British American Tobacco Kenya (BAT) posted an eight percent growth in profit in six months to Ksh.2.7 billion from Ksh.2.5billion a year earlier.
The growth was largely attributable to lower costs of operations and financing costs in the period.
The company’s costs of operations fell by 10.1 percent to Ksh.6.8 billion as finance costs declined to Ksh.81 million in the period from Ksh.126 million last year.
However, its net revenues went down 7.1 percent in the six months period ending June 30 at Ksh.10.5 billion from Ksh.11.3 billion from lower sales.
“This was driven by lower domestic and export revenue reflecting the adverse economic impact of the COVID-19 pandemic and the impact of exercise-led price increases at the beginning of the year,” BAT Kenya Managing Director, Beverley Spencer-Obatoyinbo said in a statement on Wednesday.
“Our domestic business, in particular, continues to be impacted by consumer affordability challenges, owing to the recent 20% increase in tobacco excise duty. As a result, we are seeing an increased presence of tax-evaded cigarettes in the Kenyan market as consumers seek out cheaper illegal products. The combined effect has been a domestic volume reduction of 35%, while contributions to Government revenues have reduced by KSh 1.9 billion to KSh 7.4 billion,” she added.
The Board of Directors has approved an interim dividend of KSh 3.50 per share.
The interim dividend, which is subject to withholding tax, will be paid on 18th September 2020 to shareholders on the register at the close of business on 21st August 2020.
According to Beverly, border enforcement alone is not sufficient to stem the illicit trade in cigarettes. Further, while Kenya’s ratification of the WHO’s Illicit Trade Protocol (ITP) is an important step, “We urge the Kenyan authorities to redouble their enforcement efforts and enhance cooperation with their Ugandan counterparts to stem the flow of these products into Kenya. This requires the identification of the source of these illegal products and their supply routes.”
“The business has increasingly been improving margins and the bottom-line mostly from cost management as challenges on revenue side persists.
However, Premiumization, new brand categories, and the possibility of improvement of its export markets (Egypt added last year) are expected to support the group’s revenue growth. FY20 is expected to be a slow year with the economic ravages of the pandemic highly uncertain in 2H20,” said Genghis Capital in its BAT Kenya Plc (NSE: BAT) 1H20 Earnings Note.