Regulatory uncertainty, illicit trade in tax evaded cigarettes and currency volatility has eaten into BAT Kenya half year earnings with the profit after tax for the six months ended 30 June declining from KSh2.8 billion in 2023 to KSh2.1 billion.
- •Gross revenue declined by 6 per cent to KSh19.6 billion, mainly driven by lower export sales volumes, consumer downtrading in the domestic market and suspension of modern oral nicotine pouch sales.
- •Total cost of operations decreased by 14 per cent to KSh7.9 billion, reflecting the impact of lower sales volume, prudent cost management and the benefit of productivity initiatives implemented to mitigate cost increases.
- •Operating profit reduced by 3 per cent to KSh3.8 billion reflecting lower net revenue offset by lower total cost of operations.
Finance costs rose sharply to KSh0.7 billion in comparison to finance income of KSh0.1 billion in 2023. BAT Kenya says that this was due to foreign exchange losses following the significant appreciation of the Kenya Shilling against the United States Dollar.
Notwithstanding the marginal decline in operating profit (3 per cent), profit before tax was 24 per cent lower at KSh3 billion driven by higher finance costs.
During the period under review, cash generated from operations was KSh3.8 billion in line with operating profit.
Taxes in the form of Excise Duty, VAT, Customs Duties, Solatium Levy, Tax Stamps, Pay As You Earn (PAYE) and Corporation Tax decreased marginally by 2 per cent to KSh9.5 billion.
“The operating landscape was characterised by geo-political disruptions, inflationary pressures and currency volatility. During the period, the Kenya Shilling recorded a significant appreciation (approximately 22 per cent) against the United States Dollar (our exports trading currency) which resulted in substantial foreign exchange losses,” said Waeni Ngea, BAT Kenya Company Secretary.
“These factors significantly increased the cost of doing business, adversely impacted consumers’ disposable incomes and drove legitimate volume contraction and downtrading,” she added.
Illicit trade in tax evaded cigarettes (estimated at 27 per cent based on third party research) continues to impact domestic industry revenues and deprive the Government of an estimated KSh7 billion annually.
It is imperative that the Government intensifies its efforts, emphasizing increased collaboration among stakeholders and across borders to strengthen enforcement and bolster regulations aimed at combating illicit trade effectively.
Regulatory uncertainty resulted in suspension of our modern oral nicotine pouch sales in the domestic market. As a result of prolonged regulatory uncertainty, commercialisation of our oral nicotine pouch factory was impeded. To protect shareholder value, the Company accepted offers for sale of the oral nicotine pouch factory machinery.
During the period, the Company completed a route-to-market business simplification exercise, to achieve a sustainable future-fit model. The seamless transition was achieved through excellence in commercial execution.
The Board of Directors has approved an interim dividend in respect of the year ending. 31 December 2024 of KSh5.00 per ordinary share. The interim dividend, which is subject to withholding tax, will be paid on or about 27 September 2024 to shareholders on the register as at the close of business on 30 August 2024.
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