State regulation and excise tax hike squeeze BAT profits

An increase in excise tax and tighter government regulation of the tobacco industry saw British American Tobacco’s (BAT) net profit drop marginally last year.

Although the company’s total revenue for the financial year ending December 31, 2019 increased by 9.1 per cent from Sh36.5 million in 2018 to Sh39.8 billion in 2019, profit after tax reduced to Sh3.9 billion, from Sh4.1 billion the previous year.

Managing Director Beverley Spencer-Obatoyinbo yesterday attributed the performance to the anticipated impact of the solatium compensation contribution - meant to fund the treatment of people sickened by tobacco - and a 20 per cent increase in excise duty last year.

“The excise price increases have continued to adversely impact consumer affordability leading to lower cigarette sales volume and a high incidence of illicit trade. They have hurt government revenue as well,” said Spencer during the release of the firm’s 2019 full-year results in Nairobi.

The firm’s contribution to government revenue, on the other hand, fell by 1.4 per cent to Sh18 billion, a Sh265 million reduction from 2018.

The board has recommended a final dividend payout of Sh33.50 per share expected to be approved at the firm’s Annual General Meeting set for April 29.

BAT’s operation margin reduced to 23.8 per cent during the period under review due to what Spencer said was a positive contribution of productivity initiatives.

She said 11.3 per cent of the total cigarettes sold in Kenya last year were imported illegally.

This, the MD said, led to a loss of Sh2.5 billion in revenue to the government.