BATU ends tobacco leaf business

Sep 01, 2014

British American Tobacco Uganda (BATU) will discontinue its leaf growing and export business after 86 years with a new player set to enter the market at the end of the year.

By Samuel Sanya
 
KAMPALA - British American Tobacco Uganda (BATU) will discontinue its leaf growing and export business after 86 years with a new player set to enter the market at the end of the year.

Jonathan D’souza, the BATU managing director told reporters that the decision was reached after the company’s biggest client British American Tobacco Global Leaf Pool Limited (GLP) opted for another player.
 
BATU has a total of 177 employees. Of these, D’souza says only 30 will remain employed at the company’s offices in Uganda and Kenya.
 
The rest will receive close to sh12bn in compensation and will be helped to seek employment in the new player, the New York listed firm Alliance One International.
 
“Tobacco is an agricultural crop, and like any agricultural crop it is affected by many risks especially weather changes. Tobacco is a low-risk, low-return business. I do not think the shareholders should be disappointed,” D’souza said.
 
“We have been in a similar situation before without a specific customer for our tobacco leaf and it was detrimental. We will now focus on importing and distributing cigarettes and growing our brand equity.”
 
The MD noted that BATU contributed close to sh76bn in taxes last year with at least $3m (sh8bn) in excise duty from leaf exports alone. 
 
 
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BATU workers offloading tobacco
 
 
 Paul Claude Sine, the BATU finance director noted that the margins on the cigarette business are higher and more consistent than those on the tobacco leaf business.
 
He noted that the new player is looking to take on and expand the current leaf operations.
 
Sine also pointed out that they would either rent out or sell existing infrastructure for leaf operations after purchases from 14,717 farmers from Arua and Bunyoro later this year.
 
“We shall sell the leaf we have bought this year in 2015. The lag effects of this decision will be felt at the end of next year. The real effect will be felt in 2016,” he explained.
 
“With a stable tax environment and continued focus on combating illicittrade, it is anticipated that there will be no loss in government revenue or export earnings from this decision.
 
“While the business is losing a revenue stream, it is also removing a source of considerable volatility, risk and overhead,” he explained.  
 
BATU has been scaling down its presence in Uganda since 2005 when it closed a Jinja-based cigarette factory, the first such action since 1928. It closed its main Kampala plant last year.
 
Sine says Uganda will now import Kenyan manufactured cigarettes, with BATU handling the local distribution and sales.
 
The tobacco industry has come under strain in recent years from health and environment lobby groups as well heavy taxes. Sine says the new player is better-placed to shoulder the increasing cost of taxes by expanding tobacco leaf production.

 

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