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BAT Uganda profits drop as firm faces threat from illicit trade

Wednesday February 27 2013
BAT

BAT Kenya's factory in Nairobi. BAT Uganda’s profits dropped 45 per cent under threat from the smuggled cigarettes. Photo/File

British American Tobacco Uganda (BATU) will not pay a final dividend for the full year ended December following a 44.77 drop in profits after tax.

The cigarette maker said that its business was affected by exports which yielded smaller margins which were partially offset by increased domestic sales while high levels of illegal tobacco buying in growing areas resulted in a drop in crop volumes.

READ: A tale of two shares: How EAC black market is reshaping BAT’s fortune

BATU, which is listed on the Uganda Securities Exchange (USE) said its profits after tax dropped to Ush12.19 billion ($4.57 million) in the twelve months to December 2012 from Ush22.08 million ($8.27 million) over the same period the previous year.

“In view of the lower profitability in the second half of the year, the directors do not recommend the payment of a final dividend following the interim dividend of Ush141 ($0.05) per share paid in October 2012,” said BATU in a statement.

The company said that it continues to operate under the threat of increasingly stringent regulatory regimes coupled with illicit trade, adding that it welcomed the recent launch of the prosecutor’s manual l to fight trade in substandard and counterfeit goods in Uganda by the director of public prosecutions.

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READ: Uganda unveils new manual on prosecuting counterfeits

BATU’s shares did not trade on Wednesday and the last price of the stock was Ush2,265 ($0.85).

“The year-on-year drop is due to lower margin in leaf exports which contributed 42 per cent of 2011's revenue. With unfavourable crop style and no significant foreign exchange gain (unlike in 2011) leaf export wasn't going to be the winner for BATU,” said Henry Kakande, a research analyst at Crested Stocks and Securities.

Mr Kakande said that domestic sales were adversely impacted by the usual illicit trade and in 2012, illegal tobacco buying in the major growing areas.

He added that the company's profitability going forward will depend highly on government legislation regarding the tobacco industry and how well illicit trade will be fought by the relevant authorities.

“We seek to collaborate with a broad range of stakeholders to ensure sensible legislation that is balanced and evidence based,” said BATU in the statement.

BATU said that the launch of the manual on illicit trade presents a new opportunity to address the growth of the trade in tobacco and cigarettes.

The cigarette maker’s finance costs rose by Ush4.7 billion ($1.76 million) to Ush12.75 billion ($5.62 million) while revenues rose by a marginal 8.39 per cent to Ush242.51 billion ($90.92 million) as at December 2012 from Ush223.73 billion ($83.88 million) same period in 2011.

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