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Illicit trade threatens BAT’s future prospects

Tracing illicit products to source is required to safeguard the legitimate tobacco industry, company executives say

Kampala, Uganda | JULIUS BUSINGE | British American Tobacco Uganda (BAT Uganda) shareholders on July.23 approved Shs15.7billion or Shs320 per share as the final dividend for the year ended December 31, 2019.

The dividend was paid on June.19 in line with the company’s 100% dividend pay-out policy amidst the negative impact of the COVID-19 pandemic.

The  AGM was  held  electronically  owing  to  COVID-19  government  and World Health Organisation restrictions  on  public gatherings.

This year marks 20 years since BATU was listed on the Uganda Securities Exchange.

BAT Uganda sells cigarettes chosen by Uganda’s adult smokers with a variety of high quality cigarette brands sold in the market. It partners with over 30,000 trade and businesses in the country.

According to the company’s financial statements for 2019, gross revenue increased by 7% to Shs164.3billion, driven by volume growth owing to a revamped portfolio and improved distribution efficiencies.

Profit from operations increased by 13% to Shs22.4billion as a result of growth in net revenues.

Total cost of operations increased marginally due to inflationary increases and portfolio transformation expenses. Consequently, profit after tax increased by 14% to Shs15.7 billion, according to the financial statements.

BAT Uganda Managing Director, Mathu Kiunjuri said despite  the  company’s  strong  performance  in 2019, BAT  Uganda  remains  concerned about the impact  of illicit  trade  in  tobacco  products.

According to independent third-party research, approximately 19% of cigarettes sold in Uganda are illegal.

“These worrying levels of illicit trade not only impact consumers who unknowingly purchase these products but also government revenues and the legitimate tobacco market,” Kiunjuri said.

He added that tax-evaded illegal cigarettes continue to deprive the government in excess of an estimated Shs30billion every year.

Company executives argued that this lost revenue is desperately needed to support the country’s economic recovery given the adverse impact of COVID-19.

Fighting illegal cigarettes

As a solution, BAT executives are calling upon the Ugandan authorities to ratify the WHO’s Protocol to Eliminate Illicit Trade in Tobacco products.

They said that ratification would provide a robust framework for the implementation of global standards in fighting illicit trade, optimizing benefits of the Uganda Revenue Authority’s Digital Tracking System (DTS) and helping to tackle illicit financial flows.

In a statement, BAT Uganda Chairman, Elly Karuhanga commended the BAT Uganda for its resilience and delivering strong business results on the back of a challenging operating environment.

“BAT Uganda continues to contribute to Uganda’s socio-economic development through the remittance of significant tax revenues to the government.

In 2019, the company’s tax payments increased by Shs6billion to Shs96 billion in the form of excise duty, value added tax and corporation tax.

Despite the increase in tax remittances and sustained superior dividend pay-outs, officials said illicit trade continues to impact their business and the regional economy.

Market analysts say that firm and sustained enforcement  action in  the  form  of tracing  illicit  product  to  source is  required  to  safeguard  the legitimate tobacco industry.

Executives said that they are making innovations in the areas of branding and packaging to respond to the ever changing customers’ tastes and preferences.

“We are continuously reviewing business processes to keep ahead of the game,” Kiunjuri said.

This is in line with the March 2020 announcement where the BAT  Group announced an  evolved  corporate  purpose aimed at building ‘a better  tomorrow for consumers, shareholders, employees and society.’

Executives said this purpose is an ambition to reduce the health and environmental impact  of  its  business,  while  remaining  committed  to  delivering  positive  social  impact and ensuring  robust  corporate  governance  across  the  business.

To facilitate this evolution, the company also adopted a new logo and corporate identity.

“On the back of our new strategy and purpose, I am confident that with the exceptional quality of talent within the company, and our partnerships with over 30,000 business partners, we are on track to deliver a better tomorrow for our stakeholders,” Karuhanga said.

COVID-19 response

Meanwhile, company executives said that this year’s business could somewhat be negatively impacted by work related restrictions put in place to stop the spread of coronavirus pandemic. Kiunjuri said that consumers disposable income was negatively affected and that could reflect in the company’s books of accounts as reduced sales.

However, he said, that the company has been responsive enough in ensuring that their staff and business partners are safe by availing personal protection equipment and related materials to prevent the spread of COVID-19.

Company executives said they will continue to work towards delivering value to shareholders. The company’s share price at the USE has been flat (Shs30, 000 per share) for the entire part of last year and this this year partly because owners have no compelling reasons to sell their part in the company.

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