a payout of Sh3.75 per share. The dividend will be paid on or about April 28 to shareholders on record as of February 16.
EABL’s parent firm Diageo now says it will start buying a total of up to 118.3 million additional shares in the Nairobi Securities Exchange-listed firm starting February 6.
The multinational will buy the shares in two phases at a premium price of Sh192 each through a tender offer that will be open to shareholders who were on record as of January 16.
The first will close on February 24 while the second phase will close on March 17. The dates changed from an earlier announcement.
Read: Diageo deal signals EABL undervalued
EABL’s share price on Thursday gained marginally to close at Sh168.75, a level that is 3.5 percent below the 52-week high of Sh175 recorded on January 6.
The brewer’s net sales in the half-year period grew 4.3 percent to Sh57.2 billion while the cost of sales rose at a faster pace of eight percent to Sh30.7 billion.
“Net revenue grew … primarily driven by improved brand mix and pricing to counter the impact of excise [taxes] and inflation, partly offset by volume declines,” EABL said in a statement.
The company added that the profit decline reflected the impact of increased costs of raw materials and other operating items which together offset the growth in net sales.
EABL said increased taxation of its products also impacted on the consolidated financial performance in the review period.
The company’s gross sales increased eight percent, with more of the revenue gobbled up in taxes.
Indirect taxes amounted to 45.2 percent of the gross revenue in the review period, rising from 43.2 percent a year earlier.
“We have witnessed a slowdown in economic growth across the region, with steep excise tax increases in Kenya adding to the heightened inflationary pressure,” EABL said.
“As a result, consumer spending power is depressed and operating costs have increased significantly.”
Annual inflationary adjustments of the excise tax on beer and spirits came at 6.3 percent in October last year, adding to a series of earlier tax hikes.
Kenya, for instance, implemented a 10 percent and 20 percent excise tax on beer and spirits respectively in July 2022.
“These increases came on the back of an annual upward excise adjustment in 2021, leading to a compounded annual excise tax increase of 23 percent for beer and 34 percent for spirits,” EABL said.
“Consequently, beer volumes were down 13 percent in Kenya, with performance further undermined by a re-emergence of illicit alcohol during the period under review.”
Read: Why Diageo is raising its EABL stake
The brewer spent Sh5.5 billion to expand its production capacity in the half-year period to position the business for future growth.