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High taxes cut beer demand, says firm

East African Breweries Limited (EABL) leading brands Tusker and Guinness are projected to register sluggish growth in the medium term due to higher taxation, the brewer’s parent company Diageo has said.

John O’Keeffe, Diageo Africa’s president, says a 43 per cent increase in excise duty on beer beginning December 2015 has adversely impacted performance of the two leading brands and that it will take time for them to bounce back.

UK-based global brewer Diageo owns 50.02 per cent of EABL. Excise tax on beer increased to Sh100 per litre from the previous Sh70 per litre, forcing the brewer to adjust its prices upwards with a depressing effect on demand for some of its products.

“While bottled beer and our overall performance in Kenya will improve in the second half, the excise duty increase has put bottled beer out of the reach of many consumers,” Mr O’Keeffe told investors during a conference call.

“It will likely take longer to get Guinness and Tusker back to consistent growth.”

Mr O’Keeffe said the brewer is in open discussions with government stakeholders on various issues including “seeking a sustainable and predictable tax environment” in order to reel in “excessive duty rises on beer”.

He added that EABL is “working to address excessive price increases taken by some retailers post the duty increase”, echoing a sentiment previously raised by the brewer’s Kenya executives.

Profits dropped

The regional brewer recently reported that its net profits for the half year to December had dropped 27.7 per cent to Sh5.5 billion.

READ: EABL half year net earnings drop to Sh5.5 billion

This is compared to Sh7.7 billion the year before when earnings from normal operations were boosted by a Sh2.2 billion gain from sale of Central Glass Industries (CGI).

Besides the absence of the one-off gain, profit in the review period was also weighed down by a 6.2 per cent drop in sales to Sh35.1 billion with Kenya in particular registering flat growth.

READ: EABL to cut short-term debt with Sh6bn bond proceeds

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