BAT Profits Shrink by 5% to Sh3.9bn

Cigarette manufacturer British American Tobacco (BAT) on Thursday announced a 5% slump in its profits to Ksh3.9 billion for the full year ended December 31, 2019, but the announcement was clouded by the listed firm’s criticism of the government’s heavy regulation of their products.

The company’s gross revenue grew by 9.1% to Ksh39.8 billion shillings from Ksh36.5 billion in 2018 on excise led pricing of cigarettes in Kenya and higher sales volume for unprocessed tobacco in Sudan.

The company’s published results show that cost of operations ticked up to Ksh18.3 billion during the period under review from Ksh14.5 billion which Managing Director Beverly Spencer blamed for the slump in profits.

Finance costs reduced by 43% to Ksh193 million driven by lower overdraft utilisation during the course of the year.

Profit before tax reduced despite the revenue growth and reduced financing costs due to incremental cost of operations.

Ms. Spencer cited the government’s decision to introduce excise tax on tobacco as the reason behind the drop in sales volumes leading to the shrink in profits.

“Weve seen significant growth in our gross revenues to nearly upto Ksh40 billion thats a 9.1% increase but due to the increased cost of operations associated to the regulatory challenges weve not seen our full throttle profit after tax which is reduced by almost 5%,” said Ms. Spencer during the event held at a Nairobi hotel.

The announcement had an almost near impact with investors at the Nairobi Securities Exchange (NSE). By the end of the day, the company’s shares were exchanging hands at Ksh485 per share, a 3% increase from the share price at the start of 2020.

Some of the challenges that the company run into include significant increases in regulatory costs in Kenya following the introduction of a solatium contributory levy (Solatium) impact and a 20% increase in excise duty rates during the year.

Higher cutrag sales volumes, as well as inflationary cost increases, also drove costs up, but the company says these were partially offset by the positive contribution of productivity initiatives. These incremental costs led to a decline in operating margins by 6.2pp to 23.8%

“We continue to engage government authorities to clarify the basis of computing this levy and ensure it does not adversely impact the company’s competitiveness especially on exports,” said Ms. Spencer.

The manufacturer recommended a dividend of Ksh33.50% per share for its shareholders.

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