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BAT bets on plant expansion

CARTOON
By | March 17th 2012

BY NJIRAINI MUCHIRA

Cigarette manufacturer BAT Kenya plans to increase the capacity of its Nairobi factory to meet a rising demand.

The company, which has witnessed a significant increase in the export market at a time the domestic market is experiencing challenges like high excise tax and tough regulations, plans to invest Sh1.2 billion this year to expand the factory.

BAT Kenya Finance Director Philip Lopokoiyit said the investment would be in addition to Sh1 billion the firm invested last year in capacity expansion.

The factory churns out between 22 billion and 25 billion sticks of cigarettes per year.

"We project that the export market will grow faster than the domestic market and that is why we think it is important to expand the capacity of the factory because we want more export volumes," he said.

Besides manufacturing cigarettes for the domestic market, BAT has contract manufacturing for Egypt. It also exports its products to Uganda, Mauritius, Tanzania, and the Horn of Africa.

Exports are split between cigarettes and semi-processed tobacco leaves that are exported to Egypt.

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Export market

During the last financial year when the company posted 65 per cent rise in pre-tax profit, the export market accounted for Sh11.4 billion of the Sh20 billion revenue realised, while the domestic market accounted for Sh8.8 billion.

To grow the exports market, BAT has started exporting to South Sudan and the company is optimistic of potentials in the newest African nation. Lopokoiyit says one of the major challenges facing the domestic market is the instability of the excise tax regime.

He said the arbitrary increase in excise duty is undermining the war against illicit cigarettes. Last year illicit trade dropped from 10 per cent to eight per cent.

The tobacco industry is also suffering from heavy regulations following the implementation of the Tobacco Control Act.

The firm, however, said the anti-smoking law has not had a huge impact on its domestic performance, due to what Lopokoiyit said was engagement with all stakeholders, including Government to make the industry sustainable.

The firm further contends that congestion at the Port of Mombasa remains a major bottleneck to business. BAT says it incurred a loss of Sh70 million due to delays in clearing of its exports and imports.

"The rapid results initiative has done well and we hope that the situation will improve significantly over the coming days," said Lopokoiyit.

Energy costs is also a major concern, although BAT reduced its manufacturing costs by seven per cent, mainly driven by resource optimisation, energy saving initiatives, and efficiencies of scale, as a result of increased volumes.

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