BAT profit rebounds on higher prices, lower costs

An increase in the prices of its cigarrettes due to a rise in excise tax and lower operating costs saw British American Tobacco Uganda improve profitability in 2017, financials released by the company show.

Profit after tax rose 54.6% to Shs12 billion from Shs7.8bn in 2016. Gross revenue increased to Shs149.7bn from Shs138.3bn the previous year, while net revenue rose 6.1% to Shs68.7bn. The company said the increase in after-tax profit reflects “the impact of excise driven price increases and lower cost of operations”.

BAT Uganda said higher taxes following a 2017 ammendment to the Excise Duty Act forced it to increase prices. “The steep and discriminatory excise increase has not only given our competitors an unfair advantage over our products, but threatens our viability by rendering our products uncompetitive,” it said in a statement acccompanying the financials.

In January, however, the East African Court of Justice handed the cigarettes distributor a reprieve after ruling that the new tax regimen targetting the company contravened regional law. The ammendment mandated that BAT’s cigarrettes be taxed as foreign goods – hence attracting a higher excise duty – instead of local goods.

Previously the cigarrettes, which are imported from Kenya, were classified as East African Community goods and taxed as locally made goods. The East African court said the amended law’s distinction between locally manufactured goods and imported goods violated sections of the treaty for the establishment of the EAC, the customs union protocol, and the common market protocol.

In its appeal to the court, BAT said it moved its cigarrette manufacturing operation from Uganda to Kenya on the understanding that the East African Community was a single customs entity for tax purposes.

The court granted an interim injunction prohibiting Uganda Revenue Authority from collecting the additional taxes until a challenge to the legality of parts of the ammendment filed by BAT is disposed of.

Operating costs reduced by 6.4% compared to the previous year to Shs49.3bn. These have declined each year since 2015 following the company’s closure of its leaf growing and export business in 2014 to focus on selling cigarettes manufactured by British American Tobacco subsidiaries elsewhere, particularly Kenya. (The tobacco leaf export business used to bring in more revenue for the company than local cigarette sales.)

Earnings per share increased to Shs246 in 2017 from Shs159 in 2016. The company’s board recommended a dividend of Shs246 per share to be presented for approval at its annual general meeting on 9 May 2018. The total proposed dividend comes to Shs12bn, which represents 100% of BAT’s net profit in 2017.

BAT Uganda trades on the Uganda Securities Exchange.

BAT Uganda profit falls 25% in 2016 as tax bites