Bar Closures and Booze Curbs Hit Diageo’s East Africa Profit

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Diageo Plc’s Kenyan arm saw annual profit plunge after bar closures and alcohol sale curbs were imposed in two East African nations to slow the spread of the coronavirus.

East African Breweries Ltd.’s profit for the year through June fell 39% to 7.02 billion shillings ($65.2 million) from a year earlier, missing analyst estimates, the company said in a statement on Wednesday. Net sales declined 9%. Three analysts surveyed by Bloomberg had a median estimate for net income of 9.4 billion shillings.

In Kenya, sub-Saharan Africa’s third-biggest economy, authorities have ordered bars to remain shut and banned the sale of alcohol in restaurants in measures directed at curbing the spread of the virus.

“The pandemic impacted EABL’s business performance after three consecutive double-digit halves of growth,” Group Managing Director Andrew Cowan said. “Going forward, our market teams have put in place robust plans to help us emerge stronger from this crisis once the measures are eased across our markets.”

‘Detrimental Policies’

Sales fell by 14% in Kenya and 5% in Uganda, but jumped 14% in Tanzania where the government has not implemented stringent containment measures.

EABL will hold back capital investment and cut some operational costs, Cowan said in an interview on Thursday, without giving details. “We’ve taken a more conservative approach to capex,” he said.

The shares have fallen 22% year-to-date to 155 shillings by 3:13 p.m. in the capital, Nairobi. In comparison, the NSE All-Share Index has declined 19.2%.

“We believe that EABL hasn’t known ‘business-as-usual’ since March 13 when Kenya announced its first confirmed Covid case, as this was followed by a whirlwind of policies detrimental to the brewer,” Nairobi-based Dyer & Blair Investment Bank Ltd. said in an emailed note.

While the brewer typically performs significantly better during the first half of its financial year -- July to December -- sales this year will be depressed, according to Dyer & Blair. “It is more likely than not that the brewer will issue yet another profit warning statement,” according to its note.

©2020 Bloomberg L.P.

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