Delivering Sustainable Value 2018 Annual Report & Financial Statements
1 BAT Uganda 2018 Annual Report & Financial Statements CONTENTS OVERVIEW
Overview 2018 BRITISH AMERICAN TOBACCO UGANDA LIMITED • Notice of the 2018 AGM 02 2018 ANNUAL REPORT AND FINANCIAL STATEMENTS • Explanatory notes to resolutions to be passed 03 This is the Annual Report and Financial Statements (Annual Report) of British American Tobacco Uganda Ltd (BAT • Corporate information 04 Uganda), comprising the Strategic Report, the Governance Report and the Audited Financial Statements for the year ended 31 December 2018.
Strategic Report This Annual Report has been drawn up and is presented in accordance with, and reliance upon applicable Ugandan • Chairman’s statement 06 Company Law and the Companies Act No 1 of 2012. The liabilities of the Directors in connection with this Report shall be subject to the limitations and restrictions provided by such law. • Managing Director’s review 08 • Our strategic framework 10 A printed copy of the Annual Report is mailed (posted) to shareholders on the mail register who have elected to • Our business model 12 receive it. The Report is also e-mailed to those shareholders who have at any previous time indicated their email addresses. A digital copy can also be accessed on the website of the Uganda Securities Exchange www.use.or.ug. • Business review 14 References in this publication to ‘BAT Uganda’, ‘we’, ‘us’ and ‘our’ when denoting opinion or tobacco business refer to British American Tobacco Uganda ltd. Corporate Governance Report • Board of Directors 22 Cautionary statement • Leadership team 26 The material in this Annual Report is provided for the purpose of giving information about BAT Uganda to adult shareholders and is not provided for tobacco product advertising, promotional or marketing purposes. This material • Statement of corporate governance 28 does not constitute and should not be construed as constituting an offer to sell or a solicitation of an offer to buy any of our tobacco products. Our products are sold in compliance with the law.
Financial Statements The Strategic Report and certain other sections of the Annual Report contain forward-looking statements that • Directors’ report 35 are subject to risk factors associated with, amongst other things, the changing economic and business dynamics • Statement of Directors’ responsibilities affecting the Uganda market. It is believed that the expectations reflected in these statements are reasonable but 36 they may be affected by a wide range of variables that could cause actual results to differ materially from those • Report on the audit of the Financial Statements 37 currently anticipated. • Financial Statements 40 About us We are a strong, forward-looking Company with a rich heritage spanning over 90 years and a proven strategy that is Other Information delivering value for our shareholders. BAT Uganda’s diverse strengths - our heritage, our strong brands, our talented people and our sustainability approach – are the foundations of our continuing progress. • Shareholder information 73 • Proxy form 75 We sell cigarettes chosen by a majority of Uganda’s adult smokers with five (5) cigarette brands sold in the market.
We partner with over 30,000 trade and business partners in Uganda. Through its sister companies within the BAT Group, BAT Uganda is the largest single buyer of Ugandan tobacco leaf supporting the livelihood of over 13,500 tobacco farmers.
The Company has sustained a significant presence in the country and has been listed on the Uganda Securities Exchange (USE) since the year 2000.
We are confident that our Business in the Uganda market will continue to achieve sustainable growth today and in the future.
2 01 BAT Uganda 2018 Annual Report & Financial Statements BAT Uganda 2018 Annual Report & Financial Statements OVERVIEW OVERVIEW
NOTICE OF THE EXPLANATORY NOTES TO 2019 ANNUAL GENERAL MEETING RESOLUTIONS TO BE PASSED
NOTICE IS HEREBY GIVEN that the 19th Annual General Meeting (AGM) of British American Tobacco Uganda Limited NOTES (the Company) after the Initial Public Offer will be held at the Sheraton Kampala Hotel, Rwenzori Ballroom on 22 May 2019, starting at 9.00 am to conduct the following ordinary business of the Company: 1. A member entitled to attend and vote at the AGM is the Uganda Securities Exchange has DIRECTED all entitled to appoint a Proxy to attend and vote instead listed companies to immobilize all shares that they Ordinary business of himself/herself. Such Proxy need not be a member still hold in paper/certificate form and to advise 1. To receive the Company’s audited accounts for the year ended 31 December 2018, together with the reports of the Company. all their shareholders to open the SCD Accounts of the Directors and the external auditors. with the help of any of the Securities Central 2. A proxy form can be obtained from the Company’s Depository Agents listed on the Uganda Securities 2. To declare a final dividend if agreed, for the year ended 31 December 2018. Head Office which is now located on the th7 Floor Exchange (USE) website www.use.or.ug . TWED Towers Building, Plot 10 Kafu Road, Nakasero, 3. To re-appoint KPMG as external auditors of the Company and to authorise the Directors to fix their Kampala; and will also be included in the Annual 7. The dividend, if approved, will be paid on remuneration for the year ending 31 December 2019. Report Page 75 and will be available to every 21 June 2019, to shareholders whose names appear shareholder of the Company. on the Company’s share register at the close of 4. To elect Directors in place of those retiring in accordance with the provisions of the Company’s articles of business on 31 May 2019. association. 3. Shareholders are requested to carry personal identification to the meeting. 8. Shareholders who have not received their dividends (a) Hon. Dr. Elly Karuhanga (72) who was appointed to the Board in July 2013, retires by reason of age, in for the past years should contact the Company’s accordance with article 90 of the Articles of Association of the Company, and is eligible for re-election; 4. E-copies of the Annual Report will be sent by email Registrar in writing and provide valid identification to all the shareholders whose email addresses the such as a copy of their; national identity card, (b) Mr. Fred Tumwesigye (72) who was appointed to the Board in April 2001 retires by reason of age, in Company currently has. Any shareholder who wishes Passport or driver’s license. accordance with article 90 of the Articles of Association of the Company, and is eligible for re-election; to receive an e-copy of the Annual Report should contact the Company’s share registrars 5. To conduct any other business that may be conducted at the AGM. Deloitte (Uganda) Limited on email [email protected] .
By order of the Board 5. The Annual Report and the proxy form is available on BRITISH AMERICAN TOBACCO UGANDA LIMITED the Uganda Securities Exchange (USE) website www.use.or.ug .
6. All shareholders are advised to provide their email addresses and mobile phone numbers to the Company’s share registrars for ease of communication. In addition; Nicholas Ecimu Sebalu & Lule Advocates a) Shareholders who still hold shares in certificate COMPANY SECRETARY form are advised to refer any queries that they may have to the Company’s Share Registrar and the said shareholders should also update their records relating to their postal and email addresses, bank account details or other particulars with the Company’s Share Registrar;
b) Shareholders whose shares were immobilized and are held through the Securities Central Depository (SCD) are advised to obtain and complete SCD Form 1 from their brokers in case of changes in their postal addresses and bank account details; and
c) Shareholders who do not hold accounts with the Securities Central Depository are NOTIFIED that
02 03 BAT Uganda 2018 Annual Report & Financial Statements BAT Uganda 2018 Annual Report & Financial Statements OVERVIEW
CORPORATE INFORMATION
Directors Registrar
Hon. Dr. Elly Karuhanga (Chairman) Deloitte (Uganda) Limited Fred Tumwesigye (Non-Executive Director) 3rd Floor, Rwenzori House Philemon Kipkemoi (Non-Executive Director) 1 Lumumba Avenue Fabian Kasi (Non-Executive Director) P.O. Box 10314 Mathu Kiunjuri (Managing Director) Kampala, Uganda
Local Audit Committee Lawyers
Fred Tumwesigye (Chairman) K & K Advocates Philemon Kipkemoi (Member) SRK House, Plot 67 Fabian Kasi (Member) Lugogo Bypass Road Mathu Kiunjuri (Permanent Invitee) P.O. Box 6061 Vincent Kaloki (Permanent Invitee) Kampala, Uganda Agnes Nantongo (Permanent Invitee) KPMG (Permanent Invitee) Sebalu & Lule Advocates Sebalu & Lule Advocates (Secretary) S&L Chambers, Plot 14 Mackinnon Road, Nakasero P.O. Box 2255 Kampala, Uganda Remuneration Committee
Fabian Kasi (Chairman) Principal bankers Philemon Kipkemoi (Member) Fred Tumwesigye (Member) Barclays Bank Uganda Limited Razeeah Belath (Secretary) Plot 2/4 Hannington Road P.O. Box 7101 Kampala, Uganda Nominations Committee Citibank Uganda Limited Hon. Dr. Elly Karuhanga (Chairman) Centre Court, 4 Ternan Avenue Philemon Kipkemoi (Member) P.O. Box 7505 Fred Tumwesigye (Member) Kampala, Uganda Sebalu & Lule Advocates (Member) Standard Chartered Bank Uganda Limited Plot 5 Speke Road Company Secretary P.O. Box 7111 Kampala, Uganda Nicholas Ecimu Sebalu & Lule Advocates S&L Chambers, Plot 14 Mackinnon Road, Nakasero Registered office and principal place of business P.O. Box 2255 Kampala, Uganda 7th Floor, TWED Towers Plot 10, Kafu Road, Nakasero P.O. Box 7100 External auditors Kampala, Uganda
KPMG Certified Public Accountants 3rd Floor, Rwenzori Courts Plot 2 & 4A Nakasero Road P.O.Box 3509 Kampala, Uganda
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the right to challenge certain issues 31 December 2018 of Ushs 280 per suppliers, customers and business Chairman’s Statement Statement in court. This was the case following Ordinary Share to be recommended partners for their commitment the enactment of the Excise Duty for approval by shareholders at and valuable contribution to the (Amendment) Act, 2017 which the Annual General Meeting to be continued success of the Company. imposed different rates for locally held on 22 May 2019. If approved, manufactured products and those the dividend, which is subject to Looking to the future, I am imported from the East African withholding tax, will be paid on 21st confident that we have the Community (EAC) member. As a June 2019 to shareholders whose right strategic focus, people and Looking to the future, I am result of this discriminatory tariff, names appear on Company’s share resources to deliver continued BAT Uganda filed a legal challenge register at close of business on 31st growth in the years ahead. confident that we have the before the East African Court of May 2019. right strategic focus, people Justice to contest the higher Excise Hon. Dr. Elly Karuhanga Duty on cigarettes imported from The right strategy for a Chairman and resources to deliver other EAC Partner States, which is sustainable future up to 36% higher than cigarettes Reflecting on the success of 2018, continued growth in the produced locally. which has not been without its years ahead. challenges, let me express my Hon. Dr. Elly Karuhanga Dividends thanks and appreciation to my Chairman Based on the performance of the fellow Directors on the Board, to Company outlined above, the Board Management and to our employees of Directors recommend a final for their tireless efforts to deliver dividend in respect of the year ended business growth. I also thank our
Introduction The investment in infrastructure Business review I am very pleased to report a strong projects, coupled with the Gross revenue increased by 3% to set of results for the year ended 31 Government’s ambition to address Ushs 154 billion, driven by excise- December 2018, with the business the cost of doing business in led pricing in the market. This was having continued to deliver value Uganda, is very welcome and we partially offset by lower volumes as growth for shareholders in a tough urge the Government to quicken a result of consumer-affordability operating environment in Uganda. the pace of implementation in order challenges and the adverse impact to meet the country’s economic of illicit trade, which averaged 22% Macroeconomic transformation and development (Source: Quarterly Market Tracker) in Environment – a mixed objectives. 2018 and denied government much- needed revenue. The Company picture Additionally, and despite some posted a profit after tax of Ushs 13.7 According to the African external pressures, the Shilling has billion, a 14% increase compared Development Bank Group, in remained relatively stable. Following with 2017. 2018, Uganda’s real gross domestic a record low foreign exchange rate product (GDP) growth was of Ushs 3,897 to the USD, back in Our approach to regulation estimated at 5.3%, up from 5.0% September 2018, the Shilling has in 2017. Encouragingly, greater As a company with a longstanding recovered, and actually appreciated record of compliance in the investment in public infrastructure since then. was the main contributor to growth execution of our operations while delivering on our business objectives, - together with the agriculture sector However, Uganda’s economic which benefited from favourable we welcome balanced, evidence- progress during 2018 has not based regulations to govern the weather conditions in 2018. translated into significant growth However, the country’s fiscal deficit, way we operate. We pride ourselves in jobs. This lack of jobs growth on being a responsible corporate widened to an estimated 4.7% in has meant that poverty rates have 2018. This widening of the current citizen and believe that a stable not improved substantially, with regulatory and taxation environment account deficit is due to weakening consumer affordability challenges trade balances, rising global oil is crucial for business as well as for remaining. Nevertheless, we have government and the consumer. prices and increasing capital goods maintained a strong market position imports related to the ongoing and delivered a strong business infrastructure development projects. However, while it is a last resort, performance as a result. and where all engagement options have been exhausted, we reserve
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into force on 18th May 2017. As a entrepreneurial behaviour; and The ongoing success of the ManagingManaging Director’s Director’s Review Review responsible corporate citizen, we creating an engaging culture where Company is only made possible reiterate that we are not opposed to individuals and teams can be by the passion and dedication of regulation that is based on robust successful. the talented people who are part evidence and thorough research, of company. I would therefore respects legal rights and livelihoods The way our people operate is thank our Board of Directors, and delivers on the intended policy embodied in our four Guiding Management and all my colleagues aims, while recognising unintended Principles: Enterprising Spirit, at BAT Uganda for their continued Delivering more value to consequences such as stimulating Freedom Through Responsibility, hard work and commitment to illicit trade which impacts negatively Open Minded and Strength from our vision and values as a Business. the Ugandan consumer, on the sustainability of government Diversity. These principles underpin I also thank our shareholders for whilst ensuring our and industry revenues. our culture and guide how we the continued confidence and deliver our strategy. investment in British American portfolio remains fit for Our experience and expertise Tobacco Uganda. mean that we have much to As competition for good people purpose, enables our offer governments and regulators intensifies, we continue to invest in Mathu Kiunjuri competitive advantage. when it comes to helping develop attracting and retaining top talent as Managing Director policies around tobacco. As such, part of the long-term sustainability Mathu Kiunjuri appropriate regulation remains a key of our Business. Managing Director focus area of our engagement with relevant authorities. Facing the future with confidence Our people Following a successful 2018, we The quality of our people is a major shall continue to look at ways to reason why the business continues deliver more for the consumer, while to perform well – and why we are supporting and engaging with the A strong business model which led to reduced working engage the Government on the so excited about the future. Our relevant authorities and government performance capital requirements. importance of a stable, predictable focus remains on driving high agencies to reduce the incidence of performance; developing the next I am delighted to report that the and fair tax environment to ensure illicit cigarettes and have in place generation of leaders; valuing Company delivered a strong set of These results were achieved sustained business and government regulations that are balanced and the diversity of our employees; results in 2018. despite the illicit trade in cigarettes revenue growth. effective. in Uganda continuing to be a encouraging and rewarding Excise-led pricing in the market led significant issue – for both the Winning in the market to gross revenue increasing by 3% to legitimate tobacco industry and The consumer has long been at Ushs 154 billion, which was partially Government. It is particularly the centre of our strategy and offset by lower cigarette volumes worrying to note that the incidence we continue to explore new resulting from both consumer- of illicit cigarettes in the market opportunities to deliver for them and affordability challenges and the averaged 22% of the market in their preferences. Delivering more adverse impact of the illicit trade of 2018 (source: Quarterly Market value to the Ugandan consumer, cigarettes in the market. Tracker), reducing the amount of whilst ensuring our portfolio duty-paid cigarettes and denying the remains fit for purpose, enables our Despite inflationary pressure, Government much needed revenue. competitive advantage. the cost of operations increased marginally by 1% to Ushs 49.9 Cash In 2018, we took the decision to billion. These costs were partially Cash generated from operations migrate the Safari brand to that offset by productivity improvement increased significantly by 242% to of the BAT Group’s biggest global initiatives. Ushs 30.7 billion, driven by profit selling Value for Money brand, Pall growth and reduced working capital Mall. Once complete, this brand The growth in net revenues was requirements following the business evolution means that the Pall Mall reflected in operating profit, with model change mentioned above. consumer can benefit from the operating margin increasing by four global innovation pipeline which basis points to 28.6% as a result Contribution to Government revenues delivers added value. of the increased revenues. Finance Taxes in the form of Excise Duty, costs reduced significantly by Ushs VAT, and Corporation Tax increased Regulatory engagement 1.8 billion as a result of lower by Ushs 4 billion to Ushs 90.5 The regulatory environment for the overdraft utilisation following the billion in 2018, driven by the full business continues to be shaped by positive change in our supply chain year impact of the excise increase the implementation of the Tobacco effected in 2017. We continue to Control Act, 2015 which came
08 09 BAT Uganda 2018 Annual Report & Financial Statements BAT Uganda 2018 Annual Report & Financial Statements STRATEGIC REPORT STRATEGIC REPORT
Our strategic framework for Our vision Strategic focus areas delivering shareholder value World’s best at satisfying Our four key focus areas remain fundamental to our strategy as consumer moments in tobacco we focus on deliver sustainable value for all stakeholders. Our strategy enables us to deliver growth today and beyond. while driving the investment required to deliver Our consumers are at the core of everything we do, and our GROWTH WINNING ORGANISATION shareholder value. success depends on addressing Ensuring we have great people their preferences, concerns and Developing our portfolio while with the right skill sets in the behaviours. We know that these continuing to drive revenue right teams to deliver sustainable are fragmenting and evolving growth from our traditional value for all stakeholders. at an unprecedented pace, and combustible products. consequently, we are clear that to win in this space we need to understand our consumers’ preferences and further invest PRODUCTIVITY SUSTAINABILITY in a pipeline of ever evolving innovations. Effectively deploying resources Ensuring a sustainable business and managing our cost base to that meets the expectations of release funds for investment. our various stakeholders.
Our mission Guiding principles Delivering our commitments Our guiding principles provide clarity about what we stand to society, while championing for. They form the core of our culture and guide how we informed consumer choice. deliver our strategy.
We have long known that, as part Enterprising spirit Open minded of a major international business, We value enterprise from our Our corporate culture is a great we have a responsibility to address employees, giving us a great strength of the business and one societal issues with our tobacco breadth of ideas and viewpoints to of the reasons we have been and products, and that, as our business enhance the way we do business. will continue to be successful. continues to grow, so does our We have the confidence to We are forward-looking and influence and the responsibility that passionately pursue growth and new anticipate consumer needs, comes with it. We are also clear that opportunities while accepting the winning with innovative, high- we have a duty to our shareholders considered entrepreneurial risk that quality products. We listen to to ensure we continue to deliver comes with it. We are bold and strive and genuinely consider other today and invest for a sustainable to overcome challenges. This is the perspectives and changing social future and to our consumers to cornerstone of our success. expectations. We are open to new provide high quality tobacco ways of doing things. products. Our core objective of providing consumers with more Freedom through responsibility Strength from diversity choice and more innovation will We give our people the freedom to Our employee population allow us to: satisfy these consumers; operate in our local environment, comprises people from Uganda address societal concerns at large providing them with the benefits and the wider East African region, and provide a sustainable, profitable of BAT Group’s scale but with giving us unique insights into future for our shareholders. the ability to succeed locally. We local markets and enhancing our always strive to do the right thing, ability to compete across the exercising our responsibility to world. We respect and celebrate society and other stakeholders. We each other’s differences and enjoy use our freedom to take decisions working together. We harness and act in the best interest of diversity – of our people, cultures, consumers. viewpoints, brands, markets and ideas – to strengthen our business. We value what makes each of us unique.
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Our business model
At the centre of our business is the Distribute
distribution and What we do sale of superior Our people We distribute our products effectively and and relationships efficiently using distribution models suited to the Resources combustible tobacco respective circumstances and conditions of where we operate. Most of our cigarette volume is sold for success products, which we The quality of our people by retailers, supplied through our distributors. We is a substantial contributor continuously review the route to market for our Innovation products, including our relationships with logistics have been doing for to our success. In return, We make significant providers, distributors and wholesalers. we commit to investing investments to deliver more than 90 years. in our people as we do in innovations that satisfy our brands. We encourage or anticipate consumer • Our relationships with, and efficient a culture of personal preferences and generate distribution to, retailers countrywide ownership and value our growth for the business Our sustainable ensures we can offer the products our adult employees’ talents and across all categories. consumers wish to buy, where and when they approach to our abilities. Their diverse want them. perspectives help us World class science As part of the BAT Group, supply chain succeed. • Our distribution capability enables new we benefit from scientific product innovations to be distributed to management helps research programmes in a We also have excellent markets quickly and efficiently. broad spectrum of scientific relationships with a range us to create value fields including molecular of stakeholders, including biology, toxicology and for a wide range farmers, retailers and Consumers chemistry. of stakeholders, distributors. We place consumers at the centre The BAT Group is including traders We engage with the of our business, we invest in transparent about its science relevant regulators to world-class research to understand and publishes details of its and consumers. support regulation that is changing consumer preferences and research programmes on its based on robust evidence buying behaviour. This drives our dedicated website and thorough research, leaf sourcing, product development, www.bat-science.com and that respects legal rights innovation, brands and trade the results of its studies in We use our and livelihoods and delivers activities. peer-reviewed journals. unique strengths on the intended policy SELL aims while recognising We aim to satisfy consumers with and employ our unintended consequences. What we do a range of inspiring products and We offer adult consumers a range of address expectations about how we resources and high-quality cigarettes. Our portfolio should market them. covers all segments, from value for relationships to money to premium.
deliver sustainable • Our successful portfolio of growth in earnings global and local cigarette brands continues to deliver significant for our shareholders. value over the long term and meet a broad array of adult consumer preferences, based on sound consumer insights.
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GROWTH
Delivering sustainable With consumers at the centre of selling Value for Money brand – Pall consumer value through our strategy, we began a portfolio Mall. The Pall Mall consumer can portfolio transformation transformation journey in Uganda expect to benefit from the global in 2018, with a view to delivering innovation pipeline which delivers Our high quality tobacco products even more value to the Ugandan added value to the consumer. continue to speak to BAT’s vision consumer, whilst ensuring our to be the world’s best at satisfying portfolio remains relevant now and consumer moments in tobacco and Driving growth through in the future. beyond. sustainable trade The initial step in this transformation partnerships As the industry evolves, we are journey - which is still ongoing - was At the centre of driving excellence working to build a robust brand the migration of Safari to Pall Mall, in our route to market and the portfolio that will be competitive representing a ‘perfect collaboration’ trade, is our Trade Marketing & and drive transformation in the between a strong local brand – Distribution (TM&D) team. In 2018, Ugandan market. Safari, and BAT’s biggest global we continued to empower our field force with the requisite tools and knowledge as they work to build and nurture ongoing partnerships with our trade partners for mutual benefit.
As we continue to invest in our teams, our trade partners also benefit from regular engagement and capacity building opportunities. This is critical to build sustainable relationships to spur business growth.
The continous investment in our people and our brands is evidence that the future is truly set to for sustainable growth in Uganda.
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A WINNING OUR SUSTAINABILITY ORGANISATION APPROACH
Our Strategic Leadership Subsequently in 2018, we invested Building a legacy of leaders Our socio – economic Tobacco Control Act, 2015 (the Fighting illicit trade Agenda: in the development of our teams to Investing in our key talent remains a contribution TCA) which came into effect We continued to devote deliverasone2022 enable them to better understand priority and enables us to provide a With operations that span over on 18 May 2017. In November considerable resources to stem the the strategic intent and enable 2016, BAT Uganda challenged 2018 was a truly transformational superior employee value proposition, 90 years, we have consistently illicit trade in tobacco products and them to contribute to its delivery. some provisions of the TCA in the year for BAT Uganda. In 2017, whilst at the same time ensuring a contributed to the socio-economic engage with relevant stakeholders In addition, we refreshed our Constitutional Court on grounds our five(5) year ambition for the solid talent pipeline for the future. development of Uganda. BAT to ensure sustainability of industry organisational culture: under the that they are unconstitutional and Company, - #deliverasone2022 Uganda generates direct and revenues, which in turn results in #energisedcollaborativeagile ways disproportionate. Some of the - was defined and shared with all Over the years, BAT Uganda has indirect employment and business sustainable government revenues. of working, which is aligned to our aspects challenged in the TCA employees, articulating the strategic become a net exporter of talent to opportunities for more than 30,000 We welcome the Government’s SLA and stipulates the enabling include; the radius restrictions on the pillars that will be the foundation the BAT’s East & Central Africa Area Ugandans in cigarette product efforts to deal with the issue and will behaviours that will help deliver it. sale and consumption of tobacco on which we will work to transform hub based in Kenya. In 2018, we distribution, urban and rural continue to engage with relevant products within 50 metres of public the Business and deliver our growth had six Ugandans – five in Kenya and retailing, wholesale trade, transport, stakeholders with a view to widen places, restrictions on government agenda. one in Denmark - being developed logistics and domestic procurement the scope of the current initiatives to for senior leadership roles in the amongst others. This further industry interactions, employment identify the source of manufacture medium to long term. benefits thousands of people in the restrictions on persons in the for illicit cigarettes and or activity. communities where we operate, tobacco sector and retail display We also pride ourselves in developing including over 13,500 tobacco ban. The matter was heard on 17 diverse teams to deliver our business farmers. May 2017 and we are now awaiting results. Currently, our workforce the judgment of the court on notice. comprises 18% women. As a significant contributor to government revenues, our year- We reiterate that we are not As we work to further develop our on-year tax remittances to the opposed to regulation. We support people agenda, we continue to Exchequer have further contributed regulation that is balanced, evidence focus on developing capabilities and to the country’s economic growth. based and actually helping to reinforcing team engagement to Over the past five years, we have achieve the intended objectives. attract the next generation of talent paid over Ushs. 411 billion to the Regulation that does not meet these (#nextgentalent) and build a future- Exchequer in the form of of various criteria, could have unintended fit organisation. taxes. consequences such as stimulating illicit trade and harassment of Our approach to regulation members of the public and traders. We will therefore continue to seek In 2018, we continued to operate opportunities to contribute to the within a challenging regulatory debate and work with the regulators environment shaped by the to address industry issues.
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20 21 BAT Uganda 2018 Annual Report & Financial Statements BAT Uganda 2018 Annual Report & Financial Statements CORPORATE GOVERNANCE REPORT CORPORATE GOVERNANCE REPORT
Board of Directors
Hon. Dr. Elly Karuhanga Mathu Kiunjuri Fred Tumwesigye Fabian Kasi Chairman Managing Director Non-Executive Director Non-Executive Director
Nationality: Ugandan Nationality: Kenyan Nationality: Ugandan Nationality: Ugandan
Hon. Dr. Elly Karuhanga was Mathu was appointed to the Board Fred had a long and distinguished Fabian is the Managing Director of formerly a member of Parliament for on 4 October 2017 in his capacity as career in operations with the Centenary Bank. He was the Board Nyabushozi County and Chairman Managing Director of the Company. Company, retiring as Head of Chairman of the Association of of the Presidential & Foreign Affairs He has 19 years of experience in Processing in 2000. He previously Microfinance Institutions of Uganda committee of the Parliament of the marketing and business strategy worked for the then East African and served on the Board of FINCA Republic of Uganda and Chairman of with the BAT Group, having worked Railways Corporation and was also as Uganda and Kampala Club. the National Social Security Fund. in five (5) countries namely Kenya, a Board Member of the Civil Tanzania, Ethiopia, South Africa and Aviation Authority of Uganda. Upon He is the Chairman of the Advisory He is a founding Partner of Kampala now Uganda. retiring from the Company, he joined Board of Microfinance Department Associated Advocates and the Babcon Uganda Limited, a privately- of Nkozi University and of the founder President and Chairman Within the BAT Group, Mathu has owned local construction company. Uganda Bankers Association. He is of the Governing Council of the previously held country management also a Board member of the Uganda Centre for Arbitration and Alternative roles for BAT’s operations in Ethiopia He is a member of the Uganda Institute of Bankers and of Cheshire Dispute Resolution of Uganda. He is and Tanzania. Prior to joining the BAT Institute of Professional Engineers and Homes Katalemwa. also the former President of Tullow Uganda Board, he was Head of Trade the Institute of Corporate Governance Oil in Uganda and is the Chairman of Marketing and Distribution for BAT of Uganda. He holds a bachelor’s degree in the Governing Council of the Uganda Uganda. Commerce and is a Fellow of the Chamber of Mines and petroleum. Association of Chartered Certified He is the Honorary Consul General of He holds a Masters degree in Strategic Accountants (FCCA), United the Republic of Seychelles to Uganda Management from the United States Kingdom. and also serves on the Boards of International University in Nairobi DFCU Group, Nile Breweries (AB Kenya and an Undergraduate Degree InBev) and Marasa Holdings. in Management from University of Eastern Africa Baraton in Eldoret, He holds a Bachelor’s Degree in Law Kenya. (LLB) and a Post Graduate Diploma in Legal Practice.
22 23 BAT Uganda 2018 Annual Report & Financial Statements BAT Uganda 2018 Annual Report & Financial Statements CORPORATE GOVERNANCE REPORT CORPORATE GOVERNANCE REPORT
Board of Directors
Philemon Kipkemoi Nicholas Ecimu Non-Executive Director Company Secretary
Nationality: Kenyan Nationality: Ugandan
Philemon was appointed to the Board Nicholas is a Partner at Sebalu and of BAT Uganda as a Non-Executive Lule Advocates and heads the firm’s Director on 3rd October 2017. Energy, Oil & Gas, Mining and He is currently serving as Head of Projects practice. He also provides Finance for BAT East African Markets company secretarial services to cluster which consists of 16 markets companies including Orient Bank including Uganda, Rwanda, Tanzania, Limited. Mauritius, La Reunion, South Sudan, Somalia, Somaliland, the Comoros He is a member of the Institute Islands, Seychelles, Djibouti, Mayotte, of Chartered Secretaries and Madagascar, Eritrea, Ethiopia and Administrators- London, holds a Post Burundi. Graduate Diploma in Legal Practice and a Bachelor of Laws Degree from He has over fifteen (15) years’ Makerere University. experience in Financial Management and has served in several senior He has trained with renowned positions within the BAT Group. institutions around the world like He is a Fellow of the Association of Euro Money Training Solutions Chartered Certified Accountants PLC-London, Institute of Public (FCCA) and holds an MBA from Private Partnerships-Washington Oxford Brookes University – UK. DC, International Development Law Organisation-Rome and the Royal Institute of Public Administration- London. He is internationally recognised as a leading projects lawyers by both Chambers Global- the World’s leading lawyers and the International Financial Law Review (IFLR1000).
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Leadership Team
Vincent Kaloki Mathu Kiunjuri Kirunda Magoola Agnes Ssali Head of Finance Managing Director External Affairs Manager Legal Counsel
Vincent has been with the BAT Mathu was appointed to the Kirunda joined BAT Uganda in Agnes has served as Legal Group for 10 years. He joined Board on 4 October 2017 in his October 2018 to drive the Legal Counsel since 2011 when she BAT in 2008 as Marketing capacity as Managing Director and External Affairs agenda for joined BAT Uganda to drive the Finance Manager in charge of of the Company. He has over 18 the Uganda market. Company’s legal and regulatory Horn of Africa markets. Prior years of experience in marketing agenda. to his appointment as Head of and business strategy with the He brings 17 years of experience Finance for BAT Uganda, he BAT Group, having worked in in regulation and policy She holds a Bachelor of Laws served as Commercial Finance five (5) countries namely Kenya, development from various fields Degree from Makerere University Manager for BAT East African Tanzania, Ethiopia, South Africa including the energy and sugar and a Post Graduate Diploma Markets cluster which consists of and now Uganda. sectors. in Legal Practice from the Law 16 markets including Mauritius, Development Centre. She is Reunion, Somalia, Uganda, Within the BAT Group, Mathu Kirunda holds a Master of also a member of the Institute Rwanda, Tanzania, Ethiopia, has previously held country Science degree in Accounting of Chartered Secretaries & Burundi and South Sudan. management roles for BAT’s and Finance from Makerere Administrators (ICSA) UK operations in Ethiopia and University Business School and and is pursuing a Master of Vincent holds a Master of Tanzania. Prior to joining the BAT a Bachelor of Commerce degree Business Administration Degree Science degree in information Uganda Board, he was Head of from Bhopal University, India. from Herriot Watt University systems engineering from Trade Marketing and Distribution (Edinburgh Business School), University of Sunderland and for BAT Uganda. Scotland. an Undergraduate degree in Business and management He holds a Masters degree in (Accounting) from Egerton Strategic Management from University. He is also a certified the United States International public Accountant (CPA) and University in Nairobi, Kenya and a member of the Institute of an Undergraduate Degree in Certified Public Accountants of Management from University of Kenya (ICPAK). Eastern Africa Baraton in Eldoret, Kenya.
26 27 BAT Uganda 2018 Annual Report & Financial Statements BAT Uganda 2018 Annual Report & Financial Statements CORPORATE GOVERNANCE REPORT CORPORATE GOVERNANCE REPORT
STATEMENT OF CORPORATE GOVERNANCE STATEMENT OF CORPORATE GOVERNANCE (continued)
Corporate Governance approach h) Declaring interim and recommending the final Division of responsibilities Meetings of the Board British American Tobacco Uganda (the Company) is dividend to the shareholders; and The Company has a unitary board structure and The Board holds at least three pre-scheduled meetings committed to implementing initiatives that foster good the roles of the Chairman and Managing Director annually, with a mandate to formulate, review, evaluate corporate governance. The Company prides itself in i) Determining the Terms of Reference of all Board are separate. The Chairman is an independent non- and make decisions on key strategic and operational the establishment of an appropriate legal, institutional committees and reviewing of reports and minutes executive director and is responsible for leadership of the activities of the business. Other meetings are conducted and policy driven environment that allows it to thrive of the Committees. Board and for ensuring its effectiveness on all aspects of as the need arises. The attendance of Board meetings in and remain a going concern and which advances its roles. The Chairman is also accountable to the Board 2018 was as below: long-term shareholder value and people development Composition of the Board for leading the direction of the Company’s corporate while strictly observing its responsibilities to the society The Board is currently constituted of five directors, four and financial strategy and for overall supervision of the 12th 8th 25th 6th that we operate in. The Board of Directors (the Board) of whom are Non-Executive Directors and out of the policies governing the conduct of the business. Director February May July December adopts robust Corporate Governance practices and said four Non-Executive Directors, three are independent 2018 2018 2018 2018 strong oversight processes in order to create a system of Non-Executive Directors. Directors are elected by The Managing Director has overall responsibility for the Hon. Dr. Elly governance that ensures conformance and performance, the shareholders in accordance with the Company’s performance of the business and provides leadership Karuhanga • driven by the vision and mission of the Company. Articles of Association. Casual vacancies occurring in to facilitate successful planning and execution of the Fabian the Board are filled by the Board in accordance with objectives agreed by the Board. The Managing Director Kasi • • This Statement takes cognizance of, and elucidates on, the stipulations in the Company’s Articles of Association reports to the Board on a quarterly basis and more Fred how the Company complies with the Capital Markets which include having to offer up for election, any such frequently where the exigencies of the business so Tumwesigye (Corporate Governance) Guidelines, 2003 and its require. director appointed to fill a casual vacancy, in the very Philemon continuing listing obligations under the Listing Rules next Annual General Meeting of the shareholders. The Kipkemoi of the Uganda Securities Exchange and the Corporate Board is accountable and responsible for the efficient Delegation of authority Mathu Governance Guidelines of the Capital Markets Authority and effective governance of the Company in accordance Although day to day managerial authority is delegated Kiunjuri (CMA). The above laws and regulations are intended to the Memorandum and Articles of Association. The to the management team led by the Managing Director, to ensure that public listed companies adhere to sound Composition of the Board including directors’ profiles the Board monitors and evaluates the implementation = Attendance | • = Absent with Apology corporate practices and good governance. and competencies can be seen on pages 22 to 24 of this of strategies, policies, management performance annual report. and business plans at its meeting and through committees it has established to assist it in discharging Board Committees The role of the Board The composition of the Board takes cognizance of the its responsibilities. The Board regularly reviews the 1. Local Audit Committee The Board is accountable and responsible for the knowledge, skills and experience of the directors for delegation of authority framework to ensure that it is The Company maintains a sound system of internal efficient and effective governance of the Company effective contribution to the Board and the business of appropriate and consistent with best practice and meets control to safeguard shareholders’ investment and in accordance with the Memorandum and Articles of the Company. All Directors are highly regarded, qualified the requirements of the Company. The following are the the Company’s assets. The Local Audit Committee Association. The following are some of the key roles of and experienced individuals with proven business three committees established by the Board: (LAC) regularly reviews the Company’s processes the Board; acumen and hold positions of responsibility and other and procedures to ensure the effectiveness of these directorships in credible entities. The diversity of skills 1. The Local Audit Committee; controls. The LAC monitors the integrity of the a) Approval and validation of Company strategy as and experience on the Board ensures that the Board Company’s financial reporting. well as risk management; functions effectively. 2. The Nominations Committee; and The LAC also helps to identify and assess, together b) Approval of Company policies; The Board provides leadership based on integrity, 3. The Remuneration Committee. with management, any risks that might prevent the transparency, accountability and responsibility. The Company’s objectives from being achieved. The c) Ensuring internal and regulatory compliance; Directors have a duty to govern, direct, control, lead, These Committees assist the Board in the performance Committee also reviews and makes recommendations guide and monitor the performance of the Company. of its duties. The committees meet regularly and, in to the Board on the Company’s conduct of its d) Ensuring good corporate governance and Importantly the Board regularly reviews the Company’s their meetings, interact with members of management business in conformity with the Company’s core monitoring the ethical standards of the Company; internal controls and governance systems to ensure that regarding the operations of the Company. The values. the control environment is robust for business growth committees are established on the basis of specific e) Agreeing on Board succession plans; and sustainability. terms of reference which set out its responsibilities, The LAC is chaired by a Non-Executive Director and Composition, scope of authority and procedures to be has a membership of two Non-Executive Directors, f) Approving major corporate activities and company It is the Board’s duty to prepare and present a balanced followed. internal and external auditors as well as members budget; and understandable assessment of the Company’s from the management team of the Company who position while reporting to the shareholders and other are permanent invitees on the LAC. g) Reviewing periodic financial reports and approval stakeholders. of the Annual Report; The LAC meets at least three times a year and uses internal and external audit results to support the monitoring of risks and controls throughout the year.
28 29 BAT Uganda 2018 Annual Report & Financial Statements BAT Uganda 2018 Annual Report & Financial Statements CORPORATE GOVERNANCE REPORT CORPORATE GOVERNANCE REPORT
STATEMENT OF CORPORATE GOVERNANCE STATEMENT OF CORPORATE GOVERNANCE (continued)
2. Remuneration Committee The Company Secretary Employees Compliance This Committee’s mandate is to assist the Board The Companies Act provides for the appointment of a Our employment principles provide a framework for The Company complies with applicable legislation, in setting and overseeing the implementation Company Secretary whose duties are to facilitate the best work place practices and employee relations. regulations, standards and policies and continues to of the Company’s remuneration philosophy and Board processes and guide the Board on the proper Recruitment of employees is done meritoriously on the monitor such compliance. strategy. The Remuneration Committee determines discharge of their duties and responsibilities. The basis of equality and equal opportunities. the remuneration policy for employees and Non- Directors have unrestricted access to the services of the Share dealing Executive Directors and ensures that compensation is Company Secretary. Employees have various forums like team briefs, your The Company has a Code of Share Dealing and an performance-driven and appropriately benchmarked voice survey and discussion forums, at which they Insider Trading Policy whose purpose is to ensure that against other companies in Uganda. Strategy express their concerns and make direct contribution to the Company’s employees, contractors or directors do The Board is responsible for the development and the management of the business. not use confidential price sensitive information to the The Remuneration Committee is further responsible guidance of the Company’s business strategy. The Board detriment of the market. The Code and Policy prescribe for setting executive remuneration covering salary with the assistance of management, ensures that the Engagement with shareholders restricted insiders from dealing in the Company’s shares and benefits, performance-based, variable rewards, strategic objectives and initiatives of the Company are The Company ensures that its shareholders and during closed periods, being the period from the end of pensions and terms of service, setting of targets aligned with its vision and core values and regularly the investing public are availed with full and timely the financial year to publication of annual results and in applicable for the Company’s performance-based monitors and reviews the performance of the Company information about its business and performance. This the case of half year results, from the end of the half year reward schemes, monitoring and advising the Board against the strategic objectives developed. is achieved through publication of half-year and full- period to publication of the half year results. Compliance on major changes to the policy on employee benefit year Financial Statements, annual reports, attending with the Code and Policy is monitored regularly. structures for the Company. Access to information and resources to information requests at all times and holding Notification is given to the restricted insiders by the Directors have unrestricted access to management and shareholder meetings. Company Secretary providing the commencement and The Committee is chaired by a Non-Executive Company information, and the resources necessary end of closed periods. Director and has a membership of two Non-Executive to carry out their role. Directors are provided with The Company engages closely with the holding Directors. Members from the management team of comprehensive information to facilitate their decision company which provides technical support to the Going concern the Company may however be invited to Committee making within and outside of Board meetings. management on an ongoing basis. The Directors have sufficient reason to believe that the meetings. Company has adequate resources to continue operating Standards of Business Conduct Every shareholder has a right to participate and vote as a going concern. The Committee meets at least once a year to at the general shareholders meeting including the discharge its duties and responsibilities. However, ad The Company strives to uphold the highest level of integrity and to ensure that its business and dealings are election of Directors. Shareholders are encouraged to hoc meetings may be called as and when requested ask questions or seek clarification on the Company’s by management or assigned by the Board. conducted ethically. In that regard, the Company has adopted the BAT Group Standards of Business Conduct performance as reflected in the annual reports and which ensure the achievement of the Company’s accounts or in any matter that may be relevant to the 3. Nomination committee company’s performance or promotion of shareholders’ This Committee’s mandate is to review and consider business objectives in a responsible manner in tandem with high standards of honesty, transparency and interests and receive explanations from the Directors and the structure and balance of the Board and make /or management. recommendations regarding appointments, integrity. All the Company’s employees and directors retirements and terms of office of directors. sign the Standards of Business Conduct adherence on an annual basis. Enforcement and observance of the The Company engaged Deloitte (Uganda) Limited to handle day to day shareholder register issues. Dividends The Committee’s responsibilities include, among Standards of Business Conduct is continually monitored. Compliance ensures that the actions of employees and when declared are paid on time. The Company declared others, identifying and recommending to the Board, a final dividend of Ushs 280 per share which was candidates for the Board and competencies of new directors are in line with the expected ethical standards and the laws of Uganda. The Standards enhance proposed by the Board on the 13 February 2019 and directors, reviewing induction procedures, reviewing will be presented to the Annual General Meeting for succession plans for the Board and reviewing employees’ and Directors’ ability to make appropriate judgment and decisions in the course of their work. approval by eligible shareholders. measures for keeping directors up to date with the Company’s activities and external developments. Management of conflict of interest Stakeholder engagement The Board is focused on ensuring that the Company The Committee is chaired by a Non-Executive In accordance with the Standards of Business Conduct, maintains regular and appropriate engagement with Director and has a membership of two Non-Executive Directors and employees must immediately disclose its key stakeholders who include the Government of Directors. Members from the management team of any actual or potential conflicts of interest which are Uganda, regulatory agencies such as the Capital Markets the Company may however be invited to Committee duly recorded and appropriate action taken. Actual and Authority, the Uganda Securities Exchange, the Uganda meetings. potential conflicts of interest must also be disclosed each year during the year end formal confirmation of Revenue Authority and the general public. The Board recognises that the goodwill of stakeholders is critically The Committee is mandated to meet at least three compliance with the Standards. important to the Company’s sustainability and long-term times a year to discharge its duties and responsibilities future. with informal and ad hoc meetings being convened as and when required.
30 31 BAT Uganda 2018 Annual Report & Financial Statements BAT Uganda 2018 Annual Report & Financial Statements 32 33 BAT Uganda 2018 Annual Report & Financial Statements BAT Uganda 2018 Annual Report & Financial Statements Financial Statements
DIRECTORS' REPORT
The Directors submit their report together with the audited Financial Statements for the year ended 31 December 2018, which disclose the state of affairs of British American Tobacco Uganda Limited (the “Company”).
Incorporation Financial The Company was incorporated in 1984 under the Companies Act of Uganda. Principal activities The principal activities of the Company are currently importation and distribution of cigarettes. Statements Results and dividend The net profit for the year of Ushs 13,742 million (2017: Ushs 12,075 million) has been added to retained earnings. The directors recommend the payment of a dividend of Ushs 280 per share, amounting to Ushs 13,742 million (2017: Ushs 246 per share, amounting to Ushs 12,075 million).
Directors The Directors who held office during the year and to the date of this report are set out on page 22 to 24.
Auditors The auditors, KPMG, being eligible for reappointment, have indicated their willingness to continue in office in accordance with section 167(2) of the Companies Act of Uganda.
Approval of the Financial Statements The Financial Statements were approved at the meeting of the Board of Directors held on13 February 2019.
By order of the Board
Sebalu & Lule Advocates Company Secretary
13 February 2019
34 35 BAT Uganda 2018 Annual Report & Financial Statements BAT Uganda 2018 Annual Report & Financial Statements Financial Statements Financial Statements
STATEMENT OF DIRECTORS’ RESPONSIBILITIES INDEPENDENT AUDITORS’ REPORT
The Directors are responsible for the preparation and fair presentation of the Financial Statements of British American Tobacco TO THE MEMBERS OF BRITISH AMERICAN TOBACCO LIMITED Uganda Limited set out on pages 40 to 72 which comprise the statement of financial position as at 31 December 2018, the statements of comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant Report on the Audit of the Financial Statements accounting policies and other explanatory notes, in accordance with International Financial Reporting Standards and the Companies Act of Uganda, and for such internal control as the directors determine is necessary to enable the preparation of Opinion Financial Statements that are free from material misstatement whether due to fraud or error. We have audited the Financial Statements of British American Tobacco Uganda Limited (the “Company”), which comprise the statement of financial position as at 31 December 2018, and the statements of comprehensive income, changes in equity and The Directors’ responsibilities include; designing, implementing and maintaining internal control relevant to the preparation and cash flows for the year then ended, and notes to the Financial Statements, comprising significant accounting policies and other fair presentation of these Financial Statements that are free from material misstatement, whether due to fraud or error; selecting explanatory information set out on pages 40 to 72. and applying appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances. They are also responsible for safeguarding the assets of the Company. In our opinion, the accompanying Financial Statements give a true and fair view of the financial position of British American Tobacco Uganda Limited as at 31 December 2018, and of its financial performance and its cash flows for the year then ended in Under the Companies Act of Uganda, the Directors are required to prepare Financial Statements for each financial year which accordance with International Financial Reporting Standards and the Companies Act of Uganda. give a true and fair view of the operating results of the Company for that year. It also requires the Directors to ensure that the Company keeps proper accounting records which disclose with reasonable accuracy the financial position of the Company. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards The Directors accept responsibility for the annual Financial Statements, which have been prepared using appropriate accounting are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are policies supported by reasonable and prudent judgements and estimates, in conformity with International Financial Reporting independent of the Company in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Standards and the Companies Act of Uganda. The Directors are of the opinion that the Financial Statements give a true and fair Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the Financial view of the state of the financial affairs of the Company and of its operating results for the year ended 31 December 2018. Statements in Uganda, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. The Directors further accept responsibility for the maintenance of accounting records that may be relied upon in the preparation of Financial Statements as well as adequate systems of internal financial control. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the Financial The Directors have made an assessment of the Company’s ability to continue as a going concern and have no reason to believe Statements of the current period. These matters were addressed in the context of our audit of the Financial Statements taken as a the Company will not be a going concern for at least the next twelve months from the date of this statement. whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
The key audit matter How the matter was addressed in our audit Approval of the Financial Statements The Financial Statements of British American Tobacco Uganda Limited which appear on pages 40 to 72, were approved by the Provisions and contingent liabilities in respect of litigations: Board of Directors on 13 February 2019 and were signed on its behalf by: The disclosures associated with provisions and contingent liabilities are set out in the Financial Statements in the following notes; Note 23: Provisions for other liabilities. Note 24: Contingent liabilities. Note 4: (i) Critical accounting estimates and assumptions.
The key audit matter How the matter was addressed in our Audit Director Director The Company is subject to claims and class actions, which We assessed the processes and controls over litigations could have a significant impact on the operating results if the instituted by the Directors. potential exposures were to materialise. The Directors apply significant judgement when considering We inspected documents relating to the nature of ongoing 13 February 2019 whether, and how to account for the potential exposure of claims, and validated the latest status, and financial reporting each litigation. These assumptions include; implications through discussion with internal legal counsel and the finance team. the likelihood and/or timing of cash outflows. We assessed the reasonableness of management assumptions regarding the likelihood and potential cash outflows in relation to the outstanding legal cases at the end of the financial reporting period by 31 December 2018. the interpretation of pending or preliminary rulings in We also obtained formal confirmations from the Company’s assessing whether provisions arise. external legal counsel for significant litigation matters to ensure completeness of potential exposures and suitability of the accounting treatment adopted by management. We focused on this area given the number and magnitude We assessed relevant historical and recent judgments passed of potential litigations that the Company is exposed to, and by the court authorities alongside legal opinions from external the complexity and judgement necessary to determine the lawyers to challenge the assumptions made by the directors accounting treatment of the exposures (whether to provide for in determining whether to provide for losses or determining or merely disclose certain disclosures) whether to provide for losses or disclose the potential contingent liabilities.
36 37 BAT Uganda 2018 Annual Report & Financial Statements BAT Uganda 2018 Annual Report & Financial Statements Financial Statements Financial Statements
INDEPENDENT AUDITORS’ REPORT (continued) INDEPENDENT AUDITORS’ REPORT (continued)
Other information We also provide those charged with governance with a statement that we have complied with relevant ethical requirements The Directors are responsible for the other information. The other information comprises the information included in the regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to Company Information, Report of the Directors and the Statement of Directors’ Responsibilities, which we obtained prior to bear on our independence, and where applicable, related safeguards. the date of this auditors’ report and the annual report, which is expected to be made available to us after that date. Other information does not include the Financial Statements and our auditors’ report thereon. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the Financial Statements of the current period and are therefore the key audit matters. We describe Our opinion on the Financial Statements does not cover the other information and we do not express any form of assurance these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely conclusion thereon. rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. In connection with our audit of the Financial Statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the Financial Statements or our knowledge obtained in As required by the Companies Act of Uganda we report to you, based on our audit, that: the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a i. We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. the purpose of our audit;
Responsibilities of Directors for the Financial Statements ii. In our opinion, proper books of account have been kept by the Company, so far as appears from our examination of those The Directors are responsible for the preparation of Financial Statements that give a true and fair view in accordance with books; and International Financial Reporting Standards and in the manner required by Companies Act of Uganda, and for such internal control as the directors determine is necessary to enable the preparation of Financial Statements that are free from material iii. The statements of financial position and comprehensive income are in agreement with the books of account. misstatement, whether due to fraud or error. The engagement partner on the audit resulting in this independent auditors’ report is CPA Asad Lukwago P0365. In preparing the Financial Statements, the directors are responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the Financial Statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the KPMG aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these Financial Certified Public Accountants Statements. 3rd Floor, Rwenzori Courts Plot 2 & 4A Nakasero Road As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout P.O. Box 3509 the audit. We also: Kampala, Uganda Identify and assess the risks of material misstatement of the Financial Statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a 13 February 2019 basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the Financial Statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Company to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the Financial Statements, including the disclosures, and whether the Financial Statements represent the underlying transactions and events in a manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
38 39 BAT Uganda 2018 Annual Report & Financial Statements BAT Uganda 2018 Annual Report & Financial Statements Financial Statements Financial Statements
STATEMENT OF COMPREHENSIVE INCOME STATEMENT OF FINANCIAL POSITION
Year ended 31 December Year ended 31 December Notes 2018 2017 Notes 2018 2017 Ushs’ 000 Ushs’ 000 Ushs’ 000 Ushs’ 000 Equity attributable to owners
Net revenue 6 69,810,783 68,705,502 Share capital 14 61,350 61,350 Cost of sales 7 (26,748,033) (29,976,978) Revaluation reserve 15 12,464,760 12,768,607 Retained earnings 14,312,009 14,008,162 Gross profit 43,062,750 38,728,524 Proposed dividends 13 13,741,984 12,075,310
Other income 8 2,323,691 2,212,551 Total equity 40,580,103 38,913,429 Distribution costs (7,056,842) (6,943,619) Administrative expenses (15,301,026) (17,144,961) Non-current liabilities Other expenses (3,070,408) 2,485,509 Deferred tax liability 16 4,472,701 4,925,613 Impairment of trade receivables 20 (5,318) -
Total equity and non-current liabilities 45,052,804 43,839,042 Operating profit 19,952,847 19,338,004
Non-current assets Finance income/(costs) 9 42,076 (1,754,411) Property, plant and equipment 17 30,183,666 31,696,383 Prepaid operating lease rentals 18 39,659 40,666
Profit before income tax 19,994,923 17,583,593 Total non-current assets 30,223,325 31,737,049
Income tax expense 12 (6,252,939) (5,508,283) Current assets Income tax recoverable 12 - 1,013,328
Profit after tax 13,741,984 12,075,310 Inventories 19 - 8,616,864 Trade and other receivables 20 11,164,329 9,645,659
Other comprehensive income - - Cash at bank 21 17,262,400 3,995,698 Total current assets 28,426,729 23,271,549
Total comprehensive income for the year 13,741,984 12,075,310 Current liabilities Income tax payable 12 318,546 - Basic and diluted earnings per share 13 280 246 Trade and other payables 22 6,829,447 6,130,159 Provisions for other liabilities 23 6,449,257 5,039,397 The notes set out on pages 44 to 72 form an integral part of these Financial Statements. Total current liabilities 13,597,250 11,169,556
Net current assets 14,829,479 12,101,993 Net assets 45,052,804 43,839,042
The Financial Statements on pages 40 to 72 were approved for issue by the Board of Directors on 13 February 2019 and signed on its behalf by:
Director Director
13 February 2019
The notes set out on pages 44 to 72 form an integral part of these Financial Statements.
40 41 BAT Uganda 2018 Annual Report & Financial Statements BAT Uganda 2018 Annual Report & Financial Statements Financial Statements Financial Statements
STATEMENT OF CHANGES IN EQUITY STATEMENT OF CASH FLOWS FOR THE YEAR
Share Revaluation Retained Proposed Total Year ended 31 December capital surplus earnings dividends equity Notes 2018 2017 Year ended 31 December 2017 Notes Ushs’ 000 Ushs’ 000 Ushs’ 000 Ushs’ 000 Ushs’ 000 Ushs’ 000 Ushs’ 000
At start of year 61,350 13,072,454 13,704,315 7,810,908 34,649,027 Cash flows from operating activities Cash generated from operations 26 30,747,773 8,995,669 Profit for the year - - 12,075,310 - 12,075,310 Interest paid (5,210) (1,764,818)
Income tax paid 12 (5,373,977) (1,473,915) Other Comprehensive Income: Transfer of excess depreciation in respect of revaluation 15 - (303,847) 303,847 - - surplus net of tax Net cash generated from operating activities 25,368,586 5,756,936
Total comprehensive income - (303,847) 12,379,157 - 12,075,310
Cash flows from investing activities Transactions with owners: Purchase of property, plant and equipment 17 (26,574) (18,783) Final dividend for 2016 13 - - - (7,810,908) (7,810,908)
Proposed dividend for 2017 13 - - (12,075,310) 12,075,310 - Net cash used in investing activities (26,574) (18,783)
At end of year 61,350 12,768,607 14,008,162 12,075,310 38,913,429
Cash flows from financing activities The notes set out on pages 44 to 72 form an integral part of these Financial Statements. Dividends paid to Company’s shareholders (12,075,310) (7,810,908)
Share capital Revaluation Retained Proposed Total equity Net cash used in financing activities (12,075,310) (7,810,908) surplus earnings dividends Year ended 31 December 2018 Notes Ushs’ 000 Ushs’ 000 Ushs’ 000 Ushs’ 000 Ushs’ 000 Net increase/(decrease) in cash and cash equivalents 13,266,702 (2,072,755) Cash at bank at start of year 21 3,995,698 6,068,453 At start of year 61,350 12,768,607 14,008,162 12,075,310 38,913,429
Cash at bank at end of year 21 17,262,400 3,995,698 Profit for the year - - 13,741,984 - 13,741,984
The notes set out on pages 44 to 72 form an integral part of these Financial Statements. Other Comprehensive Income: Transfer of excess depreciation in respect of revaluation 15 - (303,847) 303,847 - - surplus net of tax
Total comprehensive income - (303,847) 14,045,831 - 13,741,984
Transactions with owners: Final dividend for 2017 13 - - - (12,075,310) (12,075,310) Proposed dividend for 2018 13 - - (13,741,984) 13,741,984 -
At end of year 61,350 12,464,760 14,312,009 13,741,984 40,580,103
The notes set out on pages 44 to 72 form an integral part of these Financial Statements.
42 43 BAT Uganda 2018 Annual Report & Financial Statements BAT Uganda 2018 Annual Report & Financial Statements Financial Statements Financial Statements
NOTES NOTES (continued)
1. General information (d) non-cash consideration; and 3. Summary of significant accounting policies (continued) a) Changes in accounting policy and disclosures (continued) British American Tobacco Uganda Limited (the “Company”) is (e) Consideration payable to a customer. (ii) IFRS 9 Financial Instruments (continued) incorporated in Uganda under the Companies Act of Uganda i) Classification and measurement of financial assets and as a limited liability company, and is domiciled in Uganda. The Consideration payable to a customer includes cash financial liabilities (continued) address of its registered office is: amounts that the company pays, or expects to pay, to the customer. British American Tobacco Uganda Limited makes The following table and the accompanying notes below explain the original measurement categories under IAS 39 and 7th Floor, TWED Towers payment to direct and indirect customers (distributors and the new measurement categories under IFRS 9 for each class of the company’s financial assets and financial liabilities as Plot 10, Kafu Road, Nakasero retailers). The company accounts for consideration payable at 1 January 2018. P.O. Box 7100 to a customer as a reduction to the transaction price and, Kampala, Uganda therefore of revenue unless the payment to the customer is The effect of adopting IFRS 9 on the carrying amounts of financial assets at 1 January 2018 relates solely to the new in exchange for a distinct good or service that the customer impairment requirements. For Companies Act of Uganda reporting purposes, the balance transfers to the entity. sheet is represented by the statement of financial position and Original the profit and loss account by the statement of comprehensive IFRS 15 provides stricter criteria than IAS 18, which had income in these Financial Statements. carrying New carrying previously been interpreted as allowing certain incentive Original classification New classification under amount under amount under payments to be treated as a cost. All Marketing expenditure Note under IAS 39 IFRS 9 IAS 39 IFRS 9 or payments by British American Tobacco Uganda to direct 2. Basis of preparation or indirect customers (distributors and retailers) whether Ushs ‘000 Ushs ‘000 The Financial Statements have been prepared in accordance in cash or kind are directly deducted from revenue rather with International Financial Reporting Standards (“IFRS”) and than cost of sales. For the period ended 31 December the Companies Act of Uganda. The measurement basis applied 2018, BAT Uganda had incentives which include; rebates Financial assets is the historical cost basis, except for land and buildings, which and distributor representatives incentives (trade activities) Trade and other receivables (a) Loans and receivables Amortised cost 9,645,659 9,641,07 have been measured at fair value. amounting to Ushs. 2 billion. These have been deducted directly from revenue (see Note 6). Cash and cash equivalents Loans and receivables Amortised cost 3,995,698 3,995,698 The preparation of Financial Statements in conformity with IFRS requires the use of certain critical accounting estimates. It should be noted that, in 2017 BAT Uganda deducted all Total Financial assets 13,641,357 13,636,769 It also requires management to exercise its judgement in the such marketing expenditure as required under IFRS 15 from process of applying the Company’s accounting policies. The revenue already as per the company policy. areas involving a higher degree of judgement or complexity, Financial Liabilities or where assumptions and estimates are significant to the (ii) IFRS 9 Financial Instruments Trade payables Other financial liabilities Other financial liabilities 6,130,159 6,130,159 Financial Statements, are disclosed in Note 4. IFRS 9 sets out the requirements for recognising and measuring financial assets, financial liabilities and some This is the first set of the company’s Financial Statements in contracts to buy or sell non-financial items. This standard which IFRS 15 Revenue from contracts with customers and replaces IAS 39 Financial instruments: Recognition and Total Financial liabilities 6,130,159 6,829,451 IFRS 19 Financial instruments have been applied. Changes to Measurement. significant accounting policies are described in Note 3. As a result of adoption of IFRS 9, the company has a) Trade and other receivables that were classified as loans and receivables under IAS 39 are now classified at 3. Summary of significant accounting policies adopted consequential amendments to IAS 1 Presentation amortised cost. An increase of Ushs 4,588,499 in the allowance for impairment over these receivables has not been recognised in opening retained earnings at 1 January 2018 on transition to IFRS 9 as the amount doesn’t result in a The principal accounting policies applied in the preparation of Financial Statements, which requires impairment of material impact in the statement of financial position. of these Financial Statements are set out below. These policies financial assets to be presented in a separated line item in have been consistently applied to all years presented, unless the statement of profit or loss and OCI. ii) Impairment of financial assets otherwise stated i) Classification and measurement of financial assets IFRS 9 replaces the “incurred loss” model in IAS 39 with an “Expected Credit Loss” (ECL) model. The new impairment model applies to financial assets measured at amortised cost, contract assets and debt investments at FVOCI, but not a) Changes in accounting policy and disclosures and financial liabilities to investments in equity instruments. Under IFRS 9, credit losses are recognised earlier than IAS 39. (i) IFRS 15 Revenue from contracts with customers IFRS 9 contains three principal classification IFRS 15 establishes a comprehensive framework for categories for financial assets: measured at For assets in the scope of the IFRS 9 impairment model, impairment losses are generally expected to increase and determining whether, how much and when revenue amortised cost, FVOCI and FVTPL. The classification become more volatile. is recognised. It replaced IAS 18 Revenue, IAS 11 of financial assets under IFRS 9 is generally based Construction Contracts and related interpretations. Under on the business model in which a financial Additional information about how the company measures the allowance for impairment is described in Note 3(h). IFRS 15, revenue is recognised when a customer obtains asset is managed and its contractual cash flow control of the goods and services. The comparative characteristics. IFRS 9 eliminates the previous IAS 39 iii) Transition information throughout these Financial Statements has categories of held to maturity, loans and receivables not been restated to reflect the requirements of the new and available for sale. Changes in accounting policies resulting from the adoption of IFRS 9 have been applied retrospectively, except as standards. IFRS 9 largely retains the existing requirements in described below; The BAT Group has adopted IFRS 15 using the full IAS 39 for the classification and measurement of The company has used an exemption not to restate comparative information for prior periods with respect to retrospective approach to ensure comparability of the financial liabilities. classification and measurement (including impairment) requirements. Differences in the carrying amounts of income statement in all periods. The adoption of IFRS 9 has not had a significant financial assets and financial liabilities resulting from adoption of IFRS 9 are recognised in retained earnings as at 1 January 2018. Accordingly, the information presented for 2017 does not generally reflect the requirements of IFRS (a) variable consideration; effect on the company’s accounting policies related to financial liabilities. 9, but rather those of IAS 39. (b) constraining estimates of variable consideration; For an explanation of how the company classifies The following assessments have been made on the basis of the facts and circumstances that existed at the date of initial application. (c) the existence of a significant financing component and measures financial instruments and accounts for in the contract; related gains and losses under IFRS 9, (see Note 3 (h)) The determination of the business model within which a financial asset is held.
44 45 BAT Uganda 2018 Annual Report & Financial Statements BAT Uganda 2018 Annual Report & Financial Statements Financial Statements Financial Statements
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3. Summary of significant accounting policies (continued) the customer (‘lessee’) and the supplier (‘lessor’). IFRS 16 3. Summary of significant accounting policies (continued) The IASB also updated references to the Conceptual a) Changes in accounting policy and disclosures (continued) replaces the previous leases Standard, IAS 17 Leases, and b) New standards, amendments and interpretations (continued) Framework in IFRS Standards by issuing Amendments (ii) IFRS 9 Financial Instruments (continued) related Interpretations. IFRS 16 introduces a single, on (ii) New standards and interpretations not yet adopted by to References to the Conceptual Framework in IFRS (iii) Transition (continued) balance sheet lease accounting model for lessees. A lessee 2018 (continued) Standards. This was done to support transition to the recognises a right-of-use asset representing its right to use revised Conceptual Framework for companies that develop the underlying asset and a lease liability representing its IFRIC 23 Uncertainty over Income Tax treatments accounting policies using the Conceptual Framework when obligation to make lease payments. There are recognition IFRIC 23 clarifies the accounting for income tax treatments no IFRS Standard applies to a particular transaction. The designation and revocation of the previous exemptions for short term leases and leases of low-value that have yet to be accepted by tax authorities. Specifically, designations of certain financial assets and items. Lessor accounting remains similar to the current IFRIC 23 provides clarity on how to incorporate this Although we expect this to be rare, some companies financial liabilities as measured at FVTPL. standard – i.e. lessors continue to classify leases as finance uncertainty into the measurement of tax as reported in the may use the Framework as a reference for selecting or operating leases. Financial Statements. their accounting policies in the absence of specific IFRS b) New standards, amendments and interpretations requirements. In these cases, companies should review (i) New and amended standards adopted by the Company The standard is effective for annual periods beginning on IFRIC 23 does not introduce any new disclosures but those policies and apply the new guidance retrospectively New amendments or interpretation effective for annual or after 1 January 2019, with early adoption permitted reinforces the need to comply with existing disclosure as of 1 January 2020, unless the new guidance contains periods beginning on or after 1 January 2018 are only if the entity also adopts IFRS 15. The transitional requirements about: specific scope outs. summarised below: requirements are different for lessees and lessors. judgments made; Management’s assessment indicates that the application assumptions and other estimates used; and New amendments or interpretation Effective date BAT Uganda has assessed the estimated impact that initial of these amendments will have no material impact on the application of IFRS 16 will have on its Financial Statements. disclosures or on the amounts recognised in the company’s the potential impact of uncertainties that are not Financial Statements. reflected. iFRS 15 Revenue from Contracts 1 January 2018 For leases where BAT Uganda is a lessee, it will recognise assets and liabilities for its operating leases of office rent c) Revenue from contracts with customers with Customers (replaces IAS 18) and motor vehicles. The nature of expenses related to those IFRIC 23 applies for annual periods beginning on or after 1 Policy applicable after 1 January 2018 IFRS 9 Financial Instruments 1 January 2018 leases will change because BAT Uganda will recognise a January 2019. Earlier adoption is permitted. The core principle of IFRS 15 is that an entity recognises (replaces IAS 39) depreciation charge for right-of-use assets and interest revenue to depict the transfer of promised goods or The application of these amendments will have no material Classification and Measurement of 1 January 2018 expense on lease liabilities. services to customers in an amount that reflects the impact on the disclosure or on the amounts recognised in consideration to which the entity expects to be entitled in Share-based Payment Transactions the Company’s Financial Statements. (Amendments to IFRS 2) BAT Uganda will recognise cash payments for the principal exchange for those goods or services. portion of the lease liability within financing activities, IFRIC 22 Foreign Currency 1 January 2018 cash payments for the interest portion of the lease liability Prepayment features with negative compensation IFRS 15 uses the concept of “control” to determine when Transactions and Advance applying the requirements in IAS 7 Statement of Cash (Amendments to IFRS 9) revenue should be recognised and requires revenue to be Consideration Flows for interest paid and short-term lease payments, The amendments clarify that financial assets containing recognised based upon the transfer of goods or services. payments for leases of low-value assets and variable lease prepayment features with negative compensation can now BAT Uganda provides cigarettes. payments not included in the measurement of the lease be measured at amortised cost or at fair value through (ii) New standards and interpretations not yet adopted by liability within operating activities. other comprehensive income (FVOCI) if they meet the The standard contains a single model that applies 2018 other relevant requirements of IFRS 9. to contracts with customers and two approaches to At the date of authorisation of the Financial Statements Under IFRS 16, Service contracts will continue to be (Include entity specific impact of the amendments) recognising revenue: at a point in time or over time. of British American Tobacco Uganda Limited for the year recognised as a charge in the profit and loss account and The model features a contract-based five-step analysis of ended 31 December 2018, the following Standards and will not be capitalised. Service cost components of leasing The amendments apply for annual periods beginning on or transactions to determine whether, how much and when Interpretations were in issue but not yet effective: arrangements will need to be separated out from the rental after 1 January 2019 with retrospective application, early revenue is recognised. of a right to use asset, unless a “practical expedient” is adoption is permitted. applied The core principle of IFRS 15 is that an entity recognises Effective for Management’s assessment indicates that the application revenue to depict the transfer of promised goods or annual periods of these amendments will have no material impact on the New amendments or interpretation In addition, BAT Uganda will no longer recognise services to customers in an amount that reflects the beginning on or provisions for operating leases that it assesses to be onerous disclosures or on the amounts recognised in the company’s consideration to which the entity expects to be entitled in after Financial Statements exchange for those goods or services. IFRS 16 Leases 1 January 2019 Management will apply IFRS 16 initially on 1 January 2019 retrospectively with the cumulative effect of Amendments to references to conceptual framework in IFRS IFRS 15 uses the concept of “control” to determine when IFRIC 23 Uncertainty over Income 1 January 2019 initially applying IFRS 16 recognised at the date of initial Standards revenue should be recognised and requires revenue to be Tax Treatment application in which case, comparative information The IASB decided to revise the Conceptual Framework recognised based upon the transfer of goods or services. because certain important issues were not covered and Prepayment features with negative 1 January 2019 will not be restated. Instead, the lessee shall recognise BAT Uganda provides cigarettes. certain guidance was unclear or out of date. The revised compensation (Amendments to the cumulative effect of initially applying IFRS 16 as an Conceptual Framework, issued by the IASB in March 2018, IFRS 9) adjustment to the opening balance of retained earnings at The standard contains a single model that applies the date of initial application. includes: to contracts with customers and two approaches to Annual improvements to IFRS 1 January 2020 a new chapter on measurement; recognising revenue: at a point in time or over time. standards 2015-2017 cycle – Management plans to apply the practical expedient to The model features a contract-based five-step analysis of various standards grandfather the definition of a lease on transition. This will guidance on reporting financial performance; transactions to determine whether, how much and when apply IFRS 16 to all contracts entered into before 1 January revenue is recognised. 2019 and identified as leases in accordance with IAS 17 improved definitions of an asset and a liability, and All standards and Interpretations will be adopted at and IFRIC 4. As a concession, leasing arrangements which guidance supporting these definitions; and BAT recognises revenue in accordance with the core their effective date (except for those standards and expire within 12 months of the initial application of IFRS principle by applying the following five steps: Interpretations that are not applicable to the entity. 16 (and are not renewed) do not have to be recognised as Clarifications in important areas, such as the Step 1: Identify the contract(s) with a customer; leases on the balance sheet. roles of stewardship, prudence and measurement IFRS 16 Leases uncertainty in financial reporting. Step 2: Identify the performance obligations in the IFRS 16 was published in January 2016. It sets out the contract; principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. Step 3: Determine the transaction price;
46 47 BAT Uganda 2018 Annual Report & Financial Statements BAT Uganda 2018 Annual Report & Financial Statements Financial Statements Financial Statements
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3. Summary of significant accounting policies (continued) does not occur until the products have been 3. Summary of significant accounting policies (continued) reserve relating to that asset are transferred to retained c) Revenue from Contracts with Customers (continued) accepted by the customer and there is no continued e) Property, plant and equipment (continued) earnings. management involvement. (ii) Subsequent cost (continued) Step 4: Allocate the transaction price to the f) Leases performance obligations in the contract; No element of financing is deemed present as the Increases in the carrying amount arising on Leases in which a significant portion of the risks and sales are made with a credit term of 30 days, which revaluation of land and buildings are credited to other rewards of ownership are retained by the lessor are Step 5: Recognise revenue when (or as) the entity is consistent with the market practice. The Company comprehensive income and show as a revaluation classified as operating leases. Payments made under satisfies a performance obligation. does not operate any loyalty programmes. reserve in equity. Decreases that offset previous operating leases (net of any incentives received from the increases of the same asset are charged in other lessor) are charged to profit or loss on a straight-line basis Revenue is recognised in the correct period (“cut-off” issue) ii. Interest income is recognised on a time proportion comprehensive income and debited against the over the period of the lease. and reported only where control of the goods has passed basis using the effective interest method. revaluation reserve, all other decreases are charged to the customer. This signifies that BAT Uganda has satisfied to profit or loss. Each year the difference between g) Inventories a performance obligation to its customer in accordance Rental income is recognised as other income and this is depreciation based on the revalued carrying amount Inventories are stated at the lower of cost and net realisable with the requirements of the contract with that customer from subleased property on the basis of valid contracts. of the asset (the depreciation charged to profit or loss) value. Cost is determined by the weighted average cost (steps 1, 2 and 5 of the Revenue model). and depreciation based on the asset’s original cost is method less provision for impairment. The cost of finished d) Foreign currency translation transferred from the revaluation reserve to retained goods and work in progress comprises raw materials, Revenue must be recognised and measured at the correct (i) Functional and presentation currency earnings. direct labour, other direct costs and related production valuation after taking account of rebates, trade activities, Items included in the Financial Statements are overheads (based on normal operating capacity). It returns and other adjustments to reported revenue in measured using the currency of the primary economic (iii) Depreciation excludes borrowing costs. Net realisable value is the accordance with the requirements of the contract with that environment in which the Company operates (‘the Subsequent costs are included in the asset’s carrying estimated selling price in the ordinary course of business, customer (steps 1, 3 and 4 of the Revenue model). functional currency’). The Financial Statements are amount or recognised as a separate asset, as less applicable variable selling expenses. presented in Uganda Shillings (Ushs) rounded to the appropriate, only when it is probable that future Revenue comprises the fair value of the consideration nearest thousands. Uganda Shillings is the Company’s economic benefits associated with the item will flow to h) Financial instruments received or receivable for the sale of goods and services functional currency. the Company and the cost of the item can be measured Policy applicable after 1 January 2018 in the ordinary course of the Company’s activities. Net reliably. The carrying amount of the replaced part is (i) Financial assets revenue is shown after excluding value-added tax (VAT), (ii) Transactions and balances derecognised. All other repairs and maintenance are Initial recognition and measurement excise duty, rebates and discounts. Foreign currency transactions are translated into the charged to profit or loss during the financial period in Financial assets are recognized when the Company functional currency of the Company using the exchange which they are incurred. becomes a party to the contractual provisions of the Nature and timing of satisfaction of performance rates prevailing at the dates of the transactions. Foreign instrument. The financial assets is classified according to obligations, including significant payment terms; exchange gains and losses resulting from the settlement Land is not depreciated. Depreciation on other assets the substance of the contractual arrangements entered Customers obtain control of the products when the goods of such transactions and from the translation at year- is calculated using the straight-line method to allocate into and the definitions of a financial asset. Investments are delivered to and have been accepted at their premises. end exchange rates of monetary assets and liabilities their cost or revalued amounts to their residual values are stated at cost, the carrying amount is reduced if Invoices are generated at that point in time. Invoices are denominated in foreign currencies are recognised in over their estimated useful lives, as follows: there is any indication of impairment in value. The payable within 28 days. profit or loss. financial assets include; deposits, Loans and trade and Buildings 2% - 5% other receivables. Revenue is recognised when the goods are delivered and Foreign exchange gains and losses that relate to Lease hold properties over the period of lease have been accepted by customers at their premises. borrowings and cash and cash equivalents are At initial recognition, trade receivables that do not have presented in profit or loss within ‘finance income or Plant and machinery 7% a significant financing component are measured at their Interest income is recognised on a time proportion basis cost’. All other foreign exchange gains and losses are Fixtures and fittings 33.3% - 10% transaction price. using the effective interest method. presented in profit or loss within ‘other income’ or Equipment and motor ‘other expenses’. 33.30% Financial assets (other than short term trade receivables) Rental income is recognised as other income and this is vehicles and financial liabilities are recognised initially at fair from subleased property on the basis of valid contracts. e) Property, plant and equipment value; in case of a financial asset or financial liability at (i) Recognition and measurement amortised cost, plus or minus transaction costs that are Policy applicable before 1 January 2018 Land and buildings are shown at fair value, based on The assets’ residual values and useful lives are reviewed, directly attributable to the acquisition or issue of the Revenue comprises the fair value of the consideration periodic, but at least triennial, valuations by external and adjusted if appropriate, at the end of each financial asset or financial liability. received or receivable for the sale of goods and services independent valuers, less subsequent depreciation for reporting period. in the ordinary course of the Company’s activities. Net buildings. Any accumulated depreciation at the date Classification and subsequent measurement revenue is shown after excluding value-added tax (VAT), of revaluation is eliminated against the gross carrying Property, plant and equipment are reviewed On initial recognition, a financial asset is classified as excise duty, rebates and discounts. amount of the asset and the net amount is restated to for impairment whenever events or changes in measured at: amortized cost; FVOCI – debt investment; the revalued amount of the asset. All other property, circumstances indicate that the carrying amount may FVOCI – equity investment; or FVTPL. The Company recognises revenue when the amount of plant and equipment are stated at historical cost less not be recoverable. An impairment loss is recognised revenue can be reliably measured, it is probable that future depreciation. Historical cost includes expenditure that for the amount by which the asset’s carrying amount Financial assets are classified on the basis of both: economic benefits will flow to the Company and when is directly attributable to the acquisition of the items. exceeds its recoverable amount. The recoverable specific criteria have been met for each of the Company’s amount is the higher of an asset’s fair value less costs The entity’s business model for managing the activities as described below. The Company bases its to sell and value in use. For the purposes of assessing financial assets and estimates on historical results, taking into consideration the (ii) Subsequent cost impairment, assets are grouped at the lowest levels for type of customer, the type of transaction and the specifics Subsequent costs are included in the asset’s carrying which there are separately identifiable cash flows (cash- The contractual cash flow characteristics of the of each arrangement. amount or recognised as a separate asset, as generating units). Non-financial assets that suffered financial asset. appropriate, only when it is probable that future impairment are reviewed for possible reversal of the Revenue is recognised as follows: economic benefits associated with the item will flow to impairment at each reporting date. The prevailing model for subsequent measurement of a i. Sales of goods are recognised in the period in the Company and the cost of the item can be measured financial asset under IFRS 9 is the fair value model (fair which the Company has delivered products to the reliably. The carrying amount of the replaced part is (iv) Disposal of property and equipment value through profit or loss). customer, the customer has full discretion over the derecognised. All other repairs and maintenance are Gains and losses on disposals are determined by channel and price to sell the products, and there charged to profit or loss during the financial period in comparing the proceeds with the carrying amount and Assets held solely to receive payments of principle and is no unfulfilled obligation that could affect the which they are incurred. are included in profit or loss. When revalued assets interest (SPPI) will be held at amortised cost, with all customer’s acceptance of the products. Delivery are sold, the amounts included in the revaluation other financial assets held at fair value. A financial asset
48 49 BAT Uganda 2018 Annual Report & Financial Statements BAT Uganda 2018 Annual Report & Financial Statements Financial Statements Financial Statements
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3. Summary of significant accounting policies (continued) A financial asset (or, where applicable a part of a 3. Summary of significant accounting policies (continued) Bucket 1: if at the reporting date, the credit risk on h) Financial Instruments (continued) financial asset or part of a group of similar financial h) Financial Instruments (continued) a financial instrument has not increased significantly (i) Financial assets (continued) assets) is derecognised when: (ii) Financial liabilities (continued) since initial recognition, an entity shall measure the Classification and subsequent measurement (continued) recognized in profit or loss. Any gain or loss on loss allowance for that financial instrument at an The rights to receive cash flows from the asset have derecognition is also recognized in profit or loss. amount equal to 12- month expected credit losses, shall be subsequently measured at amortised cost if and expired; whether or not any actual losses have been recognized, only if both of the following conditions are met: The Company’s financial liabilities include trade and and whether or not the entity has insurance cover or The Company has transferred its rights to receive guarantees in place to cover the potential economic The financial asset is held within a business model other payables, amounts due to related parties and cash flows from the asset or has assumed an borrowings. loss; whose objective is to hold financial assets in order to obligation to pay the received cash flows in full collect contractual cashflows; and without material delay to a third party under a ‘pass- De-recognition Bucket 2: at each reporting date, an entity shall through’ arrangement; and A financial liability is derecognised when the obligation measure the loss allowance for a financial instrument at The contractual terms of the financial asset give rise on an amount equal to the lifetime expected credit losses if specified dates to cash flows that are solely payment under the liability is discharged or cancelled or either (a) the company has transferred substantially expires: When an existing financial liability is replaced the credit risk on that financial instrument has increased of principal and interest on the principal amount all the risks and rewards of the asset, or (b) the significantly since initial recognition, and whether or outstanding. by another from the same lender on substantially company has neither transferred nor retained different terms, or the terms of an existing liability not the entity has insurance cover or guarantees in substantially all the risks and rewards of the asset are substantially modified, such an exchange or place to cover the potential economic loss; This category includes: trade receivables and bank but has transferred control of the asset. deposits. modification is treated as a de-recognition of the original liability and the recognition of a new liability, Bucket 3: Where there is objective evidence of actual When the Company has transferred its rights to receive impairment, a lifetime credit loss is recognized and Trade receivables and other receivablest and the difference in the respective carrying amounts is cash flows from an asset and has neither transferred nor recognised in the statement of comprehensive income. the effective interest rate is based on the net (post- Trade receivables and other receivables are non- retained substantially all of the risks and rewards of the impairment) amount. derivative financial assets with fixed or determinable asset nor transferred control of the asset, the asset is Impairment payments that are not quoted in an active market. recognised to the extent of the Company’s continuing The standard approach is applied to any financial assets After initial measurement, such financial assets are Policy applicable from 1 January 2018 involvement in the asset. Financial assets held by the company that have not been recognized subsequently measured at an amortized cost using the as result of applying the revenue standard (IFRS 15) effective interest rate method (EIR), less impairment. At each reporting date, BAT Uganda measures the loss In that case, the Company also recognises an associated allowance for a financial instrument at an amount equal and leasing standard as a result IAS 17. This approach liability. The transferred asset and the associated liability applies to any trade receivables which are potentially Amortised cost is calculated by taking into account any to the lifetime expected credit losses if the credit risk are measured on a basis that reflects the rights and on that financial instrument has increased significantly subject to factoring arrangements, and any trade discount or premium on acquisition and fees or costs obligations that the Company has retained. receivables that have been converted into loans. that are an integral part of the EIR. The EIR amortisation since initial recognition, whether or not any actual losses have been recognized, and whether or not the is included in other income in the consolidated Offsetting financial assets and liabilities Simplified approach for trade receivables and lease statement of comprehensive income. The losses arising entity has insurance cover or guarantee in place to Financial assets and liabilities are offset and the net cover the potential economic loss. receivables from impairment are recognized in the statement of amount reported on the statement of financial position IFRS 9 has a simplified approach for the recognition comprehensive income as provisions. when there is a legally enforceable right to offset the The company recognizes loss allowance for expected of impairment for trade receivables, contract assets recognised amount and there is an intention to settle and lease receivables. The company measures the loss Initial recognition credit losses on all financial assets-investments, on a net basis, or to realise the asset and settle the derivatives, loans, trade receivables, etc. allowance at an amount equal to lifetime expected Financial assets are recognized when the Company liability simultaneously. credit losses for: becomes a party to the contractual provisions of the Loss allowances for trade receivables and contract assets instrument. The financial assets is classified according to Fair value of financial assets and financial liabilities (a) trade receivables or contract assets that result from the substance of the contractual arrangements entered are always measured at an amount equal to lifetime Fair value of financial assets and financial liabilities is expected credit losses. transactions that are within the scope of IFRS 15 into and the definitions of a financial asset. Investments the price that would be received to sell an asset or paid Revenue, are stated at cost, the carrying amount is reduced if to transfer a liability in an orderly transaction between there is any indication of impairment in value. The When determining whether the credit risk of a financial market participants at the measurement date. asset has increased significantly since initial recognition (b) lease receivables that result from transactions that financial assets include; Loans and trade and other are within the scope of IAS 17 (or IFRS 16, when receivables. and when estimating ECLs, the company considers (ii) Financial liabilities reasonable and supportable information that is relevant implemented). Initial recognition and available without undue cost or effort. This includes Subsequent measurement Financial liabilities are initially measured at fair value; BAT Uganda calculates the expected credit losses on The subsequent measurement of financial assets both quantitative and qualitative information and in case of a financial liability at amortized cost, plus or analysis, based on the company’s historical experience trade receivables using a provision matrix. The company depends on their classification as follows: minus transaction costs that are directly attributable to uses its historical credit loss experience for trade and information and including forward-looking the acquisition or issue of the financial liability. information. receivables to estimate the lifetime expected credit Trade receivables and other receivables losses on the financial assets as relevant. Trade receivables and other receivables are non- Classification and subsequent measurement BATU assumes that the credit risk on a financial asset derivative financial assets with fixed or determinable Financial liabilities are classified as measured at Measurement of expected credit losses payments that are not quoted in an active market. has increased significantly if it is more than 28 days past amortized cost or FVTPL. due, Expected credit losses are a probability-weighted After initial measurement, such financial assets are estimate of credit losses. Credit losses are measured subsequently measured at an amortized cost using the Financial liabilities at fair value through profit or loss: A BATU considers a financial asset to be in default when; as the present value of all cash shortfalls (i.e. the effective interest rate method (EIR), less impairment. financial liability is classified as at FVTPL if it is classified difference between the cash flows due to the company as held-for-trading, it’s a derivative or it is designated as in accordance with the contract and the cash flows that Amortised cost is calculated by taking into account any The distributor is unlikely to pay the credit such on initial recognition. Financial liabilities at FVTPL obligations to BATU in full. the company expects to receive). discount or premium on acquisition and fees or costs are measured at fair value and net gains and losses, that are an integral part of the EIR. The EIR amortisation including any interest expense, are recognized in profit IFRS 9 uses a “three bucket model” for measuring loss ECLs are discounted at the effective interest rate of the is included in other income in the consolidated or loss. financial asset. statement of comprehensive income. The losses arising allowance based on deterioration in credit rating after initial recognition. from impairment are recognized in the statement of Other financial liabilities are subsequently measured Policy applicable before 1 January 2018 comprehensive income as provisions. at amortized cost using the effective interest method. De-recognition Interest expenses and foreign gains and losses are
50 51 BAT Kenya Annual Report & Financial Statements 2018 | www.batkenya.com BAT Uganda 2018 Annual Report & Financial Statements BAT Uganda 2018 Annual Report & Financial Statements Financial Statements Financial Statements
NOTES (continued) NOTES (continued)
3. Summary of significant accounting policies (continued) Trade receivables are recognised initially at fair value 3. Summary of significant accounting policies(continued) case, the tax is also recognised in other comprehensive h) Financial Instruments (continued) and subsequently measured at amortised cost using the (n) Cash and cash equivalents (continued) income or directly in equity respectively. effective interest method less provision for impairment (ii) Financial liabilities (continued) less, and bank overdrafts. Bank overdrafts are shown (note h). Current income tax is the amount of income tax Financial assets within borrowings in current liabilities on the statement of payable or receivable on the taxable profit or loss for A financial asset is assessed at each reporting date to financial position. determine whether there is any objective evidence (j) Trade payables the year determined in accordance with the relevant tax Trade payables are obligations to pay for goods or services legislation. The current income tax charge is calculated that it is impaired. A financial asset is considered to (o) Employee benefits that have been acquired in the ordinary course of business on the basis of the tax enacted or substantively be impaired if objective evidence indicates that one (i) Retirement benefit obligations from suppliers. Accounts payable are classified as current enacted at the statement of financial position date. or more events have had a negative effect on the The Company operates defined contribution retirement liabilities if payment is due within one year or less (or in the Management periodically evaluates positions taken estimated future cash flows of that asset. benefit schemes for its employees. The Company and normal operating cycle of the business if longer). If not, in tax returns with respect to situations in which all its employees also contribute to the appropriate they are presented as non-current liabilities. applicable tax regulation is subject to interpretation. It An impairment loss in respect of a financial asset National Social Security Fund, which are defined Trade payables are recognised initially at fair value and establishes provisions where appropriate on the basis of measured at amortised cost is calculated as the contribution schemes. difference between its carrying amount, and the present subsequently measured at amortised cost using the amounts expected to be paid to the tax authorities. effective interest method. value of the estimated future cash flows discounted at A defined contribution plan is a pension plan under b) Deferred tax the original effective interest rate. which the Company pays fixed contributions into (k) Borrowings Deferred tax is recognised, using the liability method, a separate entity. The Company has no legal or Borrowings are recognised initially at fair value, net of on temporary differences arising between the tax bases Individually significant financial assets are tested for constructive obligations to pay further contributions transaction costs incurred. Borrowings are subsequently of assets and liabilities and their carrying amounts in impairment on an individual basis. The remaining if the fund does not hold sufficient assets to pay all stated at amortised cost; any differences between the Financial Statements. However, deferred tax is not financial assets are assessed collectively in groups that employees the benefits relating to employee service in proceeds (net of transaction costs) and the redemption accounted for if it arises from initial recognition of an share similar credit risk characteristics. the current and prior periods. value is recognised in profit or loss over the period of the asset or liability in a transaction other than a business
borrowings, using the effective interest method. combination that at the time of the transaction affects All impairment losses are recognised in profit or loss. The Company’s contributions to the defined neither accounting nor taxable profit or loss. Deferred contribution schemes are recognised as an employee Fees paid on the establishment of loan facilities are tax is determined using tax rates (and laws) that have An impairment loss is reversed if the reversal can be benefit expense when they fall due. The Company has recognised as transaction costs of the loan to the extent been enacted or substantively enacted at the statement related objectively to an event occurring after the no further payment obligations once the contributions that it is probable that some or all the facility will be drawn of financial position date and are expected to apply impairment loss was recognised. For financial assets have been paid. down. In this case, the fee is deferred until the draw-down when the related deferred tax asset is realised or the measured at amortised cost the reversal is recognised in occurs. To the extent there is no evidence that it is probable deferred tax liability is settled. profit or loss. (ii) Other entitlements that some or all the facility will be drawn down, the fee The estimated monetary liability for employees’ accrued is capitalised as a pre-payment for liquidity services and Deferred tax assets are recognised only to the extent Non-financial assets annual leave entitlement at the statement of financial amortised over the period of the facility to which it relates. that it is probable that future taxable profits will be The carrying amounts of the Company’s non-financial position date is recognised as an expense accrual. available against which the temporary differences can assets, other than deferred tax assets, are reviewed at Borrowings are classified as current liabilities unless the be utilised. each reporting date to determine whether there is any The Company recognises a liability and an expense for Company has an unconditional right to defer settlement indication of impairment. If any such indication exists bonuses and profit-sharing, based on a formula that of the liability for at least 12 months after the end of the Deferred tax assets and liabilities are offset when there then the assets’ recoverable amount is estimated. takes into consideration the profit attributable to the reporting period. is a legally enforceable right to offset current tax assets Company’s shareholders after certain adjustments. The against current tax liabilities and when the deferred An impairment loss is recognised if the carrying Company recognises a provision where contractually (l) Provisions taxes assets and liabilities relate to income taxes levied amount of an asset or its cash-generating unit exceeds obliged or where there is past practice that has created Provisions are recognised when: the Company has a by the same taxation authority where there is an its recoverable amount. A cash-generating unit is the a constructive obligation. smallest identifiable asset group that generates cash- present legal or constructive obligation as a result of past intention to settle the balances on a net basis. events; it is probable that an outflow of resources will be in-flows that largely are independent from other assets (iii) Termination benefits required to settle the obligation; and the amount has been (q) Dividends and groups. Impairment losses are recognised in profit Termination benefits are payable when employment reliably estimated. Restructuring provisions comprise lease Dividends on Ordinary Shares are charged to equity in the or loss. Impairment losses recognised in respect of is terminated by the Company before the normal termination penalties and employee termination payments. period in which they are declared. Proposed dividends are cash-generating units are allocated first to reduce the retirement date, or whenever an employee accepts Provisions are not recognised for future operating losses. shown as a separate component of equity until declared. carrying amount of any goodwill allocated to the units voluntary redundancy in exchange for these benefits.
and then to reduce the carrying amount of the other The Company recognises termination benefits when Provisions are measured at the present value of the (r) Finance income and finance costs assets in the unit (group of units) on a pro-rata basis. it is demonstrably committed to a termination when expenditures expected to be required to settle the Finance income and finance costs comprise of interest the entity has a detailed formal plan to terminate the obligation using a pre-tax rate that reflects current market income, interest expense and foreign currency gain or loss The recoverable amount of an asset or cash-generating employment of current employees without possibility of assessments of the time value of money and the risks on financial assets and financial liabilities. unit is the greater of its value in use and its fair value withdrawal. less costs to sell. In assessing value in use, the estimated specific to the obligation. The increase in the provision due Interest income or expense is recognised using the effective to passage of time is recognised as interest expense. interest method. The ‘effective interest rate’ is the rate future cash flows are discounted to their present value In the case of an offer made to encourage voluntary that exactly discounts estimated future cash payments using a pre-tax discount rate that reflects current redundancy, the termination benefits are measured (m) Share capital or receipts through the expected life of the financial market assessments of the time value of money and the based on the number of employees expected to accept Ordinary Shares are classified as ‘share capital’ in equity. instrument to: risks specific to the asset. the offer. Any premium received over and above the par value of the shares is classified as ‘share premium’ in equity. the gross carrying amount of the financial asset; or i) Trade receivables Benefits falling due more than 12 months after the end Trade receivables are amounts due from customers for of the reporting period are discounted to their present Incremental costs directly attributable to the issue of the amortised cost of the financial liability. merchandise sold or services performed in the ordinary value. course of business. If collection is expected in one year new Ordinary Shares (net of tax) are shown in equity as deduction from the proceeds. In calculating interest income and expense, the effective or less (or in the normal operating cycle of the business if (o) Income tax interest rate is applied to the gross carrying amount of longer), they are a classified as current assets. If not, they (a) Current income tax (n) Cash and cash equivalents the asset (when the asset is not credit-impaired) or to the are presented as non-current assets. The tax expense for the period comprises current and Cash and cash equivalents includes cash in hand, deposits amortised cost of the liability. However, for financial assets deferred tax. Tax is recognised in profit or loss, except held at call with banks, other short term highly liquid that have become credit-impaired subsequent to initial to the extent that it relates to items recognised in other investments with original maturities of three months or recognition, interest income is calculated by applying the comprehensive income or directly in equity. In this
52 53 BAT Uganda 2018 Annual Report & Financial Statements BAT Uganda 2018 Annual Report & Financial Statements Financial Statements Financial Statements
NOTES (continued) NOTES (continued)
3. Summary of significant accounting policies(continued) 5. Financial instruments - Fair values and risk management (r) Finance income and finance costs continued)( a) Financial risk management effective interest rate to the amortised cost of the financial asset. If the asset is no longer credit-impaired, then the calculation The Company’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk and interest of interest income reverts to the gross basis. rate risk), credit risk and liquidity risk. The Company’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on its financial performance. The Company does not Foreign currency gains and losses are reported on a net basis as either finance income or finance cost depending on whether hedge any of its risk exposures. foreign currency movements are in a net gain or net loss position. Financial risk management is carried out by the finance department under policies approved by the board of directors. (s) Comparatives The comparative information throughout these Financial Statements has not been restated to reflect the requirements of the Market risk new standards. Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return 4. Critical accounting estimates and judgements on risk. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including experience of future events that are believed to be reasonable under the circumstances. (i) Foreign exchange risk The Company imports finished goods, and is exposed to foreign exchange risk arising from various currency (i) Critical accounting estimates and assumptions exposures, primarily with respect to the US dollar. Foreign exchange risk arises from future commercial transactions, The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, and recognised assets and liabilities. seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below. Management’s policy to manage foreign exchange risk is to hold foreign currency bank accounts which act as a natural hedge for purchases of imported finished goods. Income Taxes Significant judgment is required in determining the Company’s provision for income taxes. There are many transactions At 31 December 2018, if the Uganda Shilling had strengthened/weakened by 10% against the US dollar and the and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Company British Pound (GBP) with all other variables held constant, post-tax profit for the year and equity would have been recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the Ushs 348 million/16 Million higher/lower, mainly as a result of US dollar and GBP denominated trade receivables, trade final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the payables, bank loans, intercompany payables and receivables, and bank balances respectively. income tax and deferred tax provisions in the period in which such determination is made.
In the process of applying the Company’s accounting policies, the directors have made judgements in determining whether Below is a summary of the financial assets and liabilities denominated in foreign currencies at their carrying amounts: assets are impaired.
The company engages in transactions with related parties which are subject to the Uganda Revenue Authority transfer pricing USD GBP EUR regulations. The transfer pricing rules require directors’ judgement in arriving at the treatment of related party transactions 31 December 2017 especially with regards to benchmarking of transactions to achieve the arm’s length principle. Ushs’ 000 Ushs’ 000 Ushs’ 000
Property, plant and equipment Critical estimates are made by the directors in determining depreciation rates for property, plant and equipment. The Monetary assets company also makes estimates in the determination of fair value for the assets that are accounted for using the fair value Trade and other receivables - 54,298 54,298 model. The rates used are on Note 3 (e). Cash at bank 9,081 - 9,081 Legal provisions, contingent assets and liabilities Significant judgment and estimation is made by the directors in determining the Company’s litigation provisions and 9,081 54,298 63,379 contingent disclosures. Key assumptions are made with respect to the likelihood and magnitude of any potential outflow of resources. The provisions and contingencies are further disclosed in Note 23 and 24. Monetary liabilities Expected credit loss allowance for trade receivables Trade and other payables (684,197) (5,239) (689,436) Key assumptions are made in determining the weighted-average loss rates. Refer to note 3 (h)
(ii) Critical judgement in applying the entity’s accounting policies In the process of applying the Company’s accounting policies, management has made judgements in determining;
The classification of financial assets and leases.
Whether the assets are impaired.
Provisions for litigations.
Going concern.
54 55 BAT Uganda 2018 Annual Report & Financial Statements BAT Uganda 2018 Annual Report & Financial Statements Financial Statements Financial Statements
NOTES (continued) NOTES (continued)
5. Financial instruments - Fair values and risk management (continued) 5. Financial instruments - Fair values and risk management (continued) a) Financial risk management (continued) (ii) Cash flow and fair value interest rate risk (i) Foreign exchange risk (continued) The Company’s interest rate risk arises from short-term borrowings. The Company’s short-term borrowings are (684,197) (5,239) (689,436) maintained at floating interest rates and measured at amortised cost for the duration of the borrowing. As a result of these floating interest rate borrowings, the Company is exposed to cash flow and fair value interest rate risk. The Company regularly monitors financing options available to ensure optimum interest rates are obtained. Net open position (675,116) 49,059 (626,057) Credit risk Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions as well as credit USD GBP EUR exposures to customers, including outstanding receivables and committed transactions. Credit risk is the risk that 31 December 2017 Ushs’ 000 Ushs’ 000 Ushs’ 000 counterparty will default on its contractual obligations resulting in financial loss to the Company. exposures to Credit risk is managed by the head of finance with support from the finance manager who is responsible for managing and analysing credit risk for each new client before standard payment and delivery terms are offered. The Company Monetary assets does not have any significant concentrations of credit risk. Credit risk in respect of cash at bank is managed by Trade and other receivables 17,501 168,638 186,139 monitoring the Company’s net exposure with each financial institution where the Company maintains bank balances.
Cash at bank 6,543,981 - 6,543,981 For trade receivables, the credit controller assesses the credit quality of the customer, taking into account its financial position, past experience and other factors. The Company does not grade the credit quality of receivables. Individual risk limits are set based on internal ratings in accordance with limits set by the Board. The utilisation of credit limits is 6,561,482 168,638 6,730,120 regularly monitored.
Monetary liabilities Set out below is a summary of amounts that represent the Company’s exposure to credit risk: Trade and other payables (3,075,007) - (3,075,007)
2018 2017 (3,075,007) (3,075,007) Ushs’ 000 Ushs’ 000
Net open position 3,486,475 168,638 3,655,113 Cash at bank and short term bank deposits 17,262,400 3,995,698 Trade and other receivables 11,164,329 9,645,659
Below is a summary of the financial assets and liabilities denominated in foreign currencies at their carrying amounts: 28,426,729 13,641,357 Average rates Closing rates
2018 2017 2018 2017 The Company does not grade the credit quality of receivables. All receivables that are neither past due nor impaired are within their approved credit limits. US dollar 3,727 3,612 3,715 3,645 None of the above assets are past due. The impairment losses on financial assets recognised in profit or loss were as Sterling pound 4,976 4,655 4,731 4,931 follows.
2018 2017
The following sensitivity analysis shows how profit or loss and equity would change if the market risk variables had Ushs’ 000 Ushs’ 000 been different at the reporting period with all other factors constant.
Provision for impairment losses (5,318) - 2018 2017 Ushs’ 000 Ushs’ 000 Currency – USD 10% movement effect (higher/lower) 348,648 67,512
Currency – GBP 10% movement effect (higher/lower) 16,864 4,906
56 57 BAT Uganda 2018 Annual Report & Financial Statements BAT Uganda 2018 Annual Report & Financial Statements Financial Statements Financial Statements
NOTES (continued) NOTES (continued)
5. Financial instruments - Fair values and risk management (continued) 5. Financial instruments - Fair values and risk management (continued) Liquidity risk Fair value of financial instruments Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. Prudent liquidity Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market risk management includes maintaining sufficient cash balances, and the availability of funding from an adequate amount of participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Company committed credit facilities. Due to the dynamic nature of the underlying businesses, the finance department maintains flexibility has access at that date. The fair value of a liability reflects its non-performance risk. in funding by maintaining availability under committed credit lines. All financial instruments are initially recognised at fair value, which is normally the transaction price. In certain circumstances, the Management perform cash flow forecasting and monitor rolling forecasts of the Company’s liquidity requirements to ensure it initial fair value may be based on a valuation technique which may lead to the recognition of profits or losses at the time of initial has sufficient cash to meet its operational needs while maintaining sufficient headroom on its undrawn committed borrowing recognition. facilities at all times so that the Company does not breach borrowing limits or covenants (where applicable) on any of its borrowing facilities. The Company’s approach when managing liquidity is to ensure, as far as possible, that it will always have However, these profits or losses can only be recognised when the valuation technique used is based solely on observable market sufficient liquidity to meet its liabilities when due, without incurring unacceptable losses or risking damage to the Company’s inputs. reputation. When measuring the fair value of an asset or liability, the Company uses observable market data as far as possible. Fair values are The table below analyses the Company’s financial liabilities that will be settled on a net basis. The Company’s financial liabilities, categorised into different levels in the Fair Value hierarchy based on inputs used in the valuation techniques as follows: which are set out in the table below, will be settled within a period of one year from 31 December 2018. The amounts disclosed in the table below are the contractual undiscounted cash flows. Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
2018 2017 Level 2: inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly or indirectly Ushs’ 000 Ushs’ 000 Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs)
Bank loans - - The fair value for the majority of the Company’s financial instruments is based on observable market prices or derived from Trade and other payables 6,829,447 6,130,159 observable market parameters.
The tables below sets a comparison by category of the carrying and fair values of the Company’s financial instruments. 6,829,447 6,130,159 2018 Level 1 Level 2 Level 3 Total Value Carrying Value The Company’s bank loans settled during the period attracted interest at rates of between 9.5% and 10% as at end of 2017. The Ushs’ 000 Ushs’ 000 Ushs’ 000 Ushs’ 000 Ushs’ 000 company did not incur any borrowings during the financial year 2018. Financial Assets Capital management The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order Cash and bank balances - 17,262,400 - 17,262,400 17,262,400 to provide returns for shareholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain Trade and other receivables - - 11,164,329 11,164,329 11,164,329 or adjust the capital structure, the Company may limit the amount of dividends paid to shareholders, issue new shares, or sell assets to reduce debt. Total - 17,262,400 11,164,329 28,426,729 28,426,729 The Company monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings less cash and cash equivalents. Total capital is calculated as equity, as shown in the statement of financial position, plus net debt. There were no outstanding borrowings at year end. Financial Liabilities Trade and other payables - - 6,829,447 6,829,447 6,829,447 Provisions for other liabilities - - 6,449,256 6,449,256 6,449,256
Total - - 13,378,703 13,378,703 13,378,703
58 59 BAT Uganda 2018 Annual Report & Financial Statements BAT Uganda 2018 Annual Report & Financial Statements Financial Statements Financial Statements
NOTES (continued) NOTES (continued)
5. Financial instruments - Fair values and risk management (continued) 8. Other income Fair value of financial instruments (continued) 2018 2017 2017 Ushs’ 000 Ushs’ 000 Level 1 Level 2 Level 3 Total Value Carrying Value Ushs’ 000 Ushs’ 000 Ushs’ 000 Ushs’ 000 Ushs’ 000 Miscellaneous income 2,323,691 2,212,551
Financial Assets Cash and bank balances - 3,995,698 - 3,995,698 3,995,698 The Company’s assets are managed as part of one business unit. All the Company’s non-current assets are located in Uganda. Trade and other receivables - - 9,645,659 9,645,659 9,645,659 9. Finance Income /(costs) Total - 3,995,698 9,645,659 13,641,357 13,641,357 2018 2017 Ushs’ 000 Ushs’ 000
Financial Liabilities Trade and other payables - - 6,130,159 6,130,159 6,130,159 Net finance income/(costs): Provisions for other liabilities - - 5,039,397 5,039,397 5,039,397 Interest income 10,811 Interest expense - bank loans and overdraft (5,210) (1,764,818)
Total - - 11,169,556 11,169,556 11,169,556 Net foreign exchange gains 36,475 10,407
42,076 (1,754,411) 6. Net revenue and operating profit For purposes of IFRS 8 – Operating Segments, the Company’s Managing Director is considered to be the Chief Operating Decision Maker. The Company is a single product business providing cigarettes. While the Company has clearly differentiated brands, detailed segmentation between a wide portfolio of brands may not be presented without a high degree of estimation. 10. Profit before tax The information provided below on revenue and operating profit provides an additional analysis of the business although the 2018 2017 Company is managed as one entity. Ushs’ 000 Ushs’ 000 The Company’s assets are managed as part of one business unit. All the Company’s non-current assets are located in Uganda. Profit before tax is arrived at after charging the following:
2018 2017 Employee benefits expense (note 11) 4,810,239 6,223,854 Ushs’ 000 Ushs’ 000 Depreciation on property, plant and equipment (note 17) 1,004,474 1,063,062 Operating lease payments expensed (note 18) 1,007 1,007 Total sales 156,128,487 151,413,977 Inventories expensed 26,748,033 30,030,484 Value added tax and excise duty (84,247,408) (81,012,195) Auditors’ remuneration 322,349 293,687 Distributor Performance Based Pay (1,468,127) (949,717) Repairs and maintenance expenses 43,092 62,288 Distributor Rebates (602,169) (746,563) Transportation costs 371,426 949,064
Net revenue 69,810,783 68,708,502
11. Employee benefits expense 2018 2017 7. Cost of Sales Ushs’ 000 Ushs’ 000 2018 2017 Ushs’ 000 Ushs’ 000 The following items are included within employee benefits expense: Salaries and wages 4,374,716 5,235,103
Cost of goods sold 26,144,719 29,496,383 Redundancy costs 23,920 355,860 Royalties 603,314 480,595 Retirement benefits costs:
Cost of Sales 26,748,033 29,976,978 Defined contribution scheme 65,349 201,708 National Social Security Fund 346,254 431,183
4,810,239 6,223,854
60 61 BAT Uganda 2018 Annual Report & Financial Statements BAT Uganda 2018 Annual Report & Financial Statements Financial Statements Financial Statements
NOTES (continued) NOTES (continued)
12. Income tax expense 13. Earnings per share and dividends 2018 2017 (a) Earnings per share Basic earnings per share are calculated by dividing the profit attributable to equity holders of the Company by the Ushs’ 000 Ushs’ 000 weighted average number of Ordinary Shares in issue during the year.
Current income tax charge 6,008,744 3,274,619
Rental income tax 697,107 663,765 2018 2017 Deferred tax (note 16) (452,912) 1,490,390 Prior year under provision for deferred tax (note 16) - 79,509 Profit attributable to equity holders of the Company (Ushs’ 000) 13,741,984 12,075,310
Income tax expense 6,252,939 5,508,283 Weighted average number of Ordinary Shares in issue (thousands) 49,080 49,080
The tax on the Company’s profit before income tax differs from the theoretical amount that would arise using the statutory Basic and diluted earnings per share (Ushs) 280 246 income tax rate as follows:
2018 2017 There were no potentially dilutive shares outstanding at 31 December 2018 or 2017. Diluted earnings per share are Ushs’ 000 Ushs’ 000 therefore the same as basic earnings per share. (b) Dividends per share Profit before income tax 19,994,923 17,583,593 At the Annual General Meeting to be held in May 2019, a final dividend in respect of the year ended 31 December 2018 of Ushs 280 per share amounting to Ushs 13,742 million (2017: Ushs 246 per share, amounting to Ushs 12,075 million) will be offered to the Company’s shareholders. These Financial Statements do not reflect this dividend as a Tax calculated at the statutory income tax rate of 30% (2017:30%) 5,998,477 5,275,078 liability.
Payment of dividends is subject to withholding tax at a rate of either 10% or 15% depending on the residence of the Tax effect of: respective shareholders. expenses not deductible for tax purposes (442,645) (510,069) prior year under provision for deferred tax - 79,509 Rental income tax charge 697,107 663,765 14. Share capital Number of shares Ordinary Shares (Thousands) Ushs’ 000 Income tax expense 6,252,939 5,508,283
At 1 January 2017, 31 December 2017 and 2018 49,080 61,350
2018 2017 Ushs’ 000 Ushs’ 000 The total authorised number of Ordinary Shares is 64,000,000 with a par value of Ushs. 1.25 per share. Issued share capital consists of 49,079,984 Ordinary Shares fully paid for at a par value of Ushs 1.25.
The movement in the current tax recoverable amount is as set out below: Tax recoverable at start of year (1,013,328) (3,477,797) 15. Revaluation reserve The revaluation reserve represents the surplus on the revaluation of buildings and freehold land net of deferred tax. This reserve is Current income tax charge 6,008,744 3,274,619 not available for distribution to the Company’s shareholders. Rental income tax 697,107 663,765 Tax paid (5,373,977) (1,473,915) 2018 2017 Ushs’ 000 Ushs’ 000 Tax payable/(recoverable) at end of year 318,546 (1,013,328) At start of year Transfer of excess depreciation in respect of revaluation surplus (434,067) (434,067) Deferred tax on excess depreciation 130,220 130,220
(303,847) (303,847)
At end of year 12,464,760 12,768,607
62 63 BAT Uganda 2018 Annual Report & Financial Statements BAT Uganda 2018 Annual Report & Financial Statements Financial Statements Financial Statements
NOTES (continued) NOTES (continued)
16. Deferred tax 16. Deferred tax (continued) Deferred tax is calculated using the enacted income tax rate of 30% (2017: 30%). The movement on the deferred tax account is Charged 31-Dec as follows: 1-Jan-18 to P/L 2018
2018 2017 Year ended 31 December 2017 Ushs’ 000 Ushs’ 000 Ushs’ 000 Ushs’ 000 Ushs’ 000 Deferred tax liabilities
At start of year 4,925,613 3,355,714 Property, plant and equipment: Charge to profit or loss (note 12) (452,912) 1,569,899 on historical cost basis 538,455 272,716 811,171 Deferred tax to equity - - on revaluation surpluses 5,732,700 - 5,732,700
At end of year 4,472,701 4,925,613 6,271,155 272,716 6,543,871
Because of the uncertainty in estimating the extent to which the Company’s deferred tax assets and liabilities will crystallise within 12 months from the year end, the Company’s entire net deferred tax liability has been classified as a non-current liability. Deferred tax assets Unrealised foreign exchange gains 15,460 5,104 20,564 Deferred tax assets and liabilities and the deferred tax charge in the profit or loss are attributable to the following items: Provisions (2,930,901) 1,292,079 (1,638,822)
Charged 31-Dec (2,915,441) 1,297,183 (1,618,258) 1-Jan-18 to P/L 2018 Year ended 31 December 2018 Ushs’ 000 Ushs’ 000 Ushs’ 000 Net deferred tax liability 3,355,714 1,569,899 4,925,613
Deferred tax liabilities Property, plant and equipment: 17. Property, plant and equipment on historical cost basis 811,171 22,241 833,412 The revaluation reserve represents the surplus on the revaluation of buildings and freehold land net of deferred tax. This reserve is on revaluation surpluses 5,732,700 - 5,732,700 not available for distribution to the Company’s shareholders.
Buildings and Plant, machinery and 6,543,871 22,241 6,566,112 freehold land equipment Total Ushs’ 000 Ushs’ 000 Ushs’ 000 Deferred tax assets Unrealised foreign exchange 20,564 (31,808) (11,244) Year ended 31 December 2017 gains/(losses) Opening net book value 30,998,685 1,772,063 32,770,748 Provisions (1,638,822) (443,345) (2,082,167) Additions - 18,783 18,783 Depreciation charge for the year (775,931) (287,131) (1,063,062) (1,618,258) (475,153) (2,093,411) Asset write- off (11,619) (18,467) (30,086)
Net deferred tax liability 4,925,613 (452,912) 4,472,701 Closing net book value 30,211,135 1,485,248 31,696,383
At 31 December 2017 Cost or valuation 37,463,836 4,785,953 42,249,789 Accumulated depreciation (7,252,701) (3,300,705) (10,553,406)
Net book value 30,211,135 1,485,248 31,696,383
64 65 BAT Uganda 2018 Annual Report & Financial Statements BAT Uganda 2018 Annual Report & Financial Statements Financial Statements Financial Statements
NOTES (continued) NOTES (continued)
17. Property, plant and equipment (continued) 18. Prepaid operating lease rentals
Buildings and Plant, machinery and 2018 2017 freehold land equipment Total Ushs’ 000 Ushs’ 000 Ushs’ 000 Ushs’ 000 Ushs’ 000 Cost: Year ended 31 December 2018 At start of year 50,473 50,473 Opening net book value 30,211,135 1,485,248 31,696,383 Additions - - Additions - 26,574 26,574 Disposals - - Depreciation charge for the year (775,876) (228,597) (1,004,473) Asset impairment - (534,818) (534,818) At end of year 50,473 50,473
Closing net book value 29,435,259 748,407 30,183,666 Amortisation: At start of year -9,807 -8,800 At 31 December 2018 Charge for the year -1,007 -1,007 Cost or valuation 37,463,836 4,785,953 42,249,789
Accumulated depreciation (8,028,577) (3,502,728) (11,531,305) At end of year -10,814 -9,807 Asset write-off - (534,818) (534,818)
Net book value 39,659 40,666 Net book value 29,435,259 748,407 30,183,666
Operating lease rentals consist of properties where BAT has entered into lease agreements with the local authorities to lease land The asset class ‘Buildings and freehold land’ relates to buildings only. British American Tobacco Uganda Limited, whose majority over a period ranging between 5 to 49 years, with an option to renew the lease after that date. Amortization is done in equal shareholding (more than 50%) is by foreign entities, is not eligible to hold freehold land under the Land Act (Cap 227). proportions over the lease period. Buildings were last revalued in March 2014 by independent valuers, Knight Frank Uganda Limited. Valuations were made on the basis of the open market value. Open market values were determined directly by reference to observable prices in the open market and recent market transactions at arm’s length terms. 19. Inventories The book values of the properties were adjusted to the revaluations and the resultant surplus net of deferred tax was credited to 2018 2017 the revaluation surplus in shareholders’ equity. If the buildings were stated on the historical cost basis, the amounts would be as Ushs’ 000 Ushs’ 000 follows:
Finished goods - 8,616,864 2018 2017 Ushs’ 000 Ushs’ 000 Cost of inventories recognised as an expense 26,748,033 30,030,484 Including: Cost 17,051,976 17,051,976 write-off of inventories - 53,506 Accumulated depreciation (7,144,581) (6,781,721)
Inventory for the year ended 31 December 2018 was Nil. This is due to the change in the business model where BATU directly Net book amount 9,907,395 10,270,255 ships cigarette stocks to the distributor warehouses.
Impairment loss During the year, due to the need for the movement to a new location the entity tested the Property Plant and Equipment for impairment and recognised an impairment loss of Ushs 534 Million.
66 67 BAT Uganda 2018 Annual Report & Financial Statements BAT Uganda 2018 Annual Report & Financial Statements Financial Statements Financial Statements
NOTES (continued) NOTES (continued)
20. Trade and other receivables 23. Provisions for other liabilities 2018 2017 (a) Litigation provisions
Ushs’ 000 Ushs’ 000 2018 2017 Ushs’ 000 Ushs’ 000 Trade receivables 10,635,326 9,176,610 Less: Provision for impairment losses (5,318) - At start of year 4,669,163 8,498,998 Additions 1,533,915 557,436 Trade receivables – net 10,630,008 9,176,610 Utilised during the year (142,008) (4,387,271) Receivables from related companies (note 27) 183,874 54,298 Prepayments and other receivables 315,993 414,751 Other receivables 34,454 At end of year 6,061,070 4,669,163
The additions relate to Value Added Tax and Withholding tax on brand royalties for the years 2012 to 2018. The 11,164,329 9,645,659 provisions released relate to legal fees paid in 2018 relating to one of the ongoing cases.
Impairment of trade receivables was made based on a simplified approach measured at an amount equal to life time credit loss (b) Other provisions using a provision matrix that is based on historical credit loss experience of the trade receivables. 2018 2017 The carrying amounts of the above trade and other receivables approximate their fair values. Ushs’ 000 Ushs’ 000
21. Cash at bank At start of year 370,234 1,002,083 Number of shares Ordinary Shares Additions 23,920 364,413 (Thousands) Ushs’ 000 Utilised during the year (5,967) (996,261)
For the purposes of the statement of cash flows, cash at bank comprises the following: At end of year 388,187 370,235 Bank balances 17,262,400 3,995,698
Total Provision 6,449,257 5,039,398
22. Trade and other payables 2018 2017 Provisions, which represent liabilities that could be settled within the next twelve months during the ordinary course of the business relate to the Company’s obligations arising from past events. In the directors’ opinion, the actual liabilities Ushs’ 000 Ushs’ 000 that will be incurred by the Company in settling the above obligations will not differ materially from the amounts provided for at year-end. Trade payables 2,666,070 4,641,398 Amounts due to related companies (note 27) 2,682,470 310,569 24. Contingent liabilities Other payables and accrued expenses 1,480,907 1,178,192 During the year, the Company was a litigant in several cases which arise from normal day to day operations. The di¬rectors and management believe the Company has strong grounds for success in a majority of the cases and are confident that they should get a ruling in their favour and none of the cases indi¬vidually or in aggregate would have a significant impact on the Company’s At end of year 6,829,447 6,130,159 operations.
The directors have assessed all the cases outstanding as at 31 December 2018 and where considered necessary based on The carrying amounts of the above trade and other receivables approximate their fair values. the merits of each case, an appropriate provision has been booked in the Financial Statements. In arriving at the appropriate provisions, management makes judgements over the likely outcome of each case and an estimate of the related costs based on legal advice.
The company’s contingencies mainly arise from litigations against and by the company. Given the sensitive nature of these legal cases, the directors are of the opinion that disclosing the details of each legal case can be expected to prejudice seriously the position of the entity with other parties. As such, that information has not been included in these Financial Statements.
25. Capital commitments There were no capital commitments at year end (2017: nil).
68 69 BAT Uganda 2018 Annual Report & Financial Statements BAT Uganda 2018 Annual Report & Financial Statements Financial Statements Financial Statements
NOTES (continued) NOTES (continued)
26. Cash generated from operations 27. Related party disclosures Reconciliation of profit before tax to cash generated from operations: The following transactions were carried out with related parties with which the Company shares common ownership:
(i) Purchase of goods and services 2018 2017
Ushs’ 000 Ushs’ 000 2018 2017 Ushs’ 000 Ushs’ 000 Profit before tax 19,994,923 17,583,593
BAT Kenya Limited 23,150,096 29,169,143 Adjustments for: BASS Europe 669,779 1,075,943 Interest expense (note 9) 5,210 1,764,818 BASS Holdings Limited 603,314 655,381 Depreciation (note 17) 1,004,473 1,063,062 BASS GSD 1,002,340 1,066,263 Amortisation of prepaid operating lease rentals (note 18) 1,007 1,007 BAT Area Limited 4,265,966 3,202,483 Impairment loss/Assets Written-off (note 17) 534,818 30,086 BASS (AME) – South Africa 122,134 85,907 BATMark Limited - 11,868 Changes in working capital BAT Investments – UK 1,977,621 1,993,077 trade and other receivables (1,518,670) (5,913,216) inventories 8,616,864 132,589 31,791,250 37,260,065 trade and other payables, and provisions 2,109,148 (5,666,270) (ii) Key management compensation Key management includes directors (executive and non-executive) and members of senior management. The Cash generated from operations 30,747,773 8,995,669 compensation paid or payable to key management for employee services is shown below:
The Company is controlled by British American Tobacco Plc, incorporated in the United Kingdom. 2018 2017 Ushs’ 000 Ushs’ 000
Salaries and other short-term employment benefits 2,035,583 3,404,194 Termination benefits 70,648 355,860
2,106,231 3,760,054
(iii) Directors’ remuneration
2018 2017 Ushs’ 000 Ushs’ 000
Fees for services as a director 103,845 156,930 Other emoluments (included in key management compensation above) 1,350,596 1,793,576
1,454,441 1,950,506
70 71 BAT Uganda 2018 Annual Report & Financial Statements BAT Uganda 2018 Annual Report & Financial Statements Financial Statements OTHER INFORMATION
NOTES (continued) Principal shareholders and share distribution
27. Related party disclosures (continued) Principal shareholders and share distribution as at 13 February 2019 (iv) Outstanding balances arising from sale and purchase of goods/services Shareholder No. of shares % Shareholding 2018 2017 Ushs’ 000 Ushs’ 000 British American Tobacco (Investments) Ltd 34,356,000 70.00% Precis (1790) B.V. 9,816,000 20.00% Due from related parties SCBM RE Pictet And Cie A/C Ths Kingsway Fund 4,265,915 8.69% BAT GSD 166,287 54,298 UAP Provincial Insurance Company Limited 50,000 0.10% BASSE 17,587 - The Registered Trustees Of Chandaria Foundation 27,000 0.06% Goldstar Insurance Company Limited 22,655 0.05% Tumwesigye Fred Bisamunyu 10,000 0.02% 183,874 54,298 Walji Rukiabai Pyarali 10,000 0.02% Onen Perez M. Oryem 10,000 0.02% 2018 2017 Gatare Tom 10,000 0.02% Ushs’ 000 Ushs’ 000 Total Number of shares 48,577,570 98.98% Others (1,220 Shareholders) 502,414 1.02% Due from related parties
BAT Kenya Limited 2,555,101 97,655 TOTAL 49,079,984 100.00% BAT (GSD) Limited 73,199
BAT Investments Limited - - Summary of shareholders as at 13 February 2019 BAT Holdings 220,957 85,999 Shareholder No. of shareholders No. of shares % Shareholding BAT South Africa (Pty) Ltd 48,477
BAT Area Limited 90,286 - Foreign Companies 4 48,445,282 98.71% BATMark Limited 5,239 Foreign Individuals 22 13,073 0.03% BASS Europe - - Sub-Total 26 48,458,355 98.73% East African Companies 30 150,607 0.31% 2,866,344 310,569 East African Individuals 1,176 471,022 0.96% Sub-Total 1,206 621,629 1.27%
The amounts due from related parties are neither secured nor impaired and are due for settlement within 12 months from the year end. TOTAL 1,232 49,079,984 100.00%
The amounts due to related parties are not secured against any of the Company’s assets, are interest free and are Distribution of shareholders as at 13 February 2019 repayable within 12 months from the year end.
The carrying amounts of the above receivables and payables from related parties approximate their fair values. Share range No. of shareholders No. of shares % Shareholding
28. Events after the reporting period Less than 500 928 106,736 0.22% There are no reportable events after the reporting period. 500 - 5,000 289 355,764 0.72% 5,001 - 10,000 9 79,914 0.16% 10,001 - 100,000 3 99,655 0.20% 100,001 - 1,000,000 _ _ _ Above 1,000,000 3 48,437,915 98.69%
TOTALS 1,232 49,079,984 100.00%
Directors’ shareholding as at 13 February 2019
Director’s name Shareholdings Tumwesigye Fred Bisamunyu 10,000
72 73 BAT Uganda 2018 Annual Report & Financial Statements BAT Uganda 2018 Annual Report & Financial Statements PROXY FORM
PROXY FORM Appointment of Proxy
To: The Company Secretary British American Tobacco Uganda Limited 7th Floor, TWED Towers, Plot 10, Kafu Road, Nakasero P.O. Box 7100, Kampala, Uganda
I of address being a member of British American Tobacco Uganda Limited, hereby appoint, of address ; as my proxy to vote for me and on my behalf at the Annual
General Meeting of the Company to be held on 22 May 2019 and at any adjournment thereof.
Dated this day of 2019.
Shareholder’s Signature Name of shareholder/Authorized official signing
Share Certificate/SCD Account No:
Notes: 1. If a member is not able to attend this meeting personally, this proxy form should be completed and returned to the Company Secretary, British American Tobacco Uganda and the filled in form should reach the Registered Office of the Company onth 7 Floor Twed Towers, Plot 10, Kafu Road, P. O. Box 7100, Kampala, not later than 48 hours before 22 May 2019 and in default the instrument of proxy shall be invalid.
2. In case of a corporation, the proxy must be under its common seal or under the hand of the officer or attorney duly authorized in that behalf.
3. In case of joint shareholders, each joint shareholder must sign.
4. A person appointed to act as a Proxy need not be a member of the Company.
TEAR OFF THE ADMISSION FORM BELOW AND RETAIN FOR PRESENTATION AT THE MEETING
BRITISH AMERICAN TOBACCO UGANDA LIMITED Annual General Meeting 22 May 2019, Sheraton Kampala Hotel, Rwenzori Ballroom
ADMISSION FORM
The shareholder or his proxy must produce this admission form in order to obtain admission to the Annual General Meeting.
Shareholders or their proxies are requested to sign the admission form before attending the meeting.
Name of person attending
Signature of person attending
Name of Shareholder
Share Certificate/SCD No. No. of Shares
BRITISH AMERICAN TOBACCO UGANDA 2019 75 BAT Uganda 2018 Annual Report & Financial Statements 77 BAT Uganda 2018 Annual Report & Financial Statements HEAD OFFICE British American Tobacco Uganda Limited 7th Floor, TWED Towers Plot 10, Kafu Rd, Nakasero P.O. Box 7100 Kampala, Uganda Tel: +256 312 200 100 www.bat.com