Kenya: BAT Kenya Posts 19 Percent Rise in Profit

Source from:  AllAfrica.com 07/26/2010

British American Tobacco Kenya is optimistic of a bullish run this year after posting a 19 per cent rise in pre-tax profit over the first half. The company said on Thursday its pre-tax profit for the period to June 30 climbed to Sh1.46 billion from Sh1.22 billion the previous year while its gross turnover climbed 12 per cent to Sh10 billion on the strength of an improved economy. BAT's domestic sales volumes also grew by six per cent over the first six months compared to last year when its half year sales ran into head winds due to stringent policy measures under the Tobacco Control Act 2007, dipping by 12 per cent. The Act, which prohibits smoking in public places, demands the establishment of smoke-free zones in cities and buildings, bans tobacco advertisements, and introduces larger warning labels on cigarette packs. The law, to be enforced by public health officers, local authorities and the police bans the selling of cigarettes in single units, and proposes stiffer taxation of tobacco firms besides encouraging the cultivation of cash crops other than tobacco. "Contract manufactured volumes however declined resulting in marginal overall sales growth," the company said in a statement. The dip is partly attributable to BAT's ongoing expansion project that saw it close some of its production lines for some time. The closure also had an effect on the cigarette manufacturer's cash position over the first six months of 2010. "This had a negative impact on our cash position hence the lower than expected cash conversion. We expect this to improve towards the end of the financial year," the company said. The company however said counterfeiting of cigarette products remained a major threat to its business and lauded the move by Finance minister Uhuru Kenyatta to maintain the excise tax rates. Cigarettes top the list of hot prized products that are smuggled into Kenya. Curb smuggling BAT said recently that proceeds from the sale of counterfeited tobacco products could be used in funding international crimes and terrorism. The cigarette maker estimates that counterfeiters pocket upwards of Sh100 billion each year from sales in east Africa. To help curb smuggling, cigarette makers have lobbied Treasury to reduce tax on tobacco products to make it less attractive to counterfeiters. In the 2009/10 budget, Treasury maintained the hybrid structure of excise, which combines both product characteristics and the real selling price, with physical characteristics being the dominant factor. Mr Kenyatta maintained this position in his budget for the current 2010/11 fiscal year. "We welcome the move by the government to hold excise tax rates as this will go along way in addressing the threat posed by illicit trade and safeguard sustainability of government revenues from our industry" BAT said. Enditem