East Africa: EABL accounts for 1.9 % of Diageo's half year profits

East African Breweries Ltd, (EABL) a subsidiary of Diageo PLC, made a significant contribution to the parent company's profits in the six months to December 31, 2005, an analysis of the results released by the two companies show, AllAfrica Global Media posted on March 14.

In that period, Diageo, which is the world's largest producer and distributor of alcoholic drinks, reported a 21 per cent increase in net profit - to $2.03 billion. EABL, on the other hand, reported a net profit of Ksh2.7 billion ($37.7 million) for the period. EABL's net profit works out at 1.9 per cent of Diageo's profit.

According to available equity figures, Diageo holds 50.03 per cent of shares in EABL, which loosely means that the company directly owns half of EABL. The rest of the shareholding - 49.97 per cent of shares - is owned by 23,000 institutions and individual investors across East Africa.

EABL's equity distribution means that at the very least, half of its profit, that is $18.9 million, was reflected in Diageo's six-month report. This works to nearly one per cent of the global giant's profits in the six months leading to December 31, making EABL one of Diageo's most lucrative investments in the developing world.

Other than the Nairobi Stock Exchange, EABL is cross-listed at the Dar es Salaam and Kampala stock exchanges.

At the NSE, ownership of the company's shares is heavily tilted towards major investors, including Diageo, with the top 47 shareholders owning 83 per cent of the company. The bulk of individual shareholders, who in all own less than 5,000 shares, together own just 3 per cent of the company.

Investment analysts say that given the significance of EABL's contribution to the Diageo's profitability, the global conglomerate would probably lend massive pro-active support to EABL in the event of a competitor entering the East African market.

The last time this happened, with Castle Breweries of South Africa, EABL waged an unprecedented multimillion shilling marketing blitz that saw the former pull out of the lucrative Kenyan market barely three years after putting up a multimillion dollar plant at Thika, 40 kilometres north of Nairobi.

A local Kenyan company is reportedly toying with the idea of entering the beer market, and is currently putting up a brewery in Nairobi's Industrial Area. Several other firms have entered the lucrative alcohol market through the production of spirits, which even EABL says reported massive growth in the period leading to December 31.

According to the company, while sales of beer were up by 7 per cent, those of spirit rose by a massive 84 per cent.

"Our increased marketing investment and innovations saw us drive beer ahead of gross domestic product growth across the region despite duty increases and high tax regimes," EABL said in its semi-annual report. "The business was aided by the continuing growth across the region."

According to the EABL report, Uganda recorded impressive growth rates in the period under review, with beer volumes increasing by 15 per cent and spirits by 112 per cent. In Tanzania, EABL's business also delivered good growth at 5 per cent on volume and 8 per cent on associate income.

On its part, Diageo, which operates in more than 180 countries, reported spirit sales were up 7 per cent, ready to drink brands were down 3 per cent, beer was up 4 per cent and wine up 5 per cent.

"Material changes to first-half trends are unlikely in the balance of the year and we are therefore comfortable in reiterating our full year guidance of 7 per cent organic operating profit growth" the company's chief executive, Paul Walsh said.

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