Extended poll period, higher costs cause 11pc dip in net earnings

Workers outside the brewer's plant in Ruaraka, Nairobi. FILE PHOTO | NMG 

By MUGAMBI MUTEGI

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Summary

• Extended electioneering period, higher sales and advertising costs further ate into its top-line.
• The brewer cost of sales increased by Sh2.23 billion to Sh20.8 billion while other costs also went 1.4 per cent.
• Mainstream beers have in recent years come under pressure from excise tax increases, with the resultant higher retail prices pulling sales.

East African Breweries Limited (EABL) after-tax profit for the six months to December dipped 11.3 per cent to Sh4.95 billion following a weak performance by the Kenyan market and higher costs.

The regional brewer’s revenues improved 4.7 per cent to close the half-year at Sh36.8 billion, driven by its bottled beer business in Kenya and Tanzania and the spirits segment.

EABL’s beer business were however pulled back by a depressed performance in Kenya (extended electioneering) and Uganda (higher excise tax) while higher sales and advertising costs further ate into its top-line.

“It is encouraging that bottled beer is in recovery and mainstream spirits continues to grow strongly,” Andrew Cowan, EABL’s managing director, said in a statement.

“Our increased investment behind our brands in sales and advertising underlines our bold strategy to pursue existing and emerging growth in all segments of our business.”

The brewer cost of sales increased by Sh2.23 billion to Sh20.8 billion while other costs also went 1.4 per cent to Sh8.7 billion as the brewer rolled out more campaigns to spur consumption.

Keg

EABL’s parent firm Diageo Thursday further disclosed that Tusker sales increased one per cent while Guinness improved three per cent, bucking recent trends, while Senator Keg sales dipped.

READ: Political uncertainty hit EABL's half year sales, Diageo says

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Mainstream beers have in recent years come under pressure from excise tax increases, with the resultant higher retail prices pulling sales.

The brewer has in response revved up its innovation unit (occasioning the launch of brands like Kenya Cane Coconut, Uganda Waragi Coconut and Chrome Vodka) and Tusker Cider) and increased its investment in spirits.

These new brands added Sh7.6 billion to the total revenue in the period under review, EABL said.

“We have refreshed our focus around our marketing strategy, expanding our route to consumer to broaden the reach of our products across markets whilst innovating at scale,” Mr Cowan said.

Senator Keg has also been a point of focus by the brewer with a plans to build a Sh15 billion factory in Kisumu to boost production.

In the period under review, the brewer spent Sh5 billion in capital expenditure to boost the manufacturing capacity of spirits and value beer.

Despite the drop in profitability, the brewer’s board retained the proposed interim dividend at Sh2 per share.