BAT Kenya sees volume slowdown, eyes South Sudan

Fri Jul 8, 2011 5:32am EDT

* Excise duty changes resulted in price revision

* Plans to expand to South Sudan to boost growth

By Beatrice Gachenge

NAIROBI, July 8 (Reuters) - British American Tobacco Kenya expects a slowdown in volume growth in the second half of the year with a rise in excise duty and plans to enter South Sudan to lift growth, its head said on Friday.

BAT Kenya posted a 14.2 percent rise in pretax profit for the first six months of the year to 1.6 billion shillings ($17.83 million) from 1.4 billion shillings, buoyed by higher sales.

Gary Fagan area director for BAT East and Central Africa, said the firm planned to enter South Sudan -- due to declare independence on Saturday -- in the second half of this year.

"The potential is huge ... but obviously there are a lot of practices that are being embedded in that market that we are going to spend time working (on) with the authorities in South Sudan," Fagan told Reuters after an investor briefing.

"We would like to find a way to work with somebody in South Sudan who has a distribution network set up; it's far too early to look at acquisitions."

Kenya, East Africa's leading economy, changed its taxation model for cigarettes and now has a 35 percent excise duty on the retail price per pack, or 24 shillings, whichever is higher, on all cigarette brands.

Previously, the excise duty varied according to price.

"We have rectified their (some brands) pricing, so in effect ... in certain cases there will (be an) impact on the consumer," Fagan told the investor briefing.

"We cannot expect to maintain the 20 percent volume growth with the price movement that is now aligned to the excise regime."

BAT, which exports to Horn of Africa, Zambia, Madagascar, and Tanzania, among others, also saw an increase in excise duty in Uganda and Malawi, but expects duties to hold in Mauritius this year.

A weak local shilling boosted the firm's export earnings, but rising inflation and drought prevailing in the region posed a challenge, BAT said. ($1=89.75 Kenyan Shilling) (Reporting by Beatrice Gachenge; Editing by George Obulutsa)

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