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BATU beats COVID-19 to post Shs19.9bn net profit

The government takes a huge chunk of revenues as taxes to reduce tobacco smoking

Kampala, Uganda | THE INDEPENDENT | British American Tobacco Uganda has defied the effects of coronavirus pandemic to record a 27% surge in net profit to Shs19.9bn for the year ended December 2020.

BATU will now pay shareholders a dividend of Shs406 per share compared with Shs320 paid last year, subject to the Annual General Meeting’s approval to be held on May 27 this year.

Financial results released on Feb. 11 also shows that its net revenue increased by 5% to Shs79billion compared with the previous year primarily driven by an improved product mix.

However, gross revenue reduced by 1% to Shs162 billion due to lower sales volume citing the effects of the pandemic that adversely impacted the trading environment, worsening an already challenging operating [environment].

For that , the cost of operations reduced by 5% to Shs50billion in line with lower sales volumes as well as pragmatic cost saving initiatives undertaken to cushion business profitability from the impact of the COVID-19 pandemic on revenue.

Nicholas Ecimu, the company secretary at BATU said the decline in cost of operations more than offset the reduction in gross revenue, resulting in an increase in operating margin.

“Profit before tax increased by 30% to Shs29billion, reflecting the growth in profit from operations and higher net finance income,” he said.

The company’s finance costs increased from Shs23billion to Shs63billion during the same period under review.

Government wins

Meanwhile, tax contributions to government reduced by 5% to Shs91 billion; reflecting a decrease in excise duty and Value Added Tax (VAT) citing lower sales volumes offset by higher corporation tax in line with higher profitability. The company said illicit trade in tax-evaded cigarettes continues to impact industry and government revenues.

“We continue to engage with relevant government agencies to support the fight against illicit trade in cigarettes,” Ecimu said, adding that the vice denies the government an estimated Shs30billion in revenue annually.

Currently, BATU is possibly the only listed company that pays most of its revenues to government as taxes compared to its shareholders as a measure to reduce tobacco smoking.

For instance, in 2019, the company recorded Shs164.3bn in revenue but its contribution to government revenue in form of excise duty, value added tax and corporation tax took a whopping Shs96bn.

The shareholders remained with merely Shs15.7bn as net profit to share among themselves as dividends.

The company saw a similar trend in 2018, 2017 and 2016. In 2018, the tobacco firm recorded Shs154bn in revenue but the government took Shs90.5bn as tax, leaving shareholders with a paltry Shs13.7bn.

In 2017, it recorded Shs149.7bn revenue but the government snatched Shs86.5bn, with the investors remaining with only Shs12bn. This is in sharp contrast with the period prior to the enactment of the tough anti-tobacco law in 2015.

Ecimu said the Uganda Revenue Authority’s bold step to implement the Digital Tracking Solution (DTS) presents opportunities to address the challenge.

URA launched the DTS last financial year as part of its scheme to combat illicit trade, seal revenue leakages, boost collections and increase efficiency in managing taxpayer compliance.

BATU has been in operation in the country for more than 90 years. The company’s share price has since jumped from Shs1, 000, at the Initial Public Offering price in 2000 to Shs30, 000 per share in 2021, signalling value addition to the shareholders investment.

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