Diageo’s 14.97% stake increase in EABL approved amid flat growth in half-year earnings by the subsidiary

KENYA – Diageo, the multinational alcoholic beverage company headquartered in the UK, through its wholly owned subsidiary Diageo Kenya Limited, has received regulatory approval to increase its stake in East African Breweries Plc (EABL) by 14.97%.

According to the beverage maker, which served notice on EABL of its intention to increase its equity stake in the company by means of a partial tender offer made to other shareholders of EABL worth Ksh 22.73 billion at a rate of Ksh 192 per share, will now push its stake by a third to 65%.

In an official communique in October last year, the London Stock Exchange and the New York Stock Exchange listed entity revealed that its current indirect shareholding in EABL of 50.03% is lower than the average shareholding of approximately 66.9% held by multinational parent companies in listed subsidiaries in Kenya.

“It is also lower than the average shareholding for other listed subsidiaries of Diageo in Africa such as in Guinness Nigeria and Guinness Ghana Breweries Limited, where Diageo indirectly holds 58.02% and 80.4% stake, respectively,” Diageo noted in a statement.

For the half year that ended December 31, 2022, EABL has recorded a flat growth in earnings as high inflation and a steep taxation regime affected sales growth.

The brewery posted an Sh8.7 billion (US$70m) net profit in the period under review, a 0.39 percent marginal decline from the Sh8.73 billion posted in the same period in 2021.

The company also had a volume drop of 4 percent per year-on-year, as price increases impacted consumer purchasing patterns, mainly in mainstream and value segments.

Its net sales grew at a slow 4 percent to Sh57.3 billion (US$460m) from Sh54.8 billion in HY 2021, however, the net sales growth regressed by 1 percent in Kenya, its largest market, while Uganda and Tanzania grew by 19 percent and 11 percent, respectively.

This was the aftermath of an increase of 10 percent and 20 percent respectively, in Kenya’s excise tax for beer and spirits that came into the effect in July 2022 following the 2022/23 Budget.

In October 2022, beer and spirits consumers were hit hard again by a further 6.3 percent excise tax increase in the form of an annual inflationary adjustment.

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 Group Chief Executive Jane Karuku said inflation and higher taxes afflicted the brewer have exacerbated consumer prices and impacted price-sensitive consumers in mainstream and value segments.

Kenya’s inflation rate has remained stubbornly high just as throughout last year as food prices soared, remaining above the Central Bank of Kenya’s target range of between 2.5 and 7.5 percent.

This has forced many households, especially in the low-income segment, to cut back spending on non-essential items such as beer, ultimately hurting firms such as EABL.

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