This archive report was first published on 17 July 2020.
On July 17, 2020, British American Tobacco (BAT) announced a half-year net profit of KSh 2.68 billion, a significant improvement from previous years. The company attributed this performance to lower finance costs and effective cost-cutting initiatives.
According to the company's report, BAT recorded a 1.5% increase in profit before tax to KSh 3.7 billion. This growth was largely driven by a 10.1% year-over-year reduction in operating costs, from KSh 7.55 billion to KSh 6.79 billion, thanks to the automation of its Nairobi factory.
The company also benefited from a 35.75% decrease in finance costs, from KSh 126 million last year to KSh 81 million this year. Additionally, the government's efforts to reduce taxes by lowering VAT to 14% and corporate tax to 25% helped reduce the company's tax cost by KSh 97 million year-over-year.
However, the company's revenues took a hit from the ongoing pandemic, with gross revenues falling by 13.6% to KSh 16.62 billion and net revenue falling by 6.7% to KSh 10.54 billion. Despite this, cost-cutting initiatives and a boost in sales of semi-processed tobacco helped offset costs, resulting in a 5.9% year-over-year growth in net profit.
As a result, the company will pay an interim dividend of KSh 3.50 per share for the year ending December 2020.
Tough Operating Environment for BAT ¶
Despite this positive performance, BAT faces a challenging operating environment due to the pandemic. The company has had to contend with the closure of various outlets and the loss of up to 800 million cigarette sticks to the illicit market.
However, the company is optimistic about its prospects, with new product lines and premiumization presenting opportunities for growth. Innovations such as tobacco-free nicotine LYFT have already generated KSh 100 million in revenues and are expected to attract young smokers and non-smokers.
