East African Breweries says tax-induced drop in beer demand only temporary

NAIROBI, Jan 27 (Reuters) - East African Breweries Ltd (EABL), controlled by Britain's Diageo (LSE: DGE.L - news) , blamed a jump in Kenyan tax on beer for its flat sales in the six months to Dec (Shanghai: 600875.SS - news) . 31 but expects a recovery in the next half-year period.

Chief Executive Andrew Cowan told Reuters on Friday that Kenya should adopt regular, predictable excise tax increases rather than big moves every few years, pointing to a drop in sales of leading brands such as Tusker after Kenya increased excise duty on beer by 43 percent at the end of 2015.

"The boom and bust approach -- a 43 percent tax increase -- has put the heartbeat of our business, that Tusker brand, under pressure," Cowan said after a news conference on the previous day's half-year results.

But he said that consumption is expected to pick up in the next six months as consumers adjust to the new prices in an economy that is growing at about 6 percent a year.

Kenya, which accounts for 70 percent of EABL's revenue, has one of the highest rates of tax on beer on the continent. Tusker has a recommended retail price of 140 shillings ($1.35) per bottle, 68 shillings of which goes to the taxman.

Pretax profit rose by a modest 1 percent to 8 billion shillings in EABL's financial first half, with a slowdown in sales in some of its key markets, the company said.

In Tanzania, where the brewer has a 20 percent market share, net sales fell by 7 percent, dragged down by sluggish consumer demand.

However, Cowan said there were good prospects for beer sales over the next three to five years, helped by Tanzania's sturdy economic growth rates.

"The trick is to get that GDP growth through to consumer spending and it just isn't happening at the moment," he said. ($1 = 103.9000 Kenyan shillings)

(Reporting by Duncan Miriri; Editing by Edmund Blair and David Goodman)