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BATU profits down 50%

(L-R) Nicolas Ecimu BAT company Secretary; Dadson Mwaura BAT MD; Elly Karunga BAT board Chairman and Paul Claude Sine BAT Finance director. INDEPENDENT/ P. KAGENDA
(L-R) Nicolas Ecimu BAT company Secretary; Dadson Mwaura BAT MD; Elly Karunga BAT board Chairman and Paul Claude Sine BAT Finance director. INDEPENDENT/ P. KAGENDA

Sale of leaf business takes toll as Tobacco Control Act also gets set to bite

By Patrick Kagenda

In December last year, British America Tobacco Uganda (BATU) issued a public statement warning shareholders and potential investors that their profits would be significantly lower (by about 20%) than the previous year’s due to the discontinuation of the company’s leaf business.

Indeed, in last week’s release announcing their half year unaudited accounts for the six months to June 2016, the cigarette manufacturer revealed an even higher drop of 52% in profits. Total profits amounted to Shs7.3bn down from Shs 15.2bn in the period under review.

But despite the dip in profitability, the company still managed to grow cigarette sales that saw gross cigarette revenue raise marginally by 0.83% to Shs 73.2bn from Shs 72.6bn in the first half of 2015 – showing the impact of an upward revision of their products effected in the second half of last year.

Growth in revenue as a result of increased cigarette sales in turn attracted excise duty and Value Added Tax paid during the period under review – rising to Shs 39bn from Shs 37.3bn in the period under review.

Taxation, aside the company also registered a massive drop in its operating costs from Shs 94.5bn to Shs 24.4bn. As a result, the company’s operating margins improved to 9.1% reflecting the change in business model.

The company says despite the drop in operating costs, the return on assets and return on equity fell to 9.58% and 21.43% respectively showing the dip in profit after tax.

As a result of the dip in profitability, earnings per share dropped to Shs 149.19 in the first half of 2016 down from Shs 310.66 in the first half of 2015. But the company’s net asset value improved to Shs 696.01 from Shs 579.05 in the first six months of 2016.

At their Annual General Meeting (AGM) on May 13 last year, BATU announced a dividend of Shs 20.3 bn for the shareholders despite a tough trading year.  This was a significant drop from the Shs 36.8bn it paid out in dividends in 2014.

At the time the company said it experienced a significant impact from the depreciation of the shilling against the US Dollar coupled with inflation that was significantly higher in 2015 compared to 2014.

Despite the unfriendly economic situation at the time, the company said it managed to sell all its leaf during the year under review and paid tax amounting to Shs 71bn in 2015 up from Shs 69bn in 2014.

Undoubtedly, BATU is yet to recover from the same effects that led to its low performance during the 2014/15 Tobacco year.

Economist Fred Muhumuza of Makerere University College of Business and Management, described it as “bad news” but added that it is a reflection of the general economic situation.”

For the last four years, BATU shares on the Uganda Securities Exchange have been the hottest, having appreciated from about Shs 8,525 per share in September 2015 to Shs 30, 000 currently. Analysts say that trend would be maintained as shareholders and investors appreciate the fact that the value of their assets in company is still intact.  Despite exporting leaf worth more than Shs 200 billion in 2014 up from Shs 138bn a year earlier, BATU later announced that it would stop buying leaf from farmers and handed the business to Alliance One International (AOI) took over the leaf business last year. The company also sold off its headquarters for over 50 years and started renting smaller office premises.

The management told shareholders at the AGM that the company is currently in another transition in order to comply with the stringent Tobacco Control Act, which was passed by Parliament last year and is due to take effect in May next year.


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