EABL says net profit may drop by 25pc

Workers at the EABL plant line in Ruaraka, Nairobi . The company has issued a profit warning citing high financing cost and low income.  

By NATION CORRESPONDENT

 

In Summary

• Mr Eric Musau, a market analyst with Standard Investment Bank said the profit decline could be higher than 30 per cent due to high finance costs.

East African Breweries has issued a profit warning citing high financing cost and low income.

In a statement sent to media houses and to investors, the brewer says it expects net profits for the 12 months through to June 30 to drop by more than 25 per cent compared to last financial year.

The high finance costs were incurred in servicing the Sh19.5 billion it borrowed from its parent company, Diageo in November 2011 to acquire SAB Miller’s 20 per cent stake in Kenya Breweries.

“The interest charges for the year ended 30th June 2013 cover a full year (twelve) months of trading compared to the borrowing for the year ended 30th June 2012, which only reflects seven months,” management said of the anticipated drop in earnings.

Sale of stake

Last year, the brewer earned Sh3.6 billion in a one-off transaction from the sale of a 20 per cent stake in Tanzania to Tanzania Breweries Ltd.

The warning was issued in line with market regulations which require a listed company to inform the market when net income falls below 25 per cent.

The effect of the announcement will be known today, as investors reacts to the news. Tuesday, the counter recovered after trading on a four-year low on Monday in what analyst termed as due to “active foreign investor participation on the counter.”

Mr Eric Musau, a market analyst with Standard Investment Bank said the profit decline could be higher than 30 per cent due to high finance costs.

He said the decline could be slightly due to weaker volumes and largely because of the high finance costs.