BAT profit drops to Sh3.9bn on increased taxes

Cigarette maker British American Tobacco (BAT) Kenya #ticker:BAT has posted a 4.9 percent decline in net profit for the year ended December 2019 on the back of higher taxes.

BAT said on Thursday that its profit after-tax dropped to Sh3.89 billion from Sh4.09 billion in 2018.

The drop in earnings was despite gross revenue increasing 9.1 percent to Sh39.8 billion, largely driven by higher prices of cigarettes after rise in excise duty.

Managing Director Beverley Spencer-Obatoyinbo said profitability was hurt by 26.2 percent rise in operating costs to Sh18.3 billion.

Higher costs came mainly from the introduction of solatium compensation contribution levy of two percent on manufactured tobacco products and the 20 percent increase in excise duty rates during the year.

Solatium levy is used by government to fund tobacco control research and cessation and rehabilitation programmes.

“We are proud of the results given the aggressive regulatory environment we witnessed last year. The excise increment and solatium led to significant increases in regulatory costs in Kenya,” said Ms Spencer-Obatoyinbo.

“We continue to engage government to clarify the basis of competing this levy and ensure it does not adversely impact the company’s competitiveness especially on exports.”

Exports are crucial revenue earner for BAT, having accounted for 45 percent of the total revenue. The firm supplied 9.2 million cigarettes sticks to 10 markets earning a revenue of Sh8.6 billion ($85 million).

The value of leaf and cut rag tobacco exports jumped 55 percent to $23.6 million, mainly on strong demand in Sudan.

Government has been aggressive in taxing both alcohol and tobacco products to discourage consumption but also collect more revenues.

Despite the tax and levy increases, government earned Sh18 billion from BAT, being a 1.4 decline from what it received the previous year.

Ms Spencer-Obatoyinbo said the excise-led price increases have made the products expensive for consumers, keeping illicit trade above 10 percent.

The board has declared a final dividend of Sh30 per share, raising its total payout to Sh33.50 per share, being 4.3 percent down from previous year’s Sh35 per share.