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Tobacco maker survives harsh environment

By | July 20th 2009

By Jackson Okoth

British American Tobacco (BAT) Kenya Limited weathered a stiff anti-smoking campaign, including a ban on its corporate sponsorship programmes, to record a modest increase in profits.

Steps to comply with Tobacco Control Act 2007 cost the company Sh100 million, through the removal of all branded material from the market as well as effect packaging changes to comply with Ministry of Health requirements.

Also hitting the tobacco business has been enormous increases in excise duty, which went up by 31 per cent last year.

Its earnings results indicate a gross turnover of Sh 17.436 billion for the year ending 31 December 2008, translating to an overall growth of 10.6 per cent. Profit before tax grew by 17.9 per cent to Sh.2.4 billion compared to Sh2 billion in 2007.

BAT will pay its shareholders a total dividend of Sh 17 per share, one of the highest payouts in a declining equity market. Its finance director, Lawrence Kimathi, attributes the company’s performance to optimisation of its trade marketing and distribution system, which saw the company’s market share grow by three per cent, according to AC Nielsen research last year.

"Increased supply chain and production efficiencies, coupled with prudent cost control initiatives, ensured that operational cost increase was well below inflation," says Kimathi.

Productivity savings were a significant driver of profit growth, with the firm saving over Sh400 million through indirect procurement, wrapping material and leaf savings.

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"Growth will be largely driven by distribution, portfolio and pricing strategies," says Gary Fagan, the firm’s Managing Director.

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