BAT half-year net profit rises 5.9pc on reduced costs

BAT Kenya #ticker:BAT reported a 5.9 per cent increase in net profit to Sh2.6 billion in the half year ended June, helped by reduced costs and lower taxation.

The cigarette manufacturer’s net earnings in the prior year stood at Sh2.5 billion.

The company declared an interim dividend of Sh3.5 per share, payable on September 18 to shareholders on the register as of August 21.

This is the same level of payout as the year before, placing BAT among the few companies that are maintaining or raising dividends as others suspend payouts in the wake of the Covid-19 pandemic.

BAT’s cost-cutting measures and lower tax bill were large enough to compensate for a drop in sales in the review period.

Gross turnover fell 13.5 per cent to Sh16.6 billion but net sales declined by a smaller margin of 6.6 per cent to Sh10.5 billion, partly due to the value-added tax (VAT) rate dropping from 16 per cent to 14 per cent effective April 2020.

“This (revenue shrinkage) was partly offset by a decrease in excise duty and value-added tax due to decline in domestic sales volumes and the change in VAT rate in April 2020,” BAT said in a statement.

The government lowered the VAT rate to cushion consumers whose business income and labour earnings were hit by the coronavirus economic disruption.

Besides a lower tax burden, the Nairobi Securities Exchange-listed firm also benefited from cost-savings amounting to Sh761 million and which arose from increased automation of its Nairobi factory.

“Total cost of operations reduced by 10.1 percent to Sh6.8 billion reflecting the impact of lower sales volumes, productivity savings initiatives and prudent cost management measures,” said BAT.

The higher efficiencies raised the company’s operating margins by 2.4 percentage points to 35.6 per cent.

The company says more than two-thirds of its machines are now on the “integrated work systems (IWS)” programme, which boosts efficiencies, increases productivity and eliminates waste.

“Since its introduction in 2015, IWS has consistently delivered breakthrough results in factory efficiencies, savings, waste reduction and consistent delivery of quality tobacco products,” says BAT in its latest annual report.

“In 2019, our focus on loss elimination facilitated cost savings amounting to approximately Sh108 million, which was reinvested into the factory.”