Uganda: BAT On a High Despite Freeze On ' 07 Dividends

Source from:  The East African (Nairobi) 7 January 2008 01/08/2008

British American Tobacco (Uganda) closed 2007 on a high note with its leaf export volumes soar and cigarette sales going up. The company's shares on the stockmarket maintained a surge to complete the firm's return to good performance. By the end of last year, BAT had posted the highest export volumes reported in many years, increasing to 19 million kilogrammes up from 12.7 million kilogrammes in 2006. It also posted close to 50 per cent increase in overall shipments and four million kilogrammes above its target volume for 2007. "We have improved production capacity by over 52 per cent through implementing innovative efficiency initiatives," said Cathy Adengo, the company's corporate and regulatory affairs manager. However, the jury is still out on whether the firm can sustain this recovery rate after three years of non-profit and no payment of dividend to its shareholders. But fund management group African Alliance, which has kept tabs on BAT says the firm's recent figures indicate recovery from its previous debt burden amounting to over $28 million accumulated since 2003. At its half-year results, BAT Uganda announced a "minimal but reasonable" profit of Ushs31 million (($17,714) - the first in three years. "The facts behind the company's recent figures show that the company's books are in order," said Kenneth Kitariko, African Alliance's head of sales. But the real battle BAT faces sustaining farmer loyalty, which in turn would translate into the company being able to maintain bigger supplies of the crop. Previously, farmers contracted by BAT often sold their crop to other companies leading to shrinking volumes that came into BAT's Kampala green leaf processing plant. The loyalty of the contracted farmers - now about 46,000 - has come at a price with bonuses given for higher production. The bonuses helped BAT increase its tobacco collection to 19.2 million kilogrammes in 2007 against 11.5 million kilogrammes in 2006. The other threat - smuggled cigarettes - has been significantly reduced, according to Paul Kyeyune, Uganda Revenue Authority deputy spokesman. A lot of the entry points for illicit cigarettes at Uganda's borders with Kenya, Sudan and Congo have been under constant monitoring. "Last year we improved enforcement measures and the rate was reduced," said Mr. Kyeyune. Because of this, there has been an increase in cigarette sales for the year that has just ended, expected to boost BAT's revenue from cigarette sales, having recorded a 15.3 per cent increase in sales. The disappointment however is that the company's promising recovery will not yield a dividend for its investors for the fourth year running. John Nagenda, BAT Uganda board member told The EastAfrican that the company is not yet able to pay a dividend, despite posting a Ush31 million ($17,714) half year profit for 2007. "I would like to recommend a dividend. However, we haven't got the money to do it because we have not done well for the past few years," said Mr Nagenda. According to its 2005 annual report, BAT Uganda suffered losses amounting to over Ush11.8 billion ($6.7 million) in 2004 and 2005 on the stock market as its share price tumbled, with per-share losses in the two years totalling to Ush240.51 (14 US cents). In the subsequent year, BAT Uganda reported a 56 per cent dip in operating profit - Ush1.2 billion ($685,714) - but company officials were optimistic that the company would turn the corner within the next six months once it recovered from the restructuring costs of $783,729 it had incurred, as well as fending off competition from illicit cigarettes on the market. For now, institutional investors who hold BAT's stock are keeping their fingers crossed, monitoring the progress of tobacco firm both on USE and its business operations. Investors have previously considered selling its shares when it plummeted, but in its current surge, Ms Adengo said the investors have not raised any issues. Among other things, BAT has been frugal, keeping a staff of 128 and cutting warehousing costs by transferring 5,000 tonnes of processed leaf that is awaiting shipping to its former cigarette manufacturing plant in Jinja, saving $1 million in the process. BAT Uganda will release its full year results in March this year, and this time round officials estimate more than $40 million from quality leaf exports. Tobacco is facing worldwide campaigns to control its marketing and use, a move that threatens to cripple the industry. BAT Uganda itself has come under a lot of pressure to stop adverts of the products with the country being one of the latest to sign the Framework Convention on Tobacco Control, a move that BAT Uganda is surprisingly in support of. "BAT supports sensible and enforceable regulation of the tobacco industry and we strongly believe that we should participate and support governments with developments, enactments and compliance with future laws such as the convention," said Ms Adengo. Enditem