High excise tax, illicit trade and elections period led to downturn in profits

British American Tobacco

Shareholders of listed tobacco firm British American Tobacco (BAT) will take a hit following a tough 2017 that resulted in a substantial reduction in dividends.

The company, which has been a darling of investors for high dividend payout, has cut by 40 per cent the amount that it will give out.

BAT said yesterday it would pay investors a total of Sh2.6 billion for the year to December 2017, compared to Sh4.3 billion in 2016. This translated to a final dividend of Sh26 per share compared to Sh43 for 2016.

The firm said it endured a difficult trading environment characterised by a high excise tax regime, rise in illicit trade and prolonged electioneering that led to a 21 per cent fall in profit.

Net profit fell to Sh3.33 billion in the year to December 2017, compared to Sh4.23 billion in 2016. The firm has in some instances in the past paid out its entire net earnings to shareholders as dividend but this year it will only pay 78 per cent of the Sh3.33 billion net profit.

BAT Kenya Managing Director Beverley Spencer–Obatoyinbo said the reduction in dividends was due to the difficulties experienced last year, adding that the firm would revert to what shareholders are used to if the situation normalises in 2018.

EXCEPTION

“This is an exception and not the rule,” she said at a briefing yesterday.

“The board assesses how we pay the dividend and this year we have taken stock on the back of a difficult (period) and results that were stretched. We have come up with a dividend payout that we think is appropriate and sustainable for this year.”

BAT said profits were hit by a decision by the Treasury to hike excise tax by 50 per cent in late 2015 as well as another increase on per-unit costs on excise stamps last year.

Treasury increased excise tamp fees for cigarettes, wines and spirits to Sh2.80 at the end of March last year, from Sh1.50, which had the impact of pushing retail prices.

BAT said illicit trade thrived following the tax hike and by its estimates, more than 10 per cent of its products in the market are fake, denying it and Government revenues.

“We have contracted some independent researchers at the point of sale to estimate the size of illicit trade and from what they have found, it has risen from about two per cent to 10 per cent in the last 18 months or so,” said Ms Spencer-Obatoyinbo.

“That has affected our share in parts of the market where it is prevalent. The other issue is that the Government has not received requisite tax and so it has affected both of us,” she added.