Tobacco manufacturer British American Tobacco has recorded a 9.1% growth in gross revenue for the financial year ended December 31, 2019, up from 36.4 Billion recorded during a similar period in 2018.
The Company performed well in Kenya and across its export markets to deliver good revenue growth. However, profitability was lower due to significant increases in regulatory costs in Kenya following the introduction of a solatium contributory levy (Solatium) impact and a 20% increase in excise duty rates during the year.
The company attributed rise in revenue to excise-led pricing on cigarettes in Kenya, increased cutrag (semi-processed tobacco) sales volumes into Sudan and the introduction of new category revenue in Kenya following the launch of LYFT (modern oral nicotine pouches without tobacco).
The company noted that the excise-led price increases have continued to adversely impact consumer affordability leading to lower cigarette sales volume and a high incidence of illicit trade of 11.3%.
The company’s net revenue increased in line with gross revenue, with excise duty and value added tax (VAT) marginally decreasing due to the drop in sales volumes in Kenya.
The cost of operations increased by 26% to KSh 18.3 billion, mainly due to the estimated impact of the introduction of Solatium in 2019. We continue to engage government authorities to clarify the basis of computing this levy and ensure it does not adversely impact the Company’s competitiveness especially on exports. Higher cutrag sales volumes as well as inflationary cost increases also drove costs up, but these were partially offset by the positive contribution of productivity initiatives. These incremental costs led to a decline in operating margins by 6.2pp to 23.8%.
Finance costs reduced by 43% to KSh 193 million driven by lower overdraft utilization in the period under review. This was due to the higher underlying profitability and continued improvements in working capital management in 2019.
Profit before tax reduced despite the revenue growth and reduced financing costs due to incremental cost of operations as explained above. Cash Net cash from operating activities increased by 45% to KSh 7.7 billion, driven by the improved profitability and further gains from working capital management. A significant part of this cash has been reinvested in establishing a factory for the manufacture of modern oral nicotine pouches without tobacco in our Nairobi manufacturing hub.
Taxes in the form of Excise Duty, VAT, Pay As You Earn (PAYE) and Corporation Tax reduced by KSh 265 million (1.4%) to KSh 18.0 billion in 2019 as a result of lower sales volumes in Kenya and lower profitability.
The company has proposed a final dividend of Kes 30.00 per share to be recommended for approval by the shareholders at the Annual General Meeting to be held on 29 April 2020. The final dividend, when added to the interim dividend already paid, gives a total dividend of KSh 33.50 per share. The dividend, which is subject to withholding tax, will be paid on 29 April 2020 to the shareholders on the register at the close of business on 20 March 2020.
