Restrictions related to the COVID-19 pandemic, although eased relative to H1 2020, continue to slow down economic recovery and adversely impact the trading environment.
Excise Duty rates on cigarettes were increased by 5% in October 2020. This triggered price increases which generated additional pressure on consumer affordability resulting in downtrading to lower priced brands and a high incidence of illicit trade in tax-evaded cigarettes (estimated at 23%). Illicit trade in tax-evaded cigarettes continues to negatively impact industry revenues and is estimated to deny Government approximately KSh 4 billion annually in taxes. We continue to work with relevant agencies to fight the illicit trade menace.
Despite the challenging operating environment, increased investment behind our brands and support to our trade partners has seen the recovery of domestic volumes. This, coupled with the easing of COVID-19 restrictions, has resulted in a strong financial performance.
Gross revenue increased by 22% to KSh 20.3 billion driven by the recovery of domestic sales volumes, excise-led price increases and sustained momentum on export sales. The growth in domestic revenues was partly offset by higher taxes, following a 5% increase in Excise Duty in October 2020 and Value Added Tax (VAT) rate change in January 2021. Consequently, net revenue increased by 19% to KSh 12.5 billion.
Total cost of operations increased by 27% to KSh 8.6 billion driven by higher sales volumes, investments in portfolio transformation and the impact of COVID-19 driven spend cuts in H1 2020. Profit before tax increased by 5% to KSh 3.9 billion with growth in net revenue being partially offset by the higher cost of operations.
Cash generated from operations improved significantly by KSh 3.2 billion to KSh 3.6 billion compared to H1 2020, reflecting the benefits of enhanced working capital management initiatives.Taxes in the form of Excise Duty, VAT, Pay As You Earn (PAYE) and Corporation Tax increased by KSh 1.8 billion (24%) to KSh 9.2 billion in line with higher domestic sales volumes and higher Corporation Tax and VAT rates.
A Better Tomorrow
We are committed to our evolved strategy and purpose to build A Better Tomorrow™ by reducing the health impact of our business, through offering alternative innovative products, including tobacco-free oral nicotine pouches.
We welcome the Government’s pragmatic approach in defining a proportionate excise framework for oral nicotine pouches. We continue to engage with the relevant authorities for sustainable regulation in line with the risk profile of the category. This will support the commercialisation of our KSh 2.5 billion investment in a new tobacco-free oral nicotine pouches factory in Nairobi and further grow our contribution to the Government’s Big 4 Agenda.
The Board of Directors have approved an interim dividend in respect of the year ending 31 December 2021 of KSh 3.50 per share. The interim dividend, which is subject to withholding tax, will be paid on 16 September 2021 to shareholders on the register at the close of business on 12 August 2021.
By Order of the Board
Kathryne Maundu (Ms) Company Secretary