BAT released their FY’2016 results, recording core earnings per share decline of 14.9 percent to Ksh.42.3 from Ksh.49.8 in FY’2015, driven by a 10.8 percent decline in net revenue to Ksh.19.9 billion from Ksh.22.3 billion as a result of a 24.1 percent y/y increase in excise tax to Ksh.16.8 billion from Ksh.13.6 billion.
Key points to note include:
- Operating revenue declined by 10.8 percent to Ksh.19.9 billion from Ksh.22.3 billion despite a 2.4 percent increase in gross revenue to Ksh.36.7 billion from Ksh.35.8 billion. This was mainly attributed to the shift in the excise duty regime in Dec 2015 to a uniform rate system from a tiered approach that saw cigarette prices increase, hence impacting volumes especially of the mainstream brands
- Operating expenses declined by 8.8 percent to Ksh.13.3 billion from Ksh.14.5 billion, owing to stringent cost management, productivity and overhead savings. The company also undertook a reorganization in the second half of 2016 at a cost of Ksh.338 million to enhance organizational effectiveness. These included process changes in the factory, arising from the commencement of printing of graphic health warnings on cigarette packets from September 2016 in compliance with the new Tobacco Control Regulations
- EBITDA margin dropped to 16.9 percent from 21.4 percent in FY’2015
- Finance costs declined by 44.8 percent to Ksh.0.3 billion from Ksh.0.5 billion, due to lower foreign exchange related losses and interest expenses
- Profit after tax declined by 14.9 percent to Ksh.4.2 billion from Ksh.5 billion as a result of decline in net revenue offset by lower costs
The Board of Directors recommended the payment of a final dividend of Ksh.39.5 per share, bringing total dividend to Ksh.4.3 billion, which equals to 4.4 percent dividend yield.
BAT continues to operate in a highly regulated environment, with constant upward review of excise tax continuing to suppress margins. Going forward, we expect sustained growth in earnings for BAT to be driven by efficiency and cost reduction initiatives to ensure it remains profitable.