BAT Kenya Sees CAPEX at One Billion Being Directed Toward Investments

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British American Tobacco Kenya (BAT) estimates its capital expenditure budget (Capex) for the year 2020 at one billion Kenya shilling which will be directed towards its investments.

Managing Director Beverley Spencer–Obatoyino who spoke post the firms’ 68th Annual General Meeting Thursday said the investments being made are in line with its new corporate purpose.

The firm said it is investing Ksh 2.5 billion in its Modern Oral Nicotine plant, one of its kind in Africa,  along Likoni Road and it projects it will be complete by quarter 3 of 2020.

“With many Kenyan smokers already using oral stimulants, we believe that with the right fiscal and regulatory environment, Modern Oral Nicotine products can be a commercial success and provide smokers with a genuine and potentially less risky alternative to cigarettes,” says Beverley.

Philemon Kipkemoi, Finance Director BAT Kenya said the plant is 60 percent complete, and the KSh 2.5 billion spans across several years for the project that commenced in 2019.

The new plant is expected to impact an estimated 50,000 people booth, directly and indirectly, due to jobs created within the value chain.

During the AGM, the shareholders approved the proposed final dividend per share for the Financial Year 2019 is KSh. 30.00, bringing the total dividend to KSh 33.50 per share. 

In 2019, BAT Kenya posted a 4.9 percent decline in net profit on the back of higher taxes. 

“Lower cigarette sales volume was primarily in the domestic market. This was occasioned by excise led price increases which continue to adversely impact consumer affordability and contribute to the high incidence of illicit trade in cigarettes,” the firm said in a response to the shareholders.

“During the year, gross revenue increased driven by the excise led price increases in Kenya, increased cutrag (semi-processed tobacco) sales volumes into Sudan, and the introduction of new category revenue in Kenya following the launch of LYFT (modern oral nicotine pouch).”

Beverley Spencer–Obatoyino says as a business, their objective is to work with the regulators to ensure predictability of the operating environment, however, over the last five years ‘This has not been the case’ she noted.

“The excise tax has been increased to over 160 percent in the last five years. This makes it difficult to plan for business. The excise rate is more than double,” said the Managing Director.

“We believe that a stable regulatory and fiscal environment is crucial for sustainable business and economic growth.”

George Maina, BAT Chairman said these challenges, together with the already high domestic excise rate, porous borders, and the widening excise differential with Kenya’s neighbours combined to ‘create a perfect storm in which illicit (tax evaded) cigarettes continued to thrive.”

According to Genghis Capital, the firm is yet to recover from the 50.0 percent excise duty hike in 2015 as reflected in the negative net revenue performance over the last three years to FY18 (3-year CAGR -2.3%), the 20.0 percent tax is expected to drag further the recovery of the cigarettes revenue in the domestic market.