Uganda: Batu Profits From Volatile Shilling

Source from:  The Monitor 08/25/2011

Kampala - British American Tobbacco Uganda has registered revenue growth despite the weak Shilling, which is continuously shrinking import earnings. The tobacco leaf exporter's profit before tax rose by one-fold to Shs11 billion, between January and June 2011, from Shs5.1 billion during the same period in 2010, according to its half year unaudited financial results released on Monday. However, the firm's revenue dipped to about Shs123 billion from about Shs132 billion, due to the poor timing of leaf shipments. Mr Isaac Ampeire, the Batu company secretary, attributed the strong growth to higher cigarette sales volumes and exchange rate benefits arising from a weaker Shilling on the leaf export revenues. The Uganda Shilling has depreciated by about 21 per cent since January this year due to high corporate demand for dollars against reduced inflows from donors and investors. By yesterday, forex dealers were selling one dollar for Shs2,790 compared to Shs2,300 per dollar at the start of the year. The weak exchange rate contributed up to Shs3.7 billion to Batu's operating profit. "Batu leaf sales and cigarettes purchases are in US dollars. In terms of the Shillings, the exports would generate higher inflows and the cigarettes purchases (imports) higher outflows," Mr Solomon Muyita, the Batu spokesperson, explained yesterday. Following improved performance, Batu recommended an interim dividend of Shs141 per share. Shs6.9 billion, subject to withholding tax, would be paid out in dividends by October 15. The tobacco firm is, however, pessimistic about the second half of the year performance, citing a recent increase in cigarette excise duty and the impact of drought in some leaf growing areas. Severe shortage of rains is said to have hit hard the West Nile region, the firm's main tobacco leaf producer. The government introduced an 11 per cent excise tax on popular cigarettes (Sportsman - 60 per cent of the market, Safari, Supermatch and Yes) last month, increasing the tax on cigarettes to nearly 60 per cent. Local tobacco companies said the levy would increase the cost of low segment cigarettes from Shs75 to Shs100 per stick while premium brands (Rex and Dunhill) will rise from Shs200 to Shs250 per stick. Batu expects to register an increase in operation costs by about Shs3.8.billion (5 per cent) as a result. The increment followed anti-tobacco NGOs and the World Health Organisation pressurising the government to raise taxes on cigarettes up to 70 per cent. Enditem