How BAT Kenya Is Paying the Price as Illicit Trade Tightens Its Grip on the Market.

BAT Kenya posted modest profit growth in the first half of 2026 as recovering export sales and rising oral nicotine pouch sales helped offset weaker cigarette demand in the domestic market. Gross revenue rose 2.6% to Sh18.96 billion. Excise duty and VAT collected on behalf of government accounted for Sh6.69 billion of that amount, leaving Net revenue at Sh12.27 billion, a 4.6% increase from the first half of 2025. Profit before tax rose 1.7% to Sh4.39 billion, while profit after tax grew 3.1% to Sh3.08 billion.

The improvement followed a recovery in export sales and continued demand for modern oral nicotine pouches, which BAT Kenya returned to the market in June 2025 after securing regulatory approval. The products were first introduced under the Lyft brand in 2019 but withdrawn a year later after authorities required them to be regulated as tobacco products.

Higher costs limit gains
The improvement in sales was partly offset by rising operating costs, which increased 7% to Sh8.02 billion. BAT attributed the increase to higher input and logistics expenses, partly linked to elevated fuel prices, as well as spending on graphic health warning requirements and investment in its broader range of tobacco and nicotine products. Productivity gains and operational efficiencies helped absorb some of the pressure, but operating profit remained almost unchanged at Sh4.26 billion, compared with Sh4.23 billion a year earlier.

Illicit cigarettes deepen domestic pressure
Pressure was most visible in the domestic cigarette market, where constrained household budgets reduced sales volumes and pushed some consumers towards cheaper alternatives. BAT said this downtrading has increasingly benefited illicit products, further weakening demand for legally sold cigarettes. The company estimates that illicit cigarettes accounted for 45% of Kenya’s market by the end of 2025, up from 37% a year earlier. It says the trade deprives the government of about Sh12 billion in tax revenue annually while undermining legitimate manufacturers, distributors and retailers.

Despite the difficult domestic market, BAT’s board maintained the interim dividend at Sh10 per share, representing a total payout of Sh1 billion. It will be paid on September 25 to shareholders registered at the close of business on August 28.