BAT Kenya Announces Full Year Results for 2014

BAT Kenya announced results for the full year ended 31st December 2014 with the following highlights:

Net revenue increased by 6.9 percent from KES 19.62bn to KES 21.03bn as a result of increased contract manufacturing revenue, growth in export markets coupled by forex movements and improved sales in the domestic market.

Operating profits went up by 10.4 percent from KES 5.77bn to KES 6.37bn on the back of lower operating expenses, increased productivity savings as well as revenue growth.

Productivity and overhead savings came as a result of green leaf consolidation to the Thika Factory after closure of the Ugandan branch. Green leaf optimization, localized printing as well as a review of logistics cost was also a contributing factor.

Finance costs fell by 8.3 percent from KES 301.00mn to KES 276mn whereas cash from operations increased by 31.0 percent as a result of improved working capital management.

Total assets grew by 8.9 percent from KES 16.65bn as at December 2013 to KES 18.14bn as at December 2014.

Total liabilities grew by 10.3 percent to KES 10.01bn from KES 9.08bn as at December 2013.

Profit before tax went up by 11.4 percent to KES 6.10bn as Profit after tax increased by 14.3 percent from KES 3.72bn in 2013 to KES 4.26bn translating to a 14.3 percent increase in EPS to KES 42.55.

The Directors recommend payment of a total dividend of KES 42.50 per share.

Our view

We expect stable domestic revenues in the coming year 2015 since BAT Kenya remains the market leader in tobacco sales in Kenya.

Up-trading is also a key driver of revenues in the domestic market as customers are moving towards the more expensive brands such as Dunhill as opposed to Safari Brand whose volumes in 2014 declined.

Export revenue is the major source of revenue growth in 2015 compared to domestic sources and therefore the company is expected to grow its export markets. BAT Congo recently closed creating market for its Kenyan counterpart.

Initiatives tailored to incur cost efficiencies and productivity savings are key to growing revenues to the long-term.

Key Risks

The domestic market may have reached maturity exhausting additional market alternatives available for the company to grow its revenues.