2 September 2014

Uganda: Tobacco Leaf Business Was Too Risky - BATU

British American Tobacco Uganda has said its tobacco leaf business wing was too risky and volatile, and that shareholders would not feel disappointed by their exit.

Addressing journalists at their Jinja road offices on Monday, BATU Managing Director Jonathan D'Souza said the firm found the cigarette selling and marketing business more certain and predictable than tobacco leaf.

"There were times when competitors would come and buy away your leaf from farmers; sometimes the quality would not be so good and the return from this is finally low," D'Souza said.

He added that weather volatility and 'unfair competition' from other players made leaf more uncertain. Last week, BATU announced it was ceasing buying tobacco leaf from farmers and that it would concentrate on its cigarette business.

A new player, Alliance One International (AOI), takes over from BATU. Global Leaf Pool (GLP) Ltd, which has been buying the leaf from BATU, will now purchase from AOI. BATU has been the biggest exporter of tobacco in the country. Last year, the firm earned $60m from leaf export, according to BATU publicist Diana Apio.

About 138 employees, who have been in BATU's leaf wing, will either be taken on by AOI or find employment elsewhere. D'Souza said the company would stay with only 30 official employees - if distributors are included, they add up to 200 staff.

This year, BATU had contracted 14,700 farmers to grow tobacco for it. D'Souza said they would incur Shs 12bn as exit cost, stressing it was far less than what it would have cost them had they stayed in the business.

For instance, he said, in a single case with farmers in Hoima recently, the firm paid Shs 18bn. And investors received the news with excitement. BATU's share price edged up on Monday by 0.07 per cent from Shs 6,980 to Shs 7,505.

The cigarette business too has challenges. Besides rampant smuggling, there is a bill in Parliament seeking to control tobacco smoking, a move that could see cigarette sales suffer.

"While we foresee a slow recovery in cigarette sales, this growth is being significantly impacted by a recurring high level of illicit trade," said a BATU statement.

Meanwhile, BATU realised a 76 per cent gross profit rise from the period between January and June 2014.The firm earned a net profit of Shs 12bn,up from Shs 7bn in the same period in 2013.


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