Cigarette manufacturer British American Tobacco (BAT) reported a half-year net profit of Ksh 2.68 billion, attributing the performance to lower finance costs. The company recorded a 1.5% increase in profit before tax to Ksh 3.7 billion.
The company cut its operating costs by 10.1% YoY from Ksh 7.55 billion to Ksh 6.79 billion thanks to the automation of its Nairobi factory. Besides, its finance costs fell by 35.75% from Ksh 126 million last year to Ksh 81 million this year.
The government’s effort to cut taxes to cushion consumers by lowering VAT to 14% and corporate tax to 25% helped reduce the company’s tax cost by Ksh 97 million YoY.
The company’s revenues took a hit from the ongoing pandemic, with gross revenues falling by 13.6% to Ksh 16.62 billion while net revenue fell by 6.7% to Ksh 10.54 billion. However, cost-cutting initiatives and a boost in sales of semi-processed tobacco helped offset costs, thus the 5.9% YoY growth in net profit.
The cigarette manufacturer will pay an interim dividend of Ksh 3.50 per share for the year ending December 2020.
Tough operating Environment for BAT
BAT faces a harsh operating environment with the closure of various outlets because of the pandemic. Additionally, the company battles illicit trade, with estimates of up to 800 million cigarette sticks lost in the illegal market.
While the company faces a tough operating environment, given the ongoing pandemic which continues to strain affordability, new product lines and premiumization present opportunities for BAT. Innovations like tobacco-free nicotine LYFT helped rake KSh100 million in revenues, expected to entice young smokers and non-smokers. Further, analysts at Genghis Capital expect the companies drive to premiumize its brands to improve its margins for the second half of the year.