2012 Annual Report and Financial Statements
British American Tobacco Uganda 2012 1 Table of Contents
Leaf Operations Sustainable Growth Notice of Annual General Meeting 2 2012 Highlights 4 Uganda has suitable climatic conditions British American Tobacco Uganda is a Board of Directors 6 that support the growth of the highest member of British American Tobacco Group, Directors’ Statement 9 quality leaf. the world’s second largest quoted tobacco group by global market share, with brands Tribute to Dr. James Mulwana 10 sold in more than 180 markets. Managing Director’s Review 12 Working with close to 20,000 farmers, BAT Uganda is the market leader in the tobacco industry in Uganda, with over 80% share of the Statement of Corporate Governance 14 we provide direct agronomy support, cigarette market and sponsoring 70% of national Shareholding Structure 16 covering all aspects of crop production tobacco production. We have sustained a significant presence in Uganda since 1927 when commercial Corporate Information 18 and environmental best practice. tobacco varieties were introduced. Our business has grown to become one of the country’s top Financial Statements 21 tax payers and foreign exchange earners, and we Proxy Form 55 have been listed on the Uganda Securities Exchange Purchasing the crop from farmers since 2000. We are one of the significant sources of through a highly efficient and automated quality tobacco for the BAT Group. buying system at our centres in Hoima, Cigarette Business We market quality cigarette brands that meet the Kihihi, Lira and Arua, ensures prompt preferences of adults who have chosen to consume and secure payments. tobacco. Dunhill, Rex, Sportsman and Safari constitute our brand portfolio, supplied through a network of independent distribution enterprises. We deal with six regional distributors, about 2,000 wholesalers and over 20,000 retailers country wide in the cigarettes’ supply chain.
Operating Responsibly We believe that because our products pose risks to health, it is all the more important that our business is managed responsibly. Responsibility is integral to our strategy and through dialogue with our stakeholders, we work to pursue our commercial objectives in ways consistent with changing expectations of a modern tobacco business.
We support tobacco regulation that is pragmatic, sustainable and enforceable. We endeavour to work closely with other industry players and regulators, sharing information that is required to help policy formulators understand our operating environment and develop appropriate policy and regulatory frameworks.
2 British American Tobacco Uganda 2012 British American Tobacco Uganda 2012 1 Notice of Annual General Meeting
NOTICE IS HEREBY GIVEN that the 13th Annual General Meeting (AGM) of British American Tobacco Uganda Limited after the Initial Public Offer will be held at the Kampala Sheraton Hotel, Rwenzori Ballroom on the 24th day of May 2013 starting at 9:00 a.m. to conduct the following ordinary business of the Company.
1. To receive, consider and if approved adopt the Company’s audited Accounts for the year ended 31st December 2012, together with the reports of the Directors and the external Auditor thereon.
2. To note the declaration on Dividends for the year ended 31st December 2012.
3. To authorise the Directors to fix the Auditors’ remuneration for the year ending 31st December 2013.
4. Retirement and election of Directors.
a) Mr. Philip Lopokoiyit who was appointed to the Board on 17th August 2012, retires in accordance with Article 94 of the Articles of Association and being eligible, offers himself for re-election.
b) Mr. Fred Tumwesigye (66) retires in accordance with Article 90 of the Articles of Association and being eligible, offers himself for re-election.
By order of the Board BRITISH AMERICAN TOBACCO UGANDA LIMITED
Isaac Ampeire COMPANY SECRETARY 25th February 2013
NOTES:
1. A member entitled to attend and vote at the AGM is entitled to appoint a Proxy to attend and vote instead of him/ her. Such Proxy need not be a member of the Company.
2. A Proxy Form is provided with this Report on Page 55.
3. Shareholders are requested to carry some personal identification and proof of their shareholding to the meeting.
4. All shareholders are advised to notify the Company Secretary in writing of any changes in their postal addresses and bank account details and provide their email addresses for ease of communication. BAT Uganda reaches out to communities through various initiatives that encourage elimination of child labour, environmental protection and sustainability. We support our farmers’ food security by teaching them about proper crop rotation, providing them with food crops for planting after the tobacco growing season is over and offering free extension services.
2 British American Tobacco Uganda 2012 3 2012 Highlights “Responsibility is integral to our 2012 Results at a glance Shs millions Revenue 242,511 Our Sustainability Agenda business strategy and it is important Profit from operations 29,824 Sustainable business practice is at the heart of the BAT Group strategy. By addressing our social, environmental to us that our business is managed in Profit before tax 17,074 and economic impacts, we build value for the business, Profit after tax 12,196 for our shareholders and for other stakeholders. a way that benefits all involved.”
Basic & diluted earnings Shs Our vision of a sustainable tobacco business is one that per share 248 manages the impact of its operations and products responsibly today and prepares for a future in which it continues to create value for shareholders as well as 5 Year Contribution to Government Revenue being in the best interest of other stakeholders. (Excise, Value Added Tax and Corporation Tax – Shs Billions) Our sustainability agenda comprises five goals across our key impact areas: 72 67 1. Marketplace: We will take a lead in upholding 53 53 52 high standards of corporate conduct within our marketplace; given the health risks associated with tobacco, we agree that the industry should be regulated appropriately. Like any business we want to grow our market share. But we do this responsibly, not by trying to increase the number of smokers or how much they New Photo smoke, but by encouraging existing adult smokers to choose our products over our competitors.
2008 2009 2010 2011 2012 2. Environment: We will actively address the impact of our business on the natural environment; the 2012 Sustainability Highlights success of our business now and in the future also Our 5 Year Tax Contributions to Government • Towards addressing (Excise, sustainableValue Added Tax and Corporation management Tax – Shs Billions) of biodiversity and depends on biodiversity as it provides resources ecosystem services in tobacco growing regions of Uganda, the like clean water, healthy soils and timber. Company, under the auspices of British American Tobacco 3. People and culture: We will work to ensure we Biodiversity Partnership (BATBP), launched a project in the Middle have the right people and culture to meet our North. The Project’s mission is to bring together the knowledge, goals. To achieve the goals we set for our business skills and resources of the Partners, to catalyse change in under- we need a strong workforce – from securing our standing and behavior amongst stakeholders so as to maintain supply of tobacco leaf to delivering high quality and enhance biodiversity and ecosystem services in agricultural products to our consumers. landscapes and the wider ecosystems on which they depend. 4. Supply chain: We will work for positive social, • Arising from tree census findings of 2011, strategies were put in place environmental and economic impacts in our to ensure that the Company is back on the right path towards wood- supply chain; our approach is focused on ensuring fuel self-sufficiency by 2016. The Company managed to establish a that our supply chain is fit for purpose for the long total of 503 hectares (244 ha re-planting and 259 ha new planting) of term. We have a supply chain sustainability strategy Company plantations with an average stocking level of more than 70%. that covers both our own direct operations, including manufacturing, logistics and trade marketing, as • The Company objective of contributing to biodiversity conservation well as our wider supply chain – the most significant and environmental protection was well achieved in 2012. A total part of which relates to tobacco growing. of 350 ha of indigenous trees were planted in West Nile (92 ha), Middle North (198 ha) and BunyoroMubende (60 ha) against 5. Harm reduction: We will strive to bring In line with the goal of reducing pressure on trees for 40 ha inherited from past years. commercially viable, consumer acceptable reduced- risk products to market; there are many challenges barn construction, a total of 5,144 live barns were • With the realisation that a sustainable freshwater supply is essential in this: the science is complex; collaboration is for ecosystem services upon which many agricultural businesses needed between scientists, tobacco companies established in the burley growing area in 2012. This and local communities depend, the Company commissioned a and regulators; products need to meet consumer fresh water quality and river bank conservation baseline survey in expectations; and we need a regulatory framework builds on the 100 barns already planted over the last the leaf growing areas of Uganda. The objectives were to assess that supports tobacco harm reduction. We are the fresh water quality and verify compliance of BAT Uganda’s leaf committed to meeting these challenges. couple of years. Plans are in place to continue with operations to the National Environment (Wetland, Riverbanks and Lake Shores Management) Regulations 2000. The study gave the planting in 2013 so that all burley tobacco farmers positive verdict on both accounts. have functional live barns by 2015. 4 British American Tobacco Uganda 2012 British American Tobacco Uganda 2012 5 Board of Directors
1 Mr. Isaac Ampeire (39) 3 Mr. Philip Lopokoiyit (46) Company Secretary Non-Executive Director Appointed Company Secretary in August 2006. Appointed to the Board as a Non-Executive Director He is an Advocate with several years of corporate of the Company in August 2012, Philip is currently and private legal practice. Having started off as the Area Head of Finance for East & Central Africa a private legal practitioner, he previously worked and Finance Director for BAT Kenya. He was previously with Uganda Telecom as Legal Services Manager the BAT West Africa Area Head of Finance, based offering legal and management support services, in Lagos. He has extensive experience in financial before joining the BAT Group in May 2006 as Legal management and has served in senior management Counsel and Company Secretary of BAT Uganda. 2 3 roles over the last 10 years as Head of Finance in He later doubled as the Head of the Corporate and several BAT business units. Philip is also a member 4 Regulatory Affairs Function. He has since February 1 of the BAT Uganda Audit Committee, a member 2011 rejoined private legal practice and continues of ICPAK, a fellow of the Institute of Chartered to provide company secretarial services to the Accountants of England and Wales and holds an Company as an outsourced service provider. He MBA from Warwick Business School. is a member of the Board of Directors of Uganda Timber Growers Association and a member of the Institute of Corporate Governance of Uganda. 4 Mr. Fred Tumwesigye (66) Non-Executive Director Appointed to the Board as a Non-Executive Director of 2 Mr. Paul Claude Sine (48) the Company in April 2001. Before this appointment, Finance Director he had a long and distinguished career in operations Appointed to the Board as an Executive Director with the Company retiring as Head of Processing in and Finance Director of the Company in May 2011. 5 2000. He previously worked for the then East African He joined the BAT group in 1993 as an Assistant 6 Railways Corporation and also as a Board Member of Internal Audit Manager with BAT Uganda and later the Civil Aviation Authority of Uganda. Upon retiring held the portfolios of Senior Leaf Accountant, from the Company, he joined Babcon Uganda Limited, Company Secretary and Finance Project Manager a privately owned local construction company. He prior to becoming the East African Area Auditor. is a member of the Uganda Institute of Professional He was the Area Leaf Finance Manager, Marketing Engineers and the Institute of Corporate Governance Finance Manager and Finance Manager of of Uganda. British American Tobacco Kenya up till 2005 when he moved to Nigeria as Area Audit Manager, West 5 Mr. Jonathan D’Souza (45) Africa. He became the West Africa Area Operations Managing Director Finance Manager and later the Operations Finance Appointed to the Board as an Executive Director Manager for Turkey, Middle East and North Africa and Managing Director of the Company in June Area, a role that he held at the time he was seconded 2012. Jonathan joined the BAT Group in 1993 with to BAT Uganda as Finance Director. He is a lawyer, an BAT Uganda, and has held several roles in IT, Associate of the Institute of Chartered Secretaries & Marketing, Human Resource & General Administrators (UK) with various certifications in Management in Kenya, the UK, Nigeria, Benin, Finance, Marketing and Leadership. Ghana and Senegal. Prior to joining the board he was the Head of Human Resource for East & Central Africa (ECA) and is a member of the ECA Area Leadership Team. Jonathan is a graduate of the Institute of Statistics and Applied Economics of Makerere University, Kampala.
6 Dr James Mulwana Chairman of Board of Directors (1996-2013) Passed on 15th January 2013 (see tribute pages 10-11).
6 British American Tobacco Uganda 2012 British American Tobacco Uganda 2012 7 We have, for many years, Directors’ Statement been among the top local taxpayers and foreign We are pleased to present to you the 2012 largely reflecting the one-off insurance reimbursement received in the prior year. Profit before income tax, at Shs17 exchange earners for Annual Report for British American Tobacco billion was 47% down on 2011, reflecting the additional Uganda Limited. impact of unrealised foreign exchange losses, which Uganda. Among the increased finance costs by 59%.
awards we have won are: The Board lost its Chairman, Dr James Mulwana, who passed Outlook away on 15th January 2013. Dr Mulwana joined the Board Significant steps have been taken to secure the crop in Exporter of the Year, in February 1995 as a non-executive Director, and a year 2013 and maintain the good quality achieved in 2012. later, on 21st March 1996 was appointed as non-executive However, the operating environment remains fluid, and Highest Foreign Exchange Chairman, a post he held until his untimely demise. unethical competition remains a real threat, both in leaf Earner and Leading During this time, Dr Mulwana guided and supported the growing and the cigarette business. Levels of illicit trade in Board through substantial growth and transformation, cigarettes rose sharply in the last quarter of 2012, and while Tobacco Exporter. from a privately held Company with limited Government action has been taken by the enforcement agencies, this investment, through its listing on the Uganda Securities is a ceaseless struggle, and its impacts will be felt in 2013. Exchange in 2000, and into a robust, sustainable and The management team has a robust and prudent plan, responsible public listed Company. and has built alignment in the organisation to deliver the plan. The Directors would like to thank all stakeholders for Dr Mulwana always emphasised good corporate governance their continued support and partnership that enable us and accountability of the business to all its shareholders, improve the business. stakeholders and the public. Even during hard economic times he emphasised the importance of management exercising due care and diligence with shareholder funds. In “Significant steps have been taken to secure his interactions, Dr Mulwana demonstrated great integrity, humility and passion for the role of the private sector in the the crop in 2013 and maintain the good development of the national economy. quality achieved in 2012.” Our sincere condolences go to Dr Mulwana’s family, and the entire business community of Uganda, who have lost an exemplary and inspirational leader. We are grateful to have had the privilege of working with him, and will miss his presence deeply.
Operating Environment 2012 was a difficult year, we continued to experience higher operating costs and the credit squeeze which impacted all sector of the economy and disposable income.
Business Review Cigarette sales remained flat compared to 2011, while leaf exports grew 10%. Whilst overall revenues increased by 8%, this was significantly offset by higher export leaf costs which lead to lower margins coupled with higher operating costs and expenses.
Dividends In light of the results for the second half of the year, the Board recommends that no final dividend is paid. The dividend of Shs141 paid in October 2012 represents a reduction of 67% from the dividend paid in 2011.
Financial Performance The business realised a gross profit of Shs83.2 billion for the year under review, compared to Shs81.8 billion in 2011. Operating profit for the 12 months to 31st December 2012 was Shs29.8 billion compared to Shs40 billion in 2011,
8 British American Tobacco Uganda 2012 British American Tobacco Uganda 2012 9 Tribute to Dr. James Mulwana A True and Inspirational Leader Board Chairman 1996-2013
Dr James Mulwana was arguably one of Uganda’s most accomplished industrialists who rose from a humble background to scale the heights of diplomatic and business circles. He was Chairman of the Board of Directors to a number of companies in Uganda, including BAT Uganda, as well as the Honorary Consul for Thailand to Uganda.
He believed that indigenous business people, even those of limited education, could make the transition from petty trade to industry and manufacturing. This is why he was one of the key drivers behind the creation of the Uganda Manufacturers’ Association and the Private Sector Foundation, which bodies have as their mandate the promotion of local industry. Most importantly, he believed that those who made it in business have a Dr. Mulwana addresses shareholders at his last AGM responsibility and an obligation to support others. meeting (May 2012)
The launch of the new British American Tobacco Uganda’s corporate identity (July 1998)
Dr. Mulwana leads President Yoweri Museveni on a tour of BAT Uganda premises durnig the commissioning of the Leaf Processing Plant and refurbished offices in Kampala (March 2000)
Dr. Mulwana at the company’s Annual Dr. Mulwana together with a member of the British General Meeting held (April 2005) Royal Family, Princess Royal Anne Elizabeth during her visit to BAT Uganda (September 1998)
10 British American Tobacco Uganda 2012 British American Tobacco Uganda 2012 11 Managing Director’s Review
“The Company continued to invest in its efforts were made by the authorities, the prevalence of illicit Leaf Grown cigarettes in the several parts of the country continues to operations across the country, with over We contracted 20,000 farmers in the year, to grow a target depress sales, affecting both government and our revenues. of 16.5 million kilograms. With the experience of a bumper Shs15.8 billion spent in improving facilities Our flagship Sportsman brand closed the year at 56% share crop of unfavourable style in 2011, a minimum input package of market, while Dunhill sales grew 21% over 2011. Dunhill’s at the Central Purchasing Points in Hoima was loaned out to all farmers to ensure a significant improve- growth was backed by a pack upgrade and the introduction ment in the quality of the crop. Several other changes were and Arua, electrical refurbishment across sites of Dunhill Switch which offered the adult consumer a unique introduced, including opening bank accounts for all farmers and innovative ability to choose a taste of their preference. in PostBank Uganda to improve control and security whilst including Kampala, new machinery at the minimising the movement of cash. The results were mixed: Whilst our cigarette duty paid market share climbed from while quality improved dramatically, the overall volume of factory, fire protection at dry leaf warehouses 82% to 86% during the year, the size of the illicit market the crop was significantly lower than expected, affected by a increased, and it will take urgent, continuous and regular and the construction of a new office block smaller national crop as well as unethical competition buying action by all stakeholders to mitigate the adverse impact crop that they did not sponsor. While regular engagement at the Hoima site.” of illicit trade. with the Government agencies responsible did eventually Our People yield results, it came too late, and we experienced a shortfall 2012 was a difficult year for the Company, with a slowdown of 34% versus our crop volume target. Several lessons have We continue to improve our talent base, and during the in cigarette sales and a significant reduction in the expected been taken from this, predominantly around seeking to year a number of initiatives were put in place around facilities at the Central Purchasing Points in Hoima and leaf crop volume during the last quarter of the year, deliver a bigger and better quality crop through fewer, more performance management and talent development, Arua, electrical refurbishment across sites including Kampala, compounded by reduced margins on sales of processed leaf productive and economically viable “enterprise farmers” in especially on field training for leaf extension technicians. new machinery at the factory, fire protection at dry leaf from the 2011 crop which was of an unfavourable style. line with the Government strategy on agriculture. Our scores in the biennial “Your Voice Survey” were an warehouses and the construction of a new office block at improvement from the last survey, though areas for the Hoima site. These investments are to ensure the Cigarette Sales Leaf Exports and Revenues improvement were noted and will be worked on. An improved quality of leaf, the working environment and Sales in the last quarter of the year were impacted by a We exported 10.8 million kilograms of packed leaf in the update to the Strategic Leadership Agenda rolled out in the safety of our people, visitors and assets. sharp rise in availability of illicit product - mainly from South year, this was 10% higher than 2011. We are however still 2011 was done, and the team shows remarkable alignment Sudan - causing a 25% drop in our weekly sales, though carrying significant stocks of the 2011 crop which, coupled to the Company goals, driven by a “Line-of-Sight” from Regulation the good start to the year allowed us to close with sales of with the high cost of the 2012 crop has led to high the strategy into functional and individual objectives. Tobacco regulation is a very topical issue across the country, 1,575 million sticks, at par with 2011. While commendable inventory values. Exports of packed leaf and other US Dollar with a lot of media coverage, driven in part by activist non- inflows yielded US$47 million in revenue, and we continue government organisations. We continue to seek to establish to be a significant source of foreign exchange inflows to the a dialogue on regulation. Acknowledging that along with economy. While the quality of the packed 2012 crop was the pleasures of smoking come serious health risks, we firmly excellent, and received commendation from the customer, believe that regulation is necessary. We however expect the shortfall in the volume meant an increased in-stock cost regulation to be reasonable, balanced, evidence-based and and the margin on its sale will be reduced. enforceable. We seek to have the industry’s view heard and be part of the solution. Financial Performance Revenue grew by 8% reflecting the impact of an improved Conclusion mix in domestic sales and increased leaf shipment volumes. While the macro economic and competitive environment Operating profit was down by 26% principally due to the remains difficult, we have a good foundation in our brands shipment in 2012 of tobacco leaf which yielded a lower and people and have significantly improved our processes and margin offset by higher profitability on domestic cigarette control. The challenge for 2013 is to continue to grow value in sales. In addition, the shortfall in our 2012 crop volumes the business and reduce the level of risk and variability, which adversely impacted the cost of leaf operations. continues to be unacceptably high. The team is fully aligned Financing costs increased by Shs4.7 billion principally due to and energised to these goals. I would like to thank the Board, unrealised foreign exchange related losses during the year. the staff and management team, and all stakeholders for their Profit before tax consequently decreased by 47% reflecting support over the years, and look forward to continuing to the lower operating profit and higher financing costs in receive that support in the year to come. 2012. With these results, the Board felt it prudent not to issue
a dividend above the Shs141 paid in October 2012.
BAT Uganda remained a significant contributor to Government revenue, collecting over Shs62 billion in Excise and Value Added Tax, up from Shs58 billion in 2011. A further Shs11 billion was paid in Pay As You Earn and Corporation Tax. Jonathan D’Souza, Managing Director The Company continued to invest in its operations across the country, with over Shs15.8 billion spent in improving
12 British American Tobacco Uganda 2012 British American Tobacco Uganda 2012 13 Statement of Corporate Governance
British American Tobacco Uganda is Meetings of the Board Internal Control committed to implementing initiatives The Board holds at least three pre-scheduled meetings Committee annually, with a mandate to formulate, review, evaluate The Internal Control that foster good corporate governance for and make decisions on key strategic and operational Committee (ICC) is a all its stakeholders. The Company prides itself activities of the business. Other meetings may be conducted Management Committee as need arises. tasked with making sure that in the establishment of appropriate legal, the Company has effective Although managerial authority is delegated to the internal controls in place in institutional and policy driven environment Management team, the Board monitors and evaluates order to mitigate key risks the implementation of strategies, policies, management that allows it to thrive as a business concern in the delivery of business performance and business plans through Board Committees. that advances long-term shareholder value objectives. and people development while in keeping Audit and Corporate Social The ICC acts as a custodian of Responsibility Committee the risk management process with responsibilities to the society that The Company maintains a sound system of internal control within the Company. It we operate in. We have endeavoured to to safeguard shareholders’ investment and the Company’s ensures that business risks assets. The Audit and Corporate Social Responsibility are appropriately measured, create a system of governance that ensures Committee (ACC) regularly reviews the Company’s ranked and mitigating actions conformance and performance. processes and procedures to ensure the effectiveness put in place and implemented. of these controls and oversees the embedment of the In addition it also ensures that This Statement takes cognisance of, and elucidates on, how principles of Corporate Social Responsibility in its business. the key controls in the the Company applies the Capital Markets (Corporate Company are maintained, The ACC also helps to identify and assess, together with Governance) Guidelines and continuing obligations under reviewed and where need arises Pension Scheme management, any social and reputation risks that might the Listing Rules of the Uganda Securities Exchange. enhanced or new ones established. British American Tobacco Uganda has an in-house Pension inhibit the Company’s objective to be recognised in its Scheme for its employees managed by a Board of Trustees business jurisdiction and beyond as a responsible enterprise The ICC facilitates activities that aid individuals within the (BOT). The BOT is chaired by a Non-Executive Director and The Board in the controversial tobacco industry. It also reviews and Company to understand their role and responsibilities with includes representatives of employees and management. The Board of Directors is accountable and responsible for recommends to the Board the Company’s conduct of its regards to risk management and Internal Control. the efficient and effective governance of the Company. business in conformity with the Company’s Core Values. The Board is currently constituted of four Directors, two of The ICC meets monthly and is chaired by the Finance Engagement with Shareholders whom are Non-Executive members. The composition of The ACC is chaired by a Non-Executive Director and has Director. The Company’s Compliance Manager is the British American Tobacco Uganda ensures that its share- the Board takes cognisance of the knowledge, skills and a membership of two Non-Executive Directors, among Secretary to the ICC and coordinates all its activities. The holders and the investing public are availed with full and experience of the Director for effective contribution to the others. Internal and external auditors and members from ICC provides updates to the Audit and Corporate Social timely information about its business performance. Board and the business of the Company. All the Directors the management team of the Company are permanent Responsibility Committee on the progress in monitoring This is achieved through publication of half-year and are highly regarded individuals with high business acumen invitees on the ACC. business risks and internal controls. full-year financial statements, circulation of Annual Reports, and repute, who hold positions of corporate responsibility attending to information requests at all times and holding The ACC meets at least three times in the year and uses and other directorships elsewhere. Staff shareholder meetings. internal and external audit results to support the monitoring Our employment principles provide a framework for work of risks and controls throughout the year. The Board provides leadership based on integrity, place practices, employee relations and employee human Compliance transparency, accountability and responsibility. The rights. Recruitment of employees is done meritoriously The Board reaffirms that for the year ended 31st December Directors have a duty to govern, direct, manage, control, Standards of Business Conduct on the basis of equality and equal opportunities. 2012 the Company was managed on the basis of effective lead, guide and monitor the good performance of the All our employees and members of the Board sign the practice of the tenets and standards of good corporate Company as a business concern. Importantly the Board Standards of Business Conduct. Enforcement and observance Employees are accorded various forums, like team briefs, governance and will continue to uphold these tenets. reviews the Company’s internal controls and governance of the standards ensures compliance with a culture that breakfast with the Managing Director, “Your Voice The Company complies with applicable legislation, system ensuring that the control environment is robust for upholds standards of a good corporate citizen. The standards Survey” and discussion forums, at which they express regulations, standards and policies and continues to business growth and sustainability. ensure achievement of our business objectives in a responsible their concerns and make direct contribution towards monitor such compliance. manner in tandem with high standards of honesty, management of the business. It is the Board’s duty to prepare and present a balanced and transparency and accountability. Compliance ensures that understandable assessment of the Company’s position while the actions of our employees are lawful in accordance with reporting to the shareholders. the expected ethical standards and laws of Uganda.
The Standards enhance our employees’ ability to make appropriate judgement and decisions in the course of their work.
14 British American Tobacco Uganda 2012 British American Tobacco Uganda 2012 15 Shareholding Information
SUMMARY OF SHAREHOLDERS Institutional No.of Shareholders No. of Shares Percentage Ugandan 44 2,636,827 5.37 Foreign 10 44,468,977 90.61 INDIVIDUAL Ugandan 1,315 1,684,842 3.43 Foreign 47 289,338 0.59
Grand Total 1,416 49,079,984 100.00
Top 20 Shareholders as at 28th February 2013 No Name of Shareholder No. of Shares Percentage 1 British American Tobacco Investments Limited 34,356,000 70.00 2 Precis 1790 Bv 9,816,000 20.00 Some of our shareholders at the 2012 AGM 3 Crane Bank Limited 2,270,450 4.63 4 Sudhir Ruparelia 414,326 0.84 5 Ronald Balyejjusa Ssettumba 294,109 0.60 6 ICDC Investment Company Limited 140,000 0.29 7 Joseph Byambara Byamugisha 100,000 0.20 8 National Insurance Corporation Limited 100,000 0.20 9 Barclays Bank Uganda Staff Pension Fund 90,000 0.18 10 Mohamed Salih Osman Salih 78,560 0.16 11 Imara S.P. Reid (PTY) Limited 55,477 0.11 12 UAP Provincial Insurance Company Limited 50,000 0.10 13 Kirumira Kalule Godfrey 50,000 0.10 14 Wilson Mulindwa 40,000 0.08 15 Geoffrey Haabaasa & Haabaasa 37,382 0.08 16 Lindani Ndlovu 35,717 0.07 17 D.V. Vikesh Dawda 34,429 0.07 18 Cfc Stanbic A/c Centum Exotics 30,000 0.06 19 Jagruti Bipin Pandya 29,394 0.06 20 The Registered Trustees of Chandaria Foundation 27,000 0.06
Top 20 Number of Shares 48,048,844 97.90
Other 1,396 Shareholders 1,031,140 2.10
Total 49,079,984 100.00
Structure as at 28 February 2013 Shareholding No. of Shareholders 1 - 1,000 shares 1,259 1,001 - 5,000 shares 100 5,001 - 10,000 shares 17 10,001 - 100,000 shares 34 100,001 - and above shares 6
Total 1,416
16 British American Tobacco Uganda 2012 British American Tobacco Uganda 2012 17 Corporate Information Leadership Team
Directors Lawyers Mr. Fred Tumwesigye Non-Executive Director J.B. Byamugisha Advocates Mr. Philip Lopokoyit Non-Executive Director EADB Building, Plot 4 Nile Avenue Mr. Jonathan D’Souza Managing Director P.O. Box 9400 Mr. Paul Sine Finance Director Kampala, Uganda
Audit & Corporate Social Byenkya, Kihika & Co. Advocates Spear House, Plot 22 Jinja Road Responsibility Committee P.O. Box 16401 Mr. Fred Tumwesigye Chairman Kampala, Uganda Mr. Philip Lopokoyit Member Mr. Jonathan D’Souza Permanent invitee Lumonya, Bushara & Co. Advocates Ms. Diana Apio-Kasyate Permanent invitee Jumbo Plaza, Plot 2 Parliament Avenue Mr. Paul Sine Permanent invitee P.O. Box 3242 Mr. Ben Guest Permanent invitee Kampala, Uganda Mr. Rowlands Nadida Permanent invitee Jonathan D’Souza Kiwanuka & Karugire Advocates Pricewaterhousecoopers Permanent invitee Managing Director Plot 5A2, Acacia Avenue Ms. Lilian Maundu Secretary P.O. Box 6061 Auditors Kampala, Uganda PricewaterhouseCoopers Sebalu & Lule Advocates Communications House EADB Building, Plot 4 Nile Avenue Plot 1, Colville Street P.O. Box 2255 P.O. Box 882 Kampala, Uganda Kampala, Uganda Bankers Registrars Barclays Bank Uganda Limited Deloitte (Uganda) Limited Citibank Uganda Limited Rwenzori House, Lumumba Avenue Stanbic Bank Uganda Limited P.O. Box 10314 Standard Chartered Bank Uganda Limited Kampala, Uganda Company Secretary Mr. Isaac Ampeire Ampeire & Co. Advocates Interservice Tower, Paul Sine Diana Apio-Kasyate - Corporate & Ben Guest Plot 33 Lumumba Avenue Finance Director Regulatory Affairs Manager Head of Leaf P. O. Box 34633 Kampala, Uganda Telephone: +256 414 259 161
Registered Office Plot 69/71 Jinja Road P.O. Box 7100 Kampala, Uganda Telephone +256 312 200 100
Rogers Kisekka Marie Pinycwa - Human Rowlands Nadida - Senior Legal Head of Trade Resource Business Partner Counsel-East & Central Africa Area
18 British American Tobacco Uganda 2012 British American Tobacco Uganda 2012 19 BAT staff at the opening of the new office block in Hoima (May 2012) British American Tobacco Uganda Limited Annual Report and Financial Statements For the year ended 31 December 2012
BAT Uganda Finance Director receives a Financial Reporting Award (FiRe) from the Minister of Finance Table of contents Maria Kiwanuka (November 2012). BAT won three awards Directors’ Report 22 at the event. Statement of Directors’ responsibilities 23
Report of the Independent Auditor 24-25
Financial Statements:
Income Statement 26
Statement of Comprehensive Income 26
Statement of Financial Position 27
Statement of Changes in Equity 28-29
Statement of Cash Flows 30
BAT Uganda management team after a meeting Notes 31-54 with Uganda Revenue Authority commissioners (2nd and 3rd from the left) at our head office in Kampala (October 2012) 20 British American Tobacco Uganda 2012 British American Tobacco Uganda 2012 21 Annual Report 2012 Annual Report 2012 Directors’ Report Statement of Directors’ Responsibilities
The Directors submit their report together with the audited financial statements for the year ended 31 December The Uganda Companies Act requires the Directors to prepare financial statements for each financial year that 2012, which disclose the state of affairs of the Company. give a true and fair view of the state of affairs of the Company as at the end of the financial year and of its profit or loss. It also requires the Directors to ensure that the Company keeps proper accounting records that disclose, Principal Activities with reasonable accuracy, the financial position of the Company. They are also responsible for safeguarding the The principal activities of the Company are purchase, processing and sale of tobacco products. assets of the Company.
Results and Dividend The Directors accept responsibility for the annual financial statements, which have been prepared using appropriate accounting policies supported by reasonable estimates, in conformity with International Financial The net profit for the year of Shs 12,196 million (2011: Shs 22,081 million) has been added to retained earnings. Reporting Standards and the requirements of the Uganda Companies Act. The Directors are of the opinion that During the year, the Company paid an interim dividend of Shs 141 per share (2011: Shs 141 per share) amounting the financial statements give a true and fair view of the state of the financial affairs of the Company and of its to Shs 6,920 million (2011: Shs 6,920 million). The Directors do not recommend the payment of a final dividend profit in accordance with International Financial Reporting Standards and the Uganda Companies Act. The for the year ended 31 December 2012 (2011: Shs 309 per share, amounting to Shs 15,161 million). Directors further accept responsibility for the maintenance of accounting records that may be relied upon in the preparation of financial statements and for such internal control as the Directors determine is necessary to Directors enable the preparation of financial statements that are free from material misstatement, whether due to fraud The Directors who held office during the year and to the date of this report were: or error. James Mulwana Chairman – Deceased on 15 January 2013 Nothing has come to the attention of the Directors to indicate that the Company will not remain a going Jonathan D’Souza Managing Director – Appointed on 1 June 2012 concern for at least twelve months from the date of this statement. Alain Schacher Managing Director – Resigned on 31 May 2012 Paul Sine Finance Director Keith Gretton Non Executive Director – Resigned on 17 August 2012 Fred Tumwesigye Non Executive Director Jeremy Armstrong Non Executive Director – Resigned on 17 August 2012 Heidi Jones Non Executive Director – Resigned on 17 August 2012 Philip Lopokoiyit Non Executive Director – Appointed on 17 August 2012
Auditor Director Director The Company’s auditor, PricewaterhouseCoopers, continues in office in accordance with Section 159 (2) of the 25 February 2013 25 February 2013 Companies Act.
By order of the Board
SECRETARY 25 February 2013
22 British American Tobacco Uganda 2012 British American Tobacco Uganda 2012 23 Report of The Independent Auditor to the Report of the Independent Auditor to the Members of British American Tobacco Members of British American Tobacco Uganda Limited Uganda Limited (continued)
Report on other legal requirements Report on the financial statements The Uganda Companies Act requires that in carrying out our audit we consider and report to you on the We have audited the accompanying financial statements of British American Tobacco Uganda Limited (“the following matters. We confirm that: Company”) as set out on pages 26 to 54. These financial statements comprise the statement of financial position at 31 December 2012 and the income statement, statement of comprehensive income, statement of changes • we have obtained all the information and explanations which to the best of our knowledge and belief were in equity and statement of cash flows for the year then ended and a summary of significant accounting policies necessary for the purposes of our audit; and other explanatory notes. • in our opinion proper books of account have been kept by the company, so far as appears from our examination of those books; and Directors’ responsibility for the financial statements The Directors are responsible for the preparation and fair presentation of these financial statements in • the Company’s statement of financial position and statement of comprehensive income are in agreement with accordance with International Financial Reporting Standards and with the requirements of the Uganda the books of account. Companies Act, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s responsibility Our responsibility is to express an independent opinion on the financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we Certified Public Accountants comply with ethical requirements and plan and perform our audit to obtain reasonable assurance that the Kampala financial statements are free from material misstatement. 12 March 2013
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity’s preparation and fair presentation of the financial statements 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. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Opinion In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Company at 31 December 2012 and of its profit and cash flows for the year then ended in accordance with International Financial Reporting Standards and the Uganda Companies Act.
24 British American Tobacco Uganda 2012 British American Tobacco Uganda 2012 25 Financial Statements For the year ended 31 December 2012 Financial Statements For the year ended 31 December 2012 Income Statement Statement of Financial Position 31 December 31 December Notes 2012 2011 Shs’000 Shs’000 Year ended 31 December Notes 2012 2011 Equity attributable to owners Shs’000 Shs’000 Share capital 12 61,350 61,350 Revaluation reserve 13 5,703,305 7,232,093 Net revenue 5 180,042,150 165,317,430 Retained earnings 7,159,496 354,727 Cost of sales (96,857,720) (83,547,598) Proposed dividend 11 - 15,160,566 Gross profit 83,184,430 81,769,832 Total equity 12,924,151 22,808,736 Other income 6 4,090,650 20,983,250 Non-current liabilities Distribution costs (6,471,110) (7,878,376) Deferred income tax liability 14 194,756 4,326,186 Administrative expenses (30,639,277) (24,924,642) Other expenses (20,340,392) (29,916,183) Total equity and non-current liabilities 13,118,907 27,134,922
Operating profit 29,824,301 40,033,881 Non-current assets Property, plant and equipment 15 46,539,194 32,074,926 Finance costs 7 (12,750,329) (8,033,631) Prepaid operating lease rentals 16 70,706 196,729 Profit before income tax 17,073,972 32,000,250 46,609,900 32,271,655 Income tax expense 10 (4,877,713) (9,919,643) Non-current assets held for sale 17 - 3,464,250 Profit for the year 12,196,259 22,080,607 46,609,900 35,735,905 Basic and diluted earnings per share 11 248 450 Current assets Inventories 18 130,127,607 117,017,824 Trade and other receivables 19 21,768,680 24,493,620 Cash and cash equivalents 20 9,600,983 7,255,691
Statement of Comprehensive Income 161,497,270 148,767,135
Year ended 31 December Current liabilities 2012 2011 Trade and other payables 21 118,282,378 92,831,587 Shs’000 Shs’000 Borrowings 22 67,696,742 61,752,730 Current income tax 10 9,009,143 2,783,801 Profit for the year 12,196,259 22,080,607 Other comprehensive income, net of tax - - 194,988,263 157,368,118
Total comprehensive income for the year 12,196,259 22,080,607 Net current liabilities (33,490,993) (8,600,983)
Net assets 13,118,907 27,134,922
The financial statements on pages 26 to 54 were approved for issue by the Board of Directors on 25 February 2013 and signed on its behalf by:
Director Director
26 British American Tobacco Uganda 2012 British American Tobacco Uganda 2012 27 Financial Statements For the year ended 31 December 2012 Financial Statements For the year ended 31 December 2012 Statement of Changes in Equity Statement of Changes in Equity (continued)
Share Revaluation Retained Proposed Total Share Revaluation Retained Proposed Total Notes capital reserve earnings dividends equity Notes capital reserve earnings dividends equity Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Year ended 31 December 2011 Year ended 31 December 2012
At start of year 61,350 7,417,314 169,506 7,754,637 15,402,807 At start of year 61,350 7,232,093 354,727 15,160,566 22,808,736
Profit for the year - - 22,080,607 - 22,080,607 Profit for the year - - 12,196,259 - 12,196,259
Other comprehensive income: Other comprehensive income: Transfer of excess depreciation Transfer of revaluation surplus in in respect of revaluation respect of sale of land and buildings surplus net of tax - (185,221) 185,221 - - (net of tax) - (1,343,567) 1,343,567 - - Transfer of excess depreciation Total comprehensive income - (185,221) 22,265,828 - 22,080,607 in respect of revaluation surplus net of tax - (185,221) 185,221 - - Dividends: - Final dividend for 2010 - - - (7,754,637) (7,754,637) Total comprehensive income - (1,528,788) 13,725,047 - 12,196,259 - Interim for 2011 11 - - (6,920,041) - (6,920,041) Dividends: - Proposed final for 2011 11 - - (15,160,566) 15,160,566 - - Final dividend for 2011 - - - (15,160,566) (15,160,566) Total transactions with owners - - (22,080,607) 7,405,929 (14,674,678) - Interim for 2012 11 - - (6,920,278) - (6,920,278) - Proposed final for 2012 11 - - - - - At end of year 61,350 7,232,093 354,727 15,160,566 22,808,736 Total transactions with owners - - (6,920,278) (15,160,566) (22,080,844)
At end of year 61,350 5,703,305 7,159,496 - 12,924,151
-
28 British American Tobacco Uganda 2012 British American Tobacco Uganda 2012 29 Financial Statements For the year ended 31 December 2012 Financial Statements For the year ended 31 December 2012 Statement of Cash Flows Notes
Year ended 31 December 1 General information Notes 2012 2011 British American Tobacco Uganda Limited (“the Company”) is incorporated in Uganda under the Uganda Shs’000 Shs’000 Companies Act as a limited liability company, and is domiciled in Uganda. The address of its registered office is:
Cash flows from operating activities P.O. Box 7100 Cash generated from operations 25 35,319,319 14,860,544 Plot 69/71 Jinja Road Interest paid (3,742,158) (3,019,927) Kampala, Uganda. Income tax paid (2,783,801) (5,069,740) For Uganda Companies Act reporting purposes, the balance sheet is represented by the statement of financial position and the profit and loss account by the income statement in these financial statements. Net cash from operating activities 28,793,360 6,770,877 2 Summary of significant accounting policies Cash flows from investing activities The principal accounting policies applied in the preparation of these financial statements are set out below. These Purchase of property, plant and equipment 15 (15,780,608) (8,544,145) policies have been consistently applied to all years presented, unless otherwise stated. Proceeds from disposal of property, plant and equipment 5,469,372 275,138 (a) Basis of preparation Net cash used in investing activities (10,311,236) (8,269,007) The financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and the Uganda Companies Act. The measurement basis applied is the historical cost basis, except for Cash flows from financing activities land and buildings, which have been measured at fair value. Proceeds from borrowings 292,579,324 257,651,970 The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting Repayment of borrowings (276,351,904) (252,486,970) estimates. It also requires management to exercise its judgement in the process of applying the Company’s Dividends paid to Company shareholders (22,080,844) (14,674,678) accounting policies. The areas involving a higher degree of judgement or complexity, or where assumptions and estimates are significant to the financial statements, are disclosed in Note 3. Net cash utilised in financing activities (5,853,424) (9,509,678) Net increase/(decrease) in cash and cash equivalents 12,628,700 (11,007,808) Changes in accounting policy and disclosures (i) New and amended standards adopted Cash and cash equivalents at start of year 20 (12,332,039) (1,237,498) There are no IFRSs or IFRIC interpretations that are effective for the first time for the financial year beginning on Foreign exchange losses - (86,733) 1 January 2012 that would be expected to have a material impact on the Company.
Cash and cash equivalents at end of year 20 296,661 (12,332,039) (ii) New standards and interpretations that are not yet effective and have not been early adopted
A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2012, and have not been applied in preparing these financial statements. None of these is expected to have a significant effect on the financial statements of the Company, except the following set out below:
Amendment to IAS 1, ‘Presentation of Financial Statements’ regarding other comprehensive income. The main change resulting from these amendments is a requirement for entities to group items presented in ‘other comprehensive income’ (OCI) on the basis of whether they are potentially reclassifiable to profit or loss subsequently (reclassification adjustments). The amendments do not address which items are presented in OCI.
30 British American Tobacco Uganda 2012 British American Tobacco Uganda 2012 31 Financial Statements For the year ended 31 December 2012 Financial Statements For the year ended 31 December 2012 Notes (continued) Notes (continued)
2 Summary of significant accounting policies (continued) 2 Summary of significant accounting policies (continued)
Changes in accounting policy and disclosures (continued) (ii) New standards and interpretations that are not yet effective and have not been early adopted (continued) (c) Foreign currency translation (a) Functional and presentation currency IFRS 13, ‘Fair value measurement’, aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across Items included in the financial are measured using the currency of the primary economic environment in which IFRSs. The requirements, which are largely aligned between IFRSs and US GAAP, do not extend the use of the Company operates (‘the functional currency’). The financial statements are presented in Uganda Shillings fair value accounting but provide guidance on how it should be applied where its use is already required or (Shs) rounded to the nearest thousands. Uganda Shillings is the Company’s functional currency. permitted by other standards within IFRSs or US GAAP. The application of IFRS 13 may enhance fair value (b) Transactions and balances disclosures in certain circumstances. Foreign currency transactions are translated into the functional currency of the Company using the exchange IFRS 9, ‘Financial instruments’, addresses the classification, measurement and recognition of financial assets rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement and financial liabilities. Issued in November 2009 and October 2011, it replaces the parts of IAS 39 that relate of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities to the classification and measurement of financial instruments. IFRS 9 requires financial assets to be classified denominated in foreign currencies are recognised in profit or loss. into two measurement categories: those measured as at fair value and those measured at amortised cost. The determination is made at initial recognition. The classification depends on the entity’s business model for Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial income statement within ‘finance income or cost’. All other foreign exchange gains and losses are presented in liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases where the fair profit or loss within ‘other income’ or ‘other expenses’. value option is taken for financial liabilities, the part of a fair value change due to an entity’s own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting (d) Property, plant and equipment mismatch. The Directors are yet to assess IFRS 9’s full impact and intend to adopt IFRS 9 no later than the Land and buildings are shown at fair value, based on periodic, but at least triennial, valuations by external accounting period beginning on or after 1 January 2015. The Directors will also consider the impact of the independent valuers, less subsequent depreciation for buildings. Any accumulated depreciation at the date remaining phases of IFRS 9 when completed by the IASB. of revaluation is eliminated against the gross carrying amount of the asset and the net amount is restated to There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a the revalued amount of the asset. All other property, plant and equipment are stated at historical cost less material impact on the Company. depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, (b) Revenue recognition only when it is probable that future economic benefits associated with the item will flow to the Company and Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other in the ordinary course of the Company’s activities. Net revenue is shown after excluding value-added tax (VAT), repairs and maintenance are charged to profit or loss during the financial period in which they are incurred. rebates and discounts. Increases in the carrying amount arising on revaluation of land and buildings are credited to other comprehensive The Company recognises revenue when the amount of revenue can be reliably measured, it is probable that income and show as a revaluation reserve in equity. Decreases that offset previous increases of the same asset future economic benefits will flow to the Company and when specific criteria have been met for each of the are charged in other comprehensive income and debited against the revaluation reserve, all other decreases are Company’s activities as described below. The Company bases its estimates on historical results, taking into charged to profit or loss. Each year the difference between depreciation based on the revalued carrying amount consideration the type of customer, the type of transaction and the specifics of each arrangement. of the asset (the depreciation charged to profit or loss) and depreciation based on the asset’s original cost is transferred from the revaluation reserve to retained earnings. Revenue is recognised as follows: Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their i. Sales of goods are recognised in the period in which the Company has delivered products to the customer, cost or revalued amounts to their residual values over their estimated useful lives, as follows: the customer has full discretion over the channel and price to sell the products, and there is no unfulfilled obligation that could affect the customer’s acceptance of the products. Delivery does not occur until the Buildings 2%-5% products have been accepted by the customer. Lease hold properties over the period of lease Plant and machinery 12.5% No element of financing is deemed present as the sales are made with a credit term of 30 days, which is Fixtures and fittings 12.5% consistent with the market practice. The Company does not operate any loyalty programmes. Equipment and motor vehicles 33.3% ii. Interest income is recognised on a time proportion basis using the effective interest method. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
32 British American Tobacco Uganda 2012 British American Tobacco Uganda 2012 33 Financial Statements For the year ended 31 December 2012 Financial Statements For the year ended 31 December 2012 Notes (continued) Notes (continued)
2 Summary of significant accounting policies (continued) 2 Summary of significant accounting policies (continued) (g) Financial assets (continued) (d) Property, plant and equipment (continued) (iv) Impairment Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by The Company assesses at the end of each reporting period whether there is objective evidence that a financial which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped impairment losses are incurred only if there is objective evidence of impairment as a result of one or more at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) assets that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are included in profit or loss. When revalued assets are sold, the amounts included in the revaluation reserve relating Evidence of impairment may include indications that the debtors or a group of debtors is experiencing to that asset are transferred to retained earnings. significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation, and where observable data indicate that there (e) Leases is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified that correlate with defaults. as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are For loans and receivables category, the amount of the loss is measured as the difference between the asset’s charged to profit or loss on a straight-line basis over the period of the lease. carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the (f) Inventories asset is reduced and the amount of the loss is recognised in profit or loss. If a loan has a variable interest rate, Inventories are stated at the lower of cost and net realisable value. Cost is determined by the weighted average the discount rate for measuring any impairment loss is the current effective interest rate determined under the cost method less provision for impairment. The cost of finished goods and work in progress comprises raw contract. materials, direct labour, other direct costs and related production overheads (based on normal operating capacity). It excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related of business, less applicable variable selling expenses. objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s (g) Financial assets credit rating), the reversal of the previously recognised impairment loss is recognised in profit or loss. (i) Classification (h) Trade receivables All financial assets of the Company are classified as loans and receivables, based on the purpose for which the financial assets were acquired. Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of the business Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted if longer), they are a classified as current assets. If not, they are presented as non-current assets. in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. The Company’s loans and receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the comprise ‘non current receivables and prepayments’, ‘trade and other receivables’ and ‘cash and cash effective interest method less provision for impairment (note g). equivalents’ in the statement of financial position. (i) Trade payables (ii) Recognition and measurement Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one Regular purchases and sales of financial assets are recognised at fair value on the trade-date – the date on which year or less (or in the normal operating cycle of the business if longer). If not, they are presented as the Company commits to purchase or sell the asset. Loans and receivables are subsequently carried at amortised non-current liabilities. cost using the effective interest method. Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the (iii) Offsetting financial instruments effective interest method. Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously.
34 British American Tobacco Uganda 2012 British American Tobacco Uganda 2012 35 Financial Statements For the year ended 31 December 2012 Financial Statements For the year ended 31 December 2012 Notes (continued) Notes (continued)
2 Summary of significant accounting policies (continued) 2 Summary of significant accounting policies (continued) (j) Borrowings (n) Employee benefits Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently (i) Retirement benefit obligations stated at amortised cost; any differences between proceeds (net of transaction costs) and the redemption value is recognised in profit or loss over the period of the borrowings, using the effective interest method. The Company operates a defined contribution retirement benefit scheme for its employees. The Company and all its employees also contribute to the appropriate National Social Security Fund, which is a defined Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent contribution scheme. that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be A defined contribution plan is a pension plan under which the Company pays fixed contributions into a separate drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of entity. The Company has no legal or constructive obligations to pay further contributions if the fund does not the facility to which it relates. hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.
Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement The Company’s contributions to the defined contribution schemes are recognised as an employee benefit expense of the liability for at least 12 months after the end of the reporting period. when they fall due. The Company has no further payment obligations once the contributions have been paid. (ii) Other entitlements (k) Provisions Provisions are recognised when: the Company has a present legal or constructive obligation as a result of past The estimated monetary liability for employees’ accrued annual leave entitlement at the statement of financial events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has position date is recognised as an expense accrual. been reliably estimated. Restructuring provisions comprise lease termination penalties and employee termination payments. Provisions are not recognised for future operating losses. The Company recognises a liability and an expense for bonuses and profit-sharing, based on a formula that takes into consideration the profit attributable to the Company’s shareholders after certain adjustments. The Company Provisions are measured at the present value of the expenditures expected to be required to settle the obligation recognises a provision where contractually obliged or where there is past practice that has created a constructive using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to obligation. the obligation. The increase in the provision due to passage of time is recognised as interest expense. (iii) Termination benefits
(l) Share capital Termination benefits are payable when employment is terminated by the Company before the normal retirement Ordinary shares are classified as ‘share capital’ in equity. Any premium received over and above the par value of date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Company the shares is classified as ‘share premium’ in equity. recognises termination benefits when it is demonstrably committed to a termination when the entity has a Incremental costs directly attributable to the issue of new ordinary shares (net of tax) are shown in equity as detailed formal plan to terminate the employment of current employees without possibility of withdrawal. deduction from the proceeds. In the case of an offer made to encourage voluntary redundancy, the termination benefits are measured based on the number of employees expected to accept the offer. (m) Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short term highly liquid Benefits falling due more than 12 months after the end of the reporting period are discounted to their present value. investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the statement of financial position.
36 British American Tobacco Uganda 2012 British American Tobacco Uganda 2012 37 Financial Statements For the year ended 31 December 2012 Financial Statements For the year ended 31 December 2012 Notes (continued) Notes (continued)
2 Summary of significant accounting policies (continued) 2 Summary of significant accounting policies (continued) (o) Income tax a) Current income tax (r) Non - current assets held for sale The Company classifies assets (or disposal groups) as non current assets held for sale if the assets are not current The tax expense for the period comprises current and deferred income tax. Tax is recognised in profit or loss, assets (and deferred tax assets, assets arising from employee benefits, financial assets within the scope of IFRS 9, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In non-current assets that are accounted for in accordance with the fair value model in IAS 40 – Investments this case, the tax is also recognised in other comprehensive income or directly in equity respectively. Property, non-current assets that are measured at fair value less costs to sell in accordance with IAS 41 – Current income tax is the amount of income tax payable on the taxable profit for the year determined in Agriculture, contractual rights under insurance contracts as defined in IFRS 4 – Insurance Contracts) and the carrying accordance with the relevant tax legislation. The current income tax charge is calculated on the basis of the tax amount of these assets will be recovered principally through a sale transaction rather than continuing use. enacted or substantively enacted at the statement of financial position date. Management periodically evaluates The Company considers this condition for classification of an asset (or disposal group) as a non-current asset positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. held for sale to be met only when the sale of the non-current asset held for sale is highly probable and the asset It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. (or disposal group) is available for immediate sale in its present condition subject only to terms that are usual b) Deferred income tax and customary.
Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax Before classification of assets as a non-current held for sale, the asset is measured in accordance with applicable bases of assets and liabilities and their carrying amounts in the financial statements. However, deferred income IFRS. Then, on initial classification as held for sale, noncurrent assets are measured in accordance with IFRS 5 tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a that is at the lower of their carrying amount and fair value less costs to sell. Any differences are included in business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted at the statement of financial position date and are expected to apply when the related deferred income tax asset is 3 Critical accounting estimates and judgements realised or the deferred income tax liability is settled. Estimates and judgements are continually evaluated and are based on historical experience and other factors, Deferred income tax assets are recognised only to the extent that it is probable that future taxable profits will be including experience of future events that are believed to be reasonable under the circumstances. available against which the temporary differences can be utilised. (i) Critical accounting estimates and assumptions Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk taxes levied by the same taxation authority where there is an intention to settle the balances on a net basis. of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below. (p) Dividends Dividends on ordinary shares are charged to equity in the period in which they are declared. Proposed dividends Income taxes are shown as a separate component of equity until declared. Significant judgment is required in determining the Company’s provision for income taxes. There are many (q) Borrowing costs transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course General and specific borrowing costs directly attributable to the acquisition, construction or production of of business. The Company recognises liabilities for anticipated tax audit issues based on estimates of whether qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready were initially recorded, such differences will impact the income tax and deferred tax provisions in the period for their intended use or sale. in which such determination is made.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on In the process of applying the company’s accounting policies, the Directors have made judgements in qualifying assets is deducted from the borrowing costs eligible for capitalisation. determining whether assets are impaired.
All other borrowing costs are recognised in profit or loss in the period in which they are incurred.
38 British American Tobacco Uganda 2012 British American Tobacco Uganda 2012 39 Financial Statements For the year ended 31 December 2012 Financial Statements For the year ended 31 December 2012 Notes (continued) Notes (continued)
4 Financial risk management objectives and policies 4 Financial risk management objectives and policies (continued) The Company’s activities expose it to a variety of financial risks: market risk (including foreign exchange Set out below is a summary of amounts that represent the Company’s exposure to credit risk: risk and interest 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 2012 2011 financial performance. The Company does not hedge any of its risk exposures. Shs’000 Shs’000
Financial risk management is carried out by the finance department under policies approved by the Board of - Cash at bank and short term bank deposits 9,600,983 7,255,691 Directors. - Trade receivables 2,932,574 5,011,636 Market risk - Receivables from related companies 11,990,267 7,265,407
(i) Foreign exchange risk 24,523,824 19,532,734
The Company makes export sales, imports finished goods and raw materials and is exposed to foreign exchange No collateral is held for any of the above assets. The company does not grade the credit quality of receivables. All risk arising from various currency exposures, primarily with respect to the US dollar. Foreign exchange risk arises receivables that are neither past due nor impaired are within their approved credit limits, and no receivables have from future commercial transactions, and recognised assets and liabilities. had their terms renegotiated. Management’s policy to manage foreign exchange risk is to hold foreign currency bank accounts which act as a None of the above assets are either past due or impaired except for the following amounts in trade receivables natural hedge for purchases of imported raw materials. related to farmer advances. At 31 December 2012, if the Uganda Shilling had strengthened/weakened by 10% against the US dollar with all other variables held constant, post-tax profit for the year and equity would have been Shs 13,397 million (2011: 2012 2011 Shs 2,471 million) higher/lower, mainly as a result of US dollar denominated trade payables, bank borrowings, Shs’000 Shs’000 intercompany payables and bank balances. Receivables individually determined to be impaired: (ii) Cash flow and fair value interest rate risk Carrying amount before provision for impairment loss 2,539,846 4,857,284 The Company’s interest rate risk arises from short-term borrowings. The Company’s short term borrowings are Provision for impairment loss (2,539,846) (4,610,751) maintained at fixed interest rates for the duration of the short term borrowing. The Company regularly monitors Net carrying amount - 246,533 financing options available to ensure optimum interest rates are obtained. As a result of these fixed rate borrowings, the Company is not exposed to cash flow and fair value interest rate risk. Liquidity risk Credit risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. Prudent Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions as well as liquidity risk management includes maintaining sufficient cash balances, and the availability of funding from an credit exposures to customers, including outstanding receivables and committed transactions. Credit risk is the adequate amount of committed credit facilities. Due to the dynamic nature of the underlying businesses, the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. finance department maintains flexibility in funding by maintaining availability under committed credit lines.
Credit risk is managed by the Finance Director with support from the credit controller who is responsible for Management perform cash flow forecasting and monitor rolling forecasts of the Company’s liquidity requirements managing and analysing credit risk for each new client before standard payment and delivery terms are offered. to ensure it has sufficient cash to meet its operational needs while maintaining sufficient headroom on its The Company does not have any significant concentrations of credit risk. Credit risk in respect of cash at bank undrawn committed borrowing facilities at all times so that the Company does not breach borrowing limits is management by monitoring the Company’s net exposure with each financial institution where the Company or covenants (where applicable) on any of its borrowing facilities. The Company’s approach when managing maintains bank balances. liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, without incurring unacceptable losses or risking damage to the Company’s reputation. 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 regularly monitored.
40 British American Tobacco Uganda 2012 British American Tobacco Uganda 2012 41 Financial Statements For the year ended 31 December 2012 Financial Statements For the year ended 31 December 2012 Notes (continued) Notes (continued)
4 Financial risk management objectives and policies (continued) 5 Net revenue and operating profit For purposes of IFRS 8 – Operating Segments, the Company’s Managing Director is considered to be the Chief Liquidity risk (continued) Operating Decision Maker. The Company is a single product business providing cigarettes and other tobacco products. While the Company has clearly differentiated brands, detailed segmentation between a wide portfolio The table below analyses the Company’s financial liabilities that will be settled on a net basis. The Company’s of brands may not be presented without a high degree of estimation. The information provided below on financial liabilities, which are set out in the table below, will be settled within a period of one year from revenue and operating profit provides an additional analysis of the business although the Company is managed 31 December 2012. The amounts disclosed in the table below are the contractual undiscounted cash flows. as one entity.
2012 2011 The Company’s assets are managed as part of one business unit. All the Company’s non-current assets are Shs’000 Shs’000 located in Uganda. - bank borrowings 58,392,420 42,165,000 With the exception of BAT GLP, the Company does not sell more than 10% of its products to a single customer. - bank overdraft 9,304,322 19,587,730 Sales to BAT GLP, which relate to the leaf revenue stream, are disclosed in note 27 to these financial statements. - trade and other payables 81,010,714 61,434,277 The revenue and operating profit by category are as follows:
148,707,456 123,187,007 2012 2011 Shs’000 Shs’000 Total sales 242,510,637 223,729,809 The Company’s borrowings are repayable in January 2013 and February 2013 and attract interest at rates of 4.5 and 6.2%. Value added tax and excise duty (62,468,487) (58,412,379)
Financial instruments by category Net revenue 180,042,150 165,317,430
The Company’s financial assets at the year end comprise (i) cash and cash equivalents which amounts to Shs 11,193 Local sales (Cigarette): million (2011:Shs 7,256 million) and (ii) trade and other receivables which amount to Shs 18,872 million (2011: Shs Total sales 137,675,759 129,606,632 14,461 million). These financial assets are categorised under ‘loans and receivables’ and measured at amortised cost. Operating profit 24,811,478 23,956,294 The Company’s financial liabilities at the year end comprise (i) trade and other payables which amount to Shs 81,011 million (2011: Shs 61,434 million) and (ii) borrowings which amount to Shs 67,697 million (2011: Shs 61,753 Export sales (Leaf): million). These financial liabilities are categorised under other financial liabilities and measured at amortised cost. Total sales 104,834,878 94,123,177 Operating profit 5,012,823 16,077,587 Capital risk management 6 Other income The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going Insurance reimbursement 638,894 20,186,498 concern in order to provide returns for shareholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Company may limit the amount of Gain on disposal 2,745,388 275,138 dividends paid to shareholders, issue new shares, or sell assets to reduce debt. Miscellaneous income 706,368 521,614
The Company monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by 4,090,650 20,983,250 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. 7 Finance costs Interest expense - bank loans and overdraft 3,742,158 3,019,927 The gearing ratios at 31 December 2012 and 2011 were as follows: Net foreign exchange losses 9,008,171 5,013,704 2012 2011 Shs’000 Shs’000 12,750,329 8,033,631 Total borrowings (note 22) 67,696,742 61,752,730 Less: bank and cash balances (note 20) (9,600,983) (7,255,691)
Net debt 58,095,759 54,497,039 Total equity 12,924,151 22,808,736
Total capital 71,019,910 77,305,775
Gearing ratio 82% 70%
42 British American Tobacco Uganda 2012 British American Tobacco Uganda 2012 43 Financial Statements For the year ended 31 December 2012 Financial Statements For the year ended 31 December 2012 Notes (continued) Notes (continued)
8 Expenses by nature 2012 2011 11 Dividends and earnings per share Shs’000 Shs’000 (a) Earnings per share Employee benefits expense (note 9) 20,366,188 17,104,114 Basic earnings per share are calculated by dividing the profit attributable to equity holders of the Company by Depreciation on property, plant and equipment (note 15) 2,173,218 2,336,044 the weighted average number of ordinary shares in issue during the year. Operating lease payments expensed 9,411 10,080 2012 2011 Inventories expensed 92,686,673 78,872,093 Profit attributable to equity holders of the Company (Shs’000) 12,196,259 22,080,607 Auditor’s remuneration 192,400 238,148 Repairs and maintenance expenses 3,047,470 3,465,249 Weighted average number of ordinary shares in issue (thousands) 49,080 49,080 Transportation costs 7,771,926 7,480,650 Basic and diluted earnings per share (Shs) 248 450 9 Employee benefits expense There were no potentially dilutive shares outstanding at 31 December 2012 or 2011. Diluted earnings per share The following items are included within employee benefits expense: are therefore the same as basic earnings per share.
(b) Dividends per share Salaries and wages 18,417,494 15,410,882 The Directors do not recommend the payment of a final dividend for the year ended 31 December 2012 (2011: Retirement benefits costs: Shs 309 per share, amounting to a total of Shs 15,161 million). - Defined contribution scheme 961,434 1,049,620 - National Social Security Fund 987,260 643,612 During the year, an interim dividend of Shs 141 (2011: Shs 141) per share, amounting to a total of Shs 6,920 million (2011: Shs 6,920 million) was paid. Total dividend, comprising interim and final for the year is Shs 141 20,366,188 17,104,114 (2011: Shs 450) per share, amounting to a total of Shs 6,920 million (2011: Shs 22,081 million). 10 Income tax expense Payment of dividends is subject to withholding tax at a rate of either 10% or 15% depending on the residence of the respective shareholders. Current income tax 9,009,143 8,674,784
Deferred income tax (credit)/charge (note 14) (4,131,430) 1,244,859 Number of shares Ordinary shares 12 Share capital (Thousands) Shs’000 Income tax expense 4,877,713 9,919,643 At 1 January 2012 and 31 December 2012 49,080 61,350
The tax on the Company’s profit before income tax differs from the theoretical amount that would arise using The total authorised number of ordinary shares is 64,000,000 with a par value of Shs. 1.25 per share. Issued share the statutory income tax rate as follows: capital consists of 49,080,000 ordinary shares fully paid for at a par value of Shs 1.25.
Profit before income tax 17,073,972 32,000,250
Tax calculated at the statutory income tax rate of 30% (2011:30%) 5,122,192 9,600,075 Tax effect of: Expenses not deductible for tax purposes 642,913 303,361 Prior year over/(under) provision for current income tax (114,366) 5,705 Prior year over/(under) provision for deferred income tax (773,026) 10,502
Income tax expense 4,877,713 9,919,643 The movement in the current tax payable amount is as set out below: Tax payable/(recoverable) at start of year 2,783,801 (821,243 ) Current income tax charge 9,009,143 8,674,784 Tax paid (2,783,801) (5,069,740 )
Tax payable at end of year 9,009,143 2,783,801
44 British American Tobacco Uganda 2012 British American Tobacco Uganda 2012 45 Financial Statements For the year ended 31 December 2012 Financial Statements For the year ended 31 December 2012 Notes (continued) Notes (continued)
13 Revaluation reserve 14 Deferred income tax (continued) The revaluation surplus represents solely the surplus on the revaluation of buildings and freehold land net of Because of the uncertainty in estimating the extent to which the Company’s deferred income tax assets and deferred income tax and is non-distributable. liabilities will crystallise within 12 months from the year end, the Company’s entire net deferred income tax liability has been classified as a non-current liability. 2012 2011 Shs’000 Shs’000 Deferred income tax assets and liabilities and the deferred income tax charge in the income statement are attributable to the following items: At start of year 7,232,093 7,417,314
Revaluation surplus on sale of land and buildings (1,919,381) - Charged/ Year ended 31 December 2012 1 January (credited) to 31 December Deferred income tax in respect of revaluation surplus 575,814 - 2012 P/L 2012 (1,343,567) - Shs’000 Shs’000 Shs’000 Deferred income tax liabilities Transfer of excess depreciation in respect of revaluation surplus (264,601) (264,601) Property, plant and equipment: Deferred income tax in respect of excess depreciation 79,380 79,380 - on historical cost basis 2,148,327 (482,107) 1,666,220 (185,221) (185,221) - on revaluation surpluses 3,106,034 (169,569) 2,936,465
At end of year 5,703,305 7,232,093 5,254,361 (651,676) 4,602,685
Deferred income tax assets The Company’s revaluation reserves are not available for distribution to the Company’s shareholders. Unrealised foreign exchange gains/(losses) 970,820 (4,017,254) (3,046,434) Provisions (1,898,995) 537,500 (1,361,495) 14 Deferred income tax Deferred income tax is calculated using the enacted income tax rate of 30% (2011: 30%). The movement on the (928,175) (3,479,754) (4,407,929) deferred income tax account is as follows:
2012 2011 Net deferred income tax liability 4,326,186 (4,131,430) 194,756 Shs’000 Shs’000 Charged/ At start of year 4,326,186 3,081,327 Year ended 31 December 2011 (credited) to 31 December (Credit)/ charge to income statement (note 10) (4,131,430) 1,244,859 1 January 2011 P/L 2011 Shs’000 Shs’000 Shs’000 At end of year 194,756 4,326,186 Deferred income tax liabilities Property, plant and equipment: - on historical cost basis 2,264,889 (116,562) 2,148,327 - on revaluation surpluses 3,185,414 (79,380) 3,106,034 5,450,303 (195,942) 5,254,361
Deferred income tax assets Unrealised foreign exchange (losses)/gains (783,388) 1,754,208 970,820 Provisions (1,585,588) (313,407) (1,898,995)
(2,368,976) 1,440,801 (928,175)
Net deferred income tax liability 3,081,327 1,244,859 4,326,186
46 British American Tobacco Uganda 2012 British American Tobacco Uganda 2012 47 Financial Statements For the year ended 31 December 2012 Financial Statements For the year ended 31 December 2012 Notes (continued) Notes (continued)
15 Property, plant and equipment 15 Property, plant and equipment (continued) Buildings Capital Buildings Capital Plant and Vehicles and and freehold Plant and Vehicles and work in and freehold work in machinery equipment Total land machinery equipment progress Total land progress Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 At 1 January 2011 At 1 January 2012 Cost or valuation 23,845,234 36,686,270 2,792,365 2,114,139 65,438,008 Cost or valuation 23,867,438 37,017,286 2,423,755 10,088,229 73,396,708 Accumulated depreciation (6,384,371) (30,810,422) (2,376,390) - (39,571,183) Accumulated depreciation (6,932,591) (32,237,507) (2,151,684) - (41,321,782)
Net book amount 17,460,863 5,875,848 415,975 2,114,139 25,866,825 Net book amount 16,934,847 4,779,779 272,071 10,088,229 32,074,926
Year ended Year ended 31 December 2011 31 December 2012 Opening net book amount 17,460,863 5,875,848 415,975 2,114,139 25,866,825 Opening net book amount 16,934,847 4,779,779 272,071 10,088,229 32,074,926 Additions - 33,530 - 8,510,615 8,544,145 Additions 1,404,322 1,687,299 - 12,688,987 15,780,608 Transfers from work Transfers from work 22,204 297,486 216,835 (536,525) - 3,445,477 1,637,548 10,352 (5,093,377) - in progress in progress Disposals: Reclassification 887,494 - - - 887,494 Cost - - (585,445) - (585,445) Disposals: Accumulated depreciation - - 585,445 - 585,445 Cost - (4,785,055) (1,158,617) - (5,943,672) Depreciation charge Accumulated depreciation - 4,755,050 1,158,006 - 5,913,056 (548,220) (1,427,085) (360,739) - (2,336,044) for the year Depreciation charge (588,799) (1,420,228) (164,191) - (2,173,218) for the year Closing net book 16,934,847 4,779,779 272,071 10,088,229 32,074,926 amount Closing net book 22,083,341 6,654,393 117,621 17,683,839 46,539,194 amount At 31 December 2011 Cost or valuation 23,867,438 37,017,286 2,423,755 10,088,229 73,396,708 At 31 December 2012 Accumulated depreciation (6,932,591) (32,237,507) (2,151,684) - (41,321,782) Cost or valuation 29,604,731 35,557,078 1,275,490 17,683,839 84,121,138 Accumulated depreciation (7,521,390) (28,902,685) (1,157,869) - (37,581,944) Net book amount 16,934,847 4,779,779 272,071 10,088,229 32,074,926 Net book amount 22,083,341 6,654,393 117,621 17,683,839 46,539,194
48 British American Tobacco Uganda 2012 British American Tobacco Uganda 2012 49 Financial Statements For the year ended 31 December 2012 Financial Statements For the year ended 31 December 2012 Notes (continued) Notes (continued)
15 Property, plant and equipment (continued) 18 Inventories (continued) 2012 2011 Shs’000 Shs’000 Buildings and freehold land were last revalued in May 2010 by independent valuers, Knight Frank Uganda Limited. Valuations were made on the basis of the open market value. Open market values were determined Cost of inventories recognised as an expense 87,223,688 90,630,368 directly by reference to observable prices in the open market and recent market transactions at arm’s length terms. Including: – write-down of inventories to net realisable value 6,924,759 11,758,275 The book values of the properties were adjusted to the revaluations and the resultant surplus net of deferred – reversals of impairments in inventories 12,387,744 - income tax was credited to the revaluation surplus in shareholders’ equity.
The Company’s major properties comprise its head office located at Plot 69/71 Jinja Road, Kampala. 19 Trade and other receivables
If the buildings and freehold land were stated on the historical cost basis, the amounts would be as follows: Trade receivables 2,932,574 5,011,636 Less: Provision for impairment losses (2,539,846) (4,610,751) 2012 2011 Shs’000 Shs’000 Trade receivables – net 392,728 400,885 Cost 15,047,242 13,236,257 Receivables from related companies (note 26) 11,990,267 7,265,407 Accumulated depreciation (2,764,979) (2,925,043) Prepayments and other receivables 9,385,685 16,827,328
Net book amount 12,282,263 10,311,214 21,768,680 24,493,620
16 Prepaid operating lease rentals Movements in the provision for impairment of trade receivables are as follows: Cost: At start of the year 284,572 284,572 At start of year 4,610,751 2,622,565 Accumulated amortisation (87,843) (77,763) Provision in the year - 1,988,186 Amortisation charge for the year (9,411) (10,080) Unused amounts reversed (2,070,905) - Retirements: At end of year 2,539,846 4,610,751 Cost (195,888) -
Amortisation on retirements 79,276 - 20 Cash and cash equivalents For the purposes of the statement of cash flows, cash and cash equivalents 70,706 196,729 comprise the following: 17 Non current assets held for sale Bank and cash balances 9,600,983 7,255,691 In December 2010, management decided to dispose of the Company’s land and buildings in Jinja. The disposal met the criteria for reclassification under IFRS 5 as held for sale and was therefore classified as held for sale and Bank overdraft (note 22) (9,304,322) (19,587,730) recorded at its fair value of Shs 3,464 million. 296,661 (12,332,039) The disposal of the Company’s land and buildings in Jinja was concluded during 2012 and assets have been derecognised from the financial statements. 21 Trade and other payables
18 Inventories 2012 2011 Trade payables 11,282,219 3,718,902 Shs’000 Shs’000 Amounts due to related companies (note 26) 69,728,495 57,715,375 Leaf stocks 114,666,426 104,622,709 Other payables and accrued expenses 37,271,664 31,397,310 Finished goods 6,138,500 7,993,349 118,282,378 92,831,587 Consumables 9,322,681 4,401,766
130,127,607 117,017,824
50 British American Tobacco Uganda 2012 British American Tobacco Uganda 2012 51 Financial Statements For the year ended 31 December 2012 Financial Statements For the year ended 31 December 2012 Notes (continued) Notes (continued)
22 Borrowings 2012 2011 26 Related party transactions Shs’000 Shs’000 The Company is controlled by British American Tobacco Limited, incorporated in the United Kingdom. Bank overdrafts (note 20) 9,304,322 19,587,730 The following transactions were carried out with related parties with which the Company shares common Bank borrowings 58,392,420 42,165,000 ownership: 67,696,742 61,752,730 i) Sale of goods and services 2012 2011 Shs’000 Shs’000 Average interest rate for bank borrowing was 5% (2011: 12%), whereas the average interest rate on the Company’s overdraft facilities was 9% (2011: 12.5%). BAT GLP 102,782,457 94,123,177 The carrying amount of the bank borrowings and overdraft approximates to the fair value, as the impact of BAT Kenya 2,052,421 - discounting is not significant. 104,834,878 94,123,177 The Company’s bank borrowings are repayable within 2 months from year-end and attract interest at rates of between 4.5 % and 6.2%. The security for these borrowing is in the form of promissory notes issued by the Company. ii) Purchase of goods and services
Bank overdrafts are unsecured. BAT Kenya Limited 29,724,669 30,178,214
The facilities are annual facilities subject to review on various dates of the year. The overdraft limit was not BAT Area Limited 5,929,081 5,813,646 exceeded at any time during the year. BASS (AME) - South Africa 702,566 723,356 BAT Investments - UK 6,543,376 6,883,689 23 Contingent liabilities The Company is a defendant in various legal actions. In the opinion of the Directors, after taking appropriate legal advice, the outcome of such actions will not give rise to a significant loss. 42,899,692 43,598,905
24 Capital commitments iii) Key management compensation There were no capital commitments at year end (2011: nil). Key management includes Directors (executive and non-executive) and members of senior management. The compensation paid or payable to key management for employee services is shown below: 25 Cash generated from operations Reconciliation of profit before income tax to cash generated from operations: 2012 2011 Shs’000 shs’000 2012 2011 Shs’000 Shs’000 Salaries and other short-term employment benefits 4,551,354 3,763,959 Profit before income tax 17,073,972 32,000,250 iv) Directors’ remuneration Adjustments for: Fees for services as a Director 27,806 21,307 Interest expense (note 7) 3,742,158 3,019,927 Depreciation (note 15) 2,173,218 2,336,044 Other emoluments (included in key management compensation above) 1,959,368 1,553,010 Foreign exchange losses - 86,733 1,987,174 1,574,317 Amortisation of prepaid operating lease rentals 9,411 10,080 Gain on disposal of property, plant and equipment (note 6) (2,745,388) (275,138) Changes in working capital - trade and other receivables 2,724,940 (14,835,837) - inventories (13,109,783) (18,856,460) - trade and other payables 25,450,791 11,374,945
Cash generated from operations 35,319,319 14,860,544
52 British American Tobacco Uganda 2012 British American Tobacco Uganda 2012 53 Financial Statements For the year ended 31 December 2012 Proxy Form Notes (continued) Appointment of Proxy To:
26 Related party transactions (continued) The Company Secretary British American Tobacco Uganda Limited The following transactions were carried out with related parties with which the Company shares Plot 69/71 Jinja Road common ownership: P.O. Box 7100 Kampala, Uganda v) Outstanding balances arising from sale and purchase of goods/services
I/WE______2012 2011 Shs’000 shs’000 of P. O. Box______being a member/members of British American Tobacco
Due from related parties Uganda Limited, hereby appoint______of P. O. Box______BAT GLP 10,083,759 8,946,418 or failing him/her,______of P. O. Box______BAT Investments Limited 78,893 231,334 as my/our proxy to vote for me/us on my/our behalf at the Annual General Meeting of the Company to be held on the 24th day of BATUKE - 63,550 BAT Kenya Limited 1,433,750 105,775 May 2013 and at any adjournment thereof. Big Ben Tobacco Auzi 348,919 (2,081,670) BAT Area Limited 6,280 - Dated this______day of______2013 BAT Sweden 17,839 -
BAT Holdings 20,827 - Shareholder’s Signature______Share Certificate/SCD Account No:______11,990,267 7,265,407
Due to related parties Notes: BAT GLP 65,608,867 55,651,851 1. If a member is not able to attend this meeting personally this proxy form should be completed and returned to the Company Millbrook - 2,777,204 Secretary, British American Tobacco Uganda to reach the Registered Office of the Company not later than 48 hrs before 24th BAT Kenya Limited 1,530,079 (630,241) May 2013 and in default the instrument of proxy shall be invalid.
BASS (GSD) Limited 552,903 (428,493) 2. In case of a corporation, the proxy must be under its common seal or under the hand of the officer or attorney duly authorised British American Tobacco Italia S.P - 1,617 in that behalf.
BATUKE AME - 343,437 3. In case of joint shareholders, each joint shareholder must sign. BAT South Africa 78,493 - 4. A person appointed to act as a Proxy need not be a member of the Company. BAT Holdings 298,909 - BAT Area Limited 1,501,782 - BASS AME 157,462 - TEAR OFF THE ADMISSION FORM BELOW AND RETAIN FOR PRESENTATION AT THE MEETING 69,728,495 57,715,375 BRITISH AMERICAN TOBACCO UGANDA LIMITED The amounts due from related parties are neither secured nor impaired and are due for settlement within 12 Annual General Meeting 24th May 2013, Sheraton Kampala Hotel, Rwenzori Ballroom months from the year end. ADMISSION FORM The amounts due to related parties are not secured against any of the Company’s assets, are interest free and are repayable within 12 months from the year end. 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______
Name of Shareholder______
Share Certificate/SCD No.______No. of Shares______
54 British American Tobacco Uganda 2012 British American Tobacco Uganda 2012 55 BritishFinancial American Statement Tobaccos For the Uganda year endedLimited 31 FinancialDecember Statements 2012 For the year ended 31 December 2012
56 British American Tobacco UgandaUganda 2012 British American Tobacco Uganda 2012 2012 2012 Financial Statements For the year ended 31 December 2012
Head Office Plot 69/71 Jinja Road P.O. Box 7100 Kampala, Uganda Tel: +256 312 200 100 Email: [email protected] www.bat.com 58 British American Tobacco Uganda 2012