(Bloomberg) -- East African Breweries Plc’s annual profit dropped for a second straight year as financing charges ballooned by nearly 50% and foreign-exchange losses jumped 84%.
The Kenya-based unit of Diageo Plc reported profit for the year through June 30 of 10.87 billion shillings ($83 million), a fall of 12%, even as net revenue climbed by 13%. Group volumes increased by only 1% from a year earlier.
Floods and social unrest in its biggest market Kenya disrupted the brewer’s operations in the financial year, and constrained consumer finances curbed demand or forced customers to buy lower-priced drinks, the company said in a filing on Tuesday. The macro environment was further complicated by rising interest rates and currency devaluation and these economic conditions led consumers to the illicit alcohol market, EABL said.
“We are finding the top growing fast, the middle not so fast but the bottom also growing very fast,” Group Managing Director Jane Karuku said of the company’s alcohol brands. “Every consumer now is looking for good value for their money.”
Should the strengthening of the Kenyan shilling against the dollar hold, it will help boost earnings, she said. The currency has turned its fortunes around to be Africa’s best performing unit so far this year, after weakening 21% in 2023.
“Currency is where we have had a big challenge, particularly in Kenya,” Karuku said.
The surge in EABL’s finance costs is reflective of market conditions of rising interest rates, said Ronny Chokaa, a senior research analyst at Nairobi-based AIB-AXYS Africa.
“Financing the net working capital requirements has come at a huge cost for the group,” Chokaa said. “If revenues don’t grow as fast to make up for the surge in finance costs, it appears like this is the new normal going forward.”
AIB-AXYS set a one-year EABL price target of 165 shillings earlier this month. The stock has surged 38% since the beginning of this year to 157 shillings by 2.04 p.m. in Nairobi. Its share price has outperformed the Nairobi Securities Exchange all-share index, which has jumped 13% during the period.
(Adds FX loss in first paragraph, MD’s comments from fourth.)
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