East African Breweries Limited has announced an 18 per cent drop in profits after tax for the six months to December 2012 as financing and operation costs more than tripled.
The beer manufacturer’s after tax profit fell to Sh3.9 billion from Sh4.8 billion reported in a similar period in 2011.
EABL’s financing costs increased by 221 per cent to Sh2.06 billion in the first half of 2012 from Sh642 million in the period June to December 2011.
In 2011, EABL — majority-owned by London-based multinational Diageo — borrowed Sh19.5 billion from its parent company to buy back a 20 per cent minority stake in Kenya Breweries Limited from SABMiller.
“The drop in profits was attributed to increased finance costs related to the acquisition of Serengeti Breweries in Tanzania, increase in operating costs and a shrinking consumer economy in Uganda,” said EABL managing director Devlin Hainsworth during an investor briefing in Nairobi on Friday.
Operating expenses increased more than threefold to Sh436 million from Sh134 million in the period under review.
EABL, the largest beer manufacturer in East Africa, has also indicated that its Tanzania and Uganda subsidiaries are facing a tough operating environment, which has negatively impacted on the overall performance of the business.
However, the brewer’s revenues rose by 10.28 per cent to Sh30.633 billion from Sh27.777 billion on increased sales of beer and spirits.
“Net revenue in Kenya, our largest market, grew by 12 per cent due to strong performance across our beer portfolio and premium spirits,” said EABL in a statement.
Kenya, Uganda and Tanzania contributed 12 per cent, 3 per cent and 16 per cent respectively to the total net sales of the group.
“The costs of sales were partially due to an increase in input costs, specifically some elements of our raw material purchases and distribution costs. It was an inevitable expense,” said group finance director Tracey Barnes.
EABL plans to focus more on managing its administration costs which went down by 3 per cent from Sh3.6 billion to Sh3.5 billion. It will also be expanding into South Sudan and the Great Lakes region to include Rwanda, Burundi and the Democratic Republic of Congo and at the same time inject Sh4 billion into its business in Kenya to improve capacity in all beer and spirit brands.
The spirits segment continued to grow significantly, with spirits contributing 55 per cent of the total revenues of the brewer while beers contributed 45 per cent.