Tobacco processor BAT Kenya has registered a marginal profit drop in the half year ended June to Sh2.8 billion from Sh2.9 billion the previous period on the back of lower sales.

The NSE-listed firm gross sales contracted by four percent to Sh20.99 billion from Sh21.86 billion previously.

Net revenue after the deduction of VAT and excise taxes declined to Sh13.1 billion from Sh14 billion.

“During the period, the business performance was impacted by global macroeconomic volatility, inflationary increases in input costs and geo-political disruptions in some of our key export markets,” BAT said in a statement on Wednesday.

“This was further compounded by excise-led price increases in the domestic market which triggered lower sales, downtrading to lower priced brands and exacerbated the prevalence of illicit trade in tax evaded cigarettes.”

Excise duty on tobacco products rose on two occasions last year, by 10 percent in July 2022 and by six percent in October 2022.

Cumulatively, taxes (excise duty, VAT, pay as you earn, and corporation tax) paid in the period totalled Sh9.4 billion.

BAT Kenya has warned of an escalation of illicit trade in tobacco amid higher taxation and called for the ramping up of multi-stakeholder and cross-border collaboration to counter the vice.

It partly countered the impact of higher tax with cost-reduction-centered initiatives which saw the company cut the total cost of operations by seven percent to Sh9.2 billion even as sales volume decreased in tandem.

The cigarette maker saw its finance costs rise sevenfold to Sh145 million from Sh20 million, indicating a rise in borrowings.

In spite of the marginal 3.5 percent dip in net income across the six months, BAT has retained its interim dividend at Sh5 per share which will be paid by September 2023 to shareholders on its register as of August 18.

BAT is betting on product innovation via its recently completed Sh2.5 billion oral nicotine pouch factory in Nairobi to keep the company on a growth trajectory.

“We are confident that our continued investment in simplification of the business, our consumer-centric brand portfolio and winning culture will enable us to navigate near-term macroeconomic challenges and deliver sustainable shareholder value,” it said.

Efficiency in the management of working capital saw the manufacturer's cash generation from operations rise by five percent to Sh3.9 billion from Sh3.7 billion last year.