British American Tobacco Uganda (BATU) will stop buying tobacco leaf with effective from next year, the company has announced. Instead, the company says it will stick to selling cigarettes.
“BATU has received notification that its main customer for export tobacco, British American Tobacco Global Leaf Pool Limited (GLP) will enter into an agreement with Alliance One International (AOI)… to provide future tobacco requirements from Uganda,” the company said in a statement at the weekend.
The development is a new twist to one of the biggest companies operating in Uganda today. As one of the top 10 taxpayers in Uganda, BATU was seen as a cash cow for government, with the leaf business contributing the biggest amount of its revenue base.
There are bound to be questions as to whether this is not a sign that the company could be planning to close its Uganda business sometime in the future. It is also quite interesting that BATU intends to stick to just selling cigarettes at a time when Uganda is pushing for harsher legislations against cigarette smoking, on top of the higher tax levies.
A couple of years ago, BATU closed its tobacco processing plant in Uganda and moved to Kenya, where, according to the company, the costs of doing business were lower. This year, the company put up for sale its warehouse along Jinja road.
Diana Apio, the BATU publicist, told The Observer they were not closing their operations in Uganda but, rather, changing the focus to cigarette business. “We have been growing tobacco for long and had a lot of understanding with farmers, but it makes a lot of commercial sense that we concentrate on the cigarette side,” she said.
In the statement, D’Souza said Alliance One was well positioned to expand the crop. He added that BAT would continue to operate in Uganda, “focusing on its cigarette business.”
“BATU will focus on its cigarette business, improving distribution, building brand equity and growing value and market share,” according to the statement.
“For the 2015 crop season, it is expected that AOI will contract with most of our experienced tobacco farmers to grow tobacco for them.”
AOI comes to a country where the loyalty of farmers growing tobacco has been questioned, with BATU complaining of unscrupulous business ethics among some of its competitors whenever it comes to buying the leaf. This year, BAT Uganda worked with 18,000 farmers from different parts of the country, according to Apio.
There are close to 65,000 tobacco farmers in Uganda. She said last year, the firm earned about $60m from exporting the leaf. BATU is the biggest exporter of tobacco in the country. The company paid about Shs 79bn in taxes last year. She said they have a market share of 70 per cent of the cigarette business.
“While the business is losing a revenue stream, it is also removing a source of considerable volatility, risk and overhead, and the ability to focus on the more profitable cigarette business should over time deliver better returns to all BATU shareholders,” the statement added.
BATU’s share price on the Uganda Securities Exchange has been the top performer among local stocks, with the price inching closer to Shs 6,900 per share. It is not certain how the shareholders will react to the news.
AOI is a global player in the tobacco industry. It is listed on the New York Stock Exchange. AOI purchases tobacco in more than 45 countries. The company serves manufacturers of cigarettes in more than 90 countries. In the region, the firm already, operates in Kenya and Tanzania.
Source : The Observer