British American Tobacco (BAT) Kenya Limited has posted a drop in net profits from KSh4.1 billion in 2018 to KSh3.9 billion at the close of financial year ended 31st December, 2019. The cigarette manufacturing conglomerate blames the newly introduced excise tax on tobacco for the drop in sales and profitability. It said gross profit reduced despite the significant revenue growth and reduced financing costs.
As activity at the Nairobi Securities Exchange(NSE) came to a close Thursday, BAT shares were trading at KSh485.00 each, a 3%drop from the price at the start of the year.
British American Tobacco Kenya plc (BAT Kenya) is part of the British American Tobacco Group (BAT Group), one of the world’s leading tobacco companies.
Gross Revenue
While the firm’s net earnings dropped, BAT Kenya recorded a significant increase in Gross Revenue from KSh36.5 billion in 2018 to KSh39.8 billion in 2019.
According to its financial statements, cost of operations went up from KSh14.5 billion to KSh18.3 billion with the firm earning KSh20 million from its currency hedging activities.
With a balance sheet size of KSh10.7 billion, BAT Kenya said the firm performed well in Kenya and across its export markets to deliver good revenue growth.
However, profitability was lower due to 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.
Cost of Doing Business
Cost of operations increased by 26% to KSh18.3 billion, mainly due to the estimated impact of the introduction of Solatium in 2019.
BAT says it continues to engage government authorities to clarify the basis of computing this levy and ensure it does not adversely impact the firm’s competitiveness especially on exports.
Higher cutrag sales volumes as well as inflationary cost increases also drove costs up, but the firm was able to partially offset these with the positive contribution of productivity initiatives.
BAT finance costs reduced by 43% to KSh193 million driven by lower overdraft utilization in the period under review. This is due to the higher underlying profitability and continued improvements in working capital management in 2019.
Net cash from operating activities increased by 45% to KSh7.7 billion.
A significant part of this cash has been reinvested in establishing a factory for the manufacture of modern oral nicotine pouches without tobacco in the Nairobi manufacturing hub.
Contribution to Government revenue in form of taxes fell as a result of decline in sales with KRA collecting a total of KSh18 billion from Excise Duty, VAT, PAYE and Corporate Taxes, a reduction of KSh265 million.
The Board of Directors has proposed a final dividend in respect of the year ended 31st December 2019 of KSh30.00 per share, subject to approval by the shareholders at the Annual General Meeting to be held on 29th April 2020.
The total dividend will be KSh33.50 per share, which is subject to withholding tax, to be paid on 29th April 2020 to the shareholders on the register at the close of business on 20th March 2020.
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