Companies
BAT cuts dividend as profit falls to Sh5.6bn
Thursday February 15 2024
The British American Tobacco (BAT) Kenya Industrial Area plant in Nairobi. FILE PHOTO | NMG
BAT Kenya has reported a 19.2 percent drop in net profit growth to Sh5.57 billion in the year ended December 2023 blamed on reduced sales as increased taxes pushed consumers to illicit cigarettes.
The fall in net earnings from Sh6.89 billion posted in the previous year saw the board cut the proposed final dividend by Sh7 to Sh45 from the earlier payout of Sh52.
The drop in profit is the first since 2019 when earnings dipped by 4.9 percent to Sh3.89 billion and has come on the back of a drop in gross revenues and increased excise duty and value-added tax (VAT).
Read: BAT Kenya half-year profit falls to Sh2.8 billion
The cut in final dividend, which will be paid around June 26 to shareholders on the firm’s register at the end of May 24, will bring the total payout to Sh50, amounting to Sh5 billion.
This represents a 12.3 percent drop from Sh57 per share totalling Sh5.7 billion that was paid on the previous performance.
“In the domestic market, business performance was negatively impacted by consumer affordability challenges which triggered downtrading to lower priced brands and fueled an increase in the prevalence of illicit trade in tax-evaded cigarettes,” said BAT.
BAT estimates, based on third-party research, put illicit trade at 27 percent of all cigarettes sold in the market.
The cigarette maker says the shrinkage of the legitimate market due to illicit trade is hurting the industry and denying the government an estimated Sh7 billion per year in taxes.
BAT gross sales including indirect taxes dropped by two percent to Sh41.2 billion in the period excise duty and VAT rose by 5.5 percent to Sh15.69 billion. The rise in taxes cut net revenue by 6.6 percent to Sh25.6 billion.
The firm said increased excise duty rates—10 percent increase in July 2022 and six percent increase in October 2022— and higher duties on inputs contributed to the decline in the bottom line.
The cigarette maker also said regulatory uncertainty denied it a chance to roll out tobacco-free oral nicotine pouches to the market—a move that would have given it additional revenue.
“Additionally, it impeded our ability to commercialise our oral nicotine pouch factory in Nairobi, which would otherwise unlock manufacture for both domestic and export markets and enhance our contribution to the country’s economic growth,” said BAT.
BAT says it continues to “engage transparently” on a sustainable regulatory framework, upon which it hopes to commercialise its Sh2.5 billion oral nicotine pouch factory in Nairobi.
The Nairobi Securities Exchange-listed firm had introduced the pouches, then branded Lyft, in 2019 but stopped marketing the product in 2020 after the government said it should be regulated as a tobacco product.
Read: BAT unionised workers get minimum salary of Sh57,812
The company reintroduced the commodity –rebranded to Velo— in 2022 on a trial basis. It has been engaging the State to recognise the science behind modern oral nicotine pouches, terming it different to that of tobacco.
